J.W. Mays, Inc. — Fiscal 2014 Second-Quarter Form 10-Q
Reporting period: Three and six months ended January 31, 2014. J.W. Mays, Inc. is primarily a real estate company deriving revenue from rental properties. The interim financial statements are unaudited and are not necessarily indicative of full-year results.
Financial Highlights
| Metric | Three Months Ended Jan. 31, 2014 | Three Months Ended Jan. 31, 2013 | Six Months Ended Jan. 31, 2014 | Six Months Ended Jan. 31, 2013 |
|---|---|---|---|---|
| Rental income | $4.140 million | $4.105 million | $8.358 million | $8.300 million |
| Income from operations | $25,129 | $(18,593) | $751,274 | $929,719 |
| Net income (loss) | $(57,050) | $(10,968) | $378,974 | $489,806 |
| Earnings per share | $(0.03) | $(0.01) | $0.19 | $0.24 |
| Operating margin | 0.6% | (0.5%) | 9.0% | 11.2% |
| Net margin | (1.4%) | (0.3%) | 4.5% | 5.9% |
- Cash flow: Six-month operating cash flow was $1.796 million, compared with $1.898 million in the prior-year period. Investing cash flow used $598,000, including $1.555 million of capital expenditures. Financing cash flow used $210,000, primarily for debt and security-deposit payments.
- Liquidity: Cash and cash equivalents were $1.653 million at January 31, 2014, versus $665,000 at July 31, 2013. Total current assets were $4.336 million and current liabilities were $2.879 million.
- Debt: Mortgages totaled $5.510 million, including the current portion, and the related-party note payable was $1.000 million. The mortgages bear a 6.98% fixed interest rate, with $5.318 million scheduled to mature on February 18, 2015. Management intends to extend the loan. The filing reports fixed-rate debt of $6.510 million and no derivative instruments.
- Balance sheet: Total assets were $57.670 million and shareholders’ equity was $43.712 million at January 31, 2014. Property and equipment, net, was $46.342 million.
- No dividends were declared or paid during either comparable period.
Material Changes Versus the Prior Comparable Period
- Six-month rental income increased $58,000, or approximately 0.7%, primarily because of a $181,257 litigation settlement with a retail tenant at the Nine Bond Street property. This benefit was partly offset by tenant vacancies at the Jamaica property.
- Real estate operating expenses increased $200,000, or approximately 4.5%, due mainly to higher real estate taxes, payroll and maintenance costs.
- Administrative and general expenses increased $309,000, or approximately 17.2%, primarily because of higher legal and professional costs and, in the quarter, higher payroll and medical costs.
- Depreciation and amortization increased to $843,000 from $804,000 for the six-month period, reflecting property improvements.
- The six-month period benefited from a $182,846 gain on the sale of marketable securities, compared with a $517 loss in the prior-year period. Investment income exceeded interest expense by $8,700, compared with interest expense exceeding investment income by $166,913 in the prior-year period.
- Six-month net income declined $111,000, or approximately 22.6%, despite slightly higher rental income, because of increased operating and administrative expenses. The prior-year period included a $316,021 loss on disposition of property and equipment, compared with $4,291 in the current period.
- Marketable securities declined to $1.270 million from $2.460 million at July 31, 2013, primarily reflecting sales or maturities and the absence of the prior-year current certificate of deposit.
Outlook, Risks, Contingencies and Unusual Items
- Management stated that working capital and borrowing capabilities are adequate for planned operating and capital requirements; the filing provides no formal earnings or revenue guidance.
- New or renewed leases include 99,992 square feet at the Fishkill property, 10,000 square feet at Nine Bond Street, and renewed leases at the Jowein, Jamaica and Circleville properties. Several leases were expected to begin generating rent in spring 2014.
- Two Jamaica tenants did not renew, representing stated annual rental losses of $240,000 and $300,000. The Company was negotiating replacement or renewal arrangements and expected replacement rents to exceed the prior rents.
- Capital commitments include an $870,000 Fishkill roof replacement and approximately $1.2 million of construction costs, including a new roof, for a retail tenant. The filing also describes substantial tenant-improvement and renovation expenditures funded through operating cash.
- The Company is pursuing a contractor for return of a $376,467 Fishkill roof-work deposit and damages; management cannot predict the outcome. Various other lawsuits and claims are not expected to have a material adverse effect.
- A potential obligation to create a condominium unit could arise if the Company sells, transfers, disposes of or demolishes the 25 Elm Place property; the cost cannot currently be determined.
- The Company participates in a multi-employer pension plan. A potential withdrawal liability exists if it withdraws, but the Company has no intention of doing so and the amount has not been determined.
- Material risks include tenant vacancies or lease cancellations, tenant credit quality, access to financing, loan-covenant compliance, litigation outcomes, construction-cost estimates, competition, economic conditions and changes in accounting estimates.
- Two tenants accounted for approximately 19.4% and 15.5% of six-month rental income, creating tenant-concentration exposure.
- Management concluded that disclosure controls were effective and reported no material changes in internal control over financial reporting.
Investor Verification Checklist
- Verify the planned extension or refinancing of the $5.318 million mortgage maturity on February 18, 2015.
- Assess whether replacement tenants at the Jamaica property and new Fishkill and Nine Bond Street leases commenced rent as expected.
- Reconcile the stated construction and roof commitments with available cash, operating cash flow and future capital needs.
- Review the valuation and realized gains or losses of the remaining $1.270 million marketable-securities portfolio.
- Monitor the $376,467 contractor-deposit litigation, the 25 Elm Place condominium contingency and the multi-employer pension-plan exposure.
- Confirm the timing of the filing’s statement that a Fishkill construction project was “completed in November 2014,” which is after the January 31, 2014 reporting date and may reflect a textual error.