J.W. Mays, Inc. — Fiscal 2016 Form 10-K Summary
Business context and reporting period
J.W. Mays, Inc. is a smaller reporting company operating commercial real estate properties in New York and Ohio. The Form 10-K covers the fiscal year ended July 31, 2016, and was filed October 6, 2016. The Company had approximately 30 employees and operated or owned interests in eight commercial properties totaling approximately 1.46 million square feet.
The portfolio includes retail, office, restaurant, warehouse, distribution and bank tenants. Properties are generally subject to long-term leases, some extending through 2073. The Company’s common stock trades on The NASDAQ Stock Market under the symbol “MAYS”; 2,015,780 shares were outstanding as of September 2, 2016.
Financial metrics and liquidity
| Metric | Fiscal 2016 information |
|---|---|
| Revenue | The filing text does not provide a clear consolidated revenue value; the relevant income statement and MD&A were incorporated by reference from the 2016 Annual Report to Shareholders. |
| Net income and earnings per share | The filing text does not provide clear values. |
| Operating cash flow and capital expenditures | The filing text does not provide clear consolidated cash-flow values. Real estate improvements totaled $2.5 million during fiscal 2016. |
| Debt | Fixed-rate debt was $6.8 million at July 31, 2016, including a $5.8 million mortgage encumbering the Brooklyn Fulton Street property. |
| Interest-rate risk | The Company reported no material exposure to changing interest rates from its fixed-rate debt and did not use derivative instruments. |
| Real estate | Gross real estate investment was $86.9 million, with accumulated depreciation of $38.0 million at July 31, 2016. |
| Dividends and repurchases | No dividends were declared and no shares were repurchased during fiscal 2016. |
Property-level annual rent reported in the filing totaled approximately $15.9 million for the Brooklyn Fulton Street, Jowein, Jamaica and Circleville properties, excluding properties for which comparable annual rent totals were not clearly presented. Portfolio occupancy varied materially, including 47.39% at Fishkill, 85.01% at Massapequa and 96.72% at Circleville.
Material changes versus the prior comparable period
- Circleville occupancy increased from 91.54% at July 31, 2015 to 96.72% at July 31, 2016. A tenant subsequently expanded its leased area to 84,000 square feet in August 2016.
- At the Brooklyn Fulton Street property, occupancy was 76.44%, compared with 77.08% in the prior year. A retail tenant occupying 7,401 square feet vacated in December 2015 after a non-payment-of-rent dispute, resulting in approximately $450,000 of annual lost rent.
- Massapequa occupancy remained 85.01%; a fast-food tenant had vacated in June 2014, producing approximately $200,000 of annual lost rent. The Company continued seeking a replacement tenant.
- Jamaica occupancy was 80.16%. Approximately 23,000 square feet remained available for lease, although a previously terminated 2,000-square-foot office space was re-leased to an existing tenant in July 2016 at an increased rental.
- The Company extended several leases, including substantial Brooklyn leases extending to January 2036 and a 13,460-square-foot office lease extending to June 2023.
- Investment in real estate increased from $84.5 million to $86.9 million, principally from $2.5 million of improvements and no reported retirements.
- A $279,213 charge to real estate operating expenses was recorded for the portion of a $376,467 Fishkill roof-work deposit that management believed might not be recoverable.
Outlook, commentary, risks and unusual items
- Management intends to renew expiring leases where tenants maintain adequate financial condition and to renovate vacant space when future leases are obtained, but provides no assurance regarding timing or completion.
- The Jowein property had a planned 17,425-square-foot lease expected to commence occupancy in November 2016 and rent in February 2017. Estimated brokerage commissions were approximately $500,000 and construction costs approximately $2.0 million.
- At July 31, 2016, the Company had $3.5 million of deferred revenue related to a lease amendment requiring temporary vacation of premises. The amount was being amortized over an expected 36-month vacate period; the full consideration had been received.
- Risks include economic downturns, tenant financial weakness, vacancies, rising fit-out costs, limited financing availability, interest-rate and investment-market volatility, insurance availability, regulation, environmental liabilities, climate change, terrorism, cybersecurity and loss of key personnel.
- The controlling shareholder group may vote in ways that do not align with unaffiliated shareholders. The largest shareholder has business dealings with the Company, and the entities share certain management personnel, creating potential conflicts of interest.
- Various lawsuits and claims were pending, but management expected they would not have a material adverse effect. The Company was pursuing a contractor regarding the Fishkill roof deposit; the outcome was uncertain.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of July 31, 2016, with no reported material weaknesses. The independent auditor’s internal-control attestation was not required because the Company was a smaller reporting company.
Most important facts for an investor to verify
- Obtain the incorporated 2016 Annual Report to Shareholders to verify consolidated revenue, net income, margins, cash flow, cash balances, current liabilities and earnings per share.
- Review the maturity, interest rate and covenant terms of the $6.8 million fixed-rate debt and assess liquidity available for property improvements and lease-up costs.
- Evaluate vacancy and tenant-concentration risk, particularly at Fishkill, Jamaica, Massapequa and Brooklyn Fulton Street.
- Assess the financial impact and recoverability of the $279,213 Fishkill charge and the pending contractor litigation.
- Review related-party transactions, ownership concentration and governance protections involving the controlling shareholder group.
- Confirm lease commencement, construction spending and cancellation terms for the planned Jowein tenant and monitor upcoming lease expirations.
- Verify whether the deferred $3.5 million lease-related consideration and its amortization materially affected fiscal 2016 and future rental income.