Business Context and Reporting Period
Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: January 31, 2010 (Six months ended January 31, 2010)
Business Overview: The Company operates as a real estate enterprise, deriving revenue primarily from rental income across properties in New York (Brooklyn, Jamaica, Fishkill) and Massapequa. The Company ceased its retail department store operations in 1989.
Key Financial Metrics
| Metric | Six Months Ended Jan 31, 2010 | Six Months Ended Jan 31, 2009 |
|---|---|---|
| Total Revenues | $8,398,118 | $8,419,741 |
| Net Income | $417,103 | $320,934 |
| Earnings Per Share (EPS) | $0.21 | $0.16 |
| Operating Cash Flow | $1,518,677 | $1,130,473 |
| Cash and Equivalents (Ending) | $2,115,813 | $1,229,063 |
| Total Assets | $55,644,000 | $55,707,370 |
| Total Liabilities | $14,885,995 | $15,421,405 |
| Long-Term Debt | $10,058,061 | $10,368,681 |
Profitability: Operating income for the six months ended January 31, 2010, was $935,138. The effective tax rate resulted in income taxes provided of $215,000.
Material Changes vs. Prior Period
- Revenue: Total revenues decreased slightly by $21,623 (0.3%) compared to the prior year. This was primarily due to a significantly lower recovery of real estate taxes ($114,251 in 2010 vs. $536,827 in 2009) and a tenant vacating the Jowein building. These decreases were partially offset by leasing to an additional tenant at the 9 Bond Street property.
- Net Income: Net income increased by $96,169 (30%) despite lower revenues. This improvement was driven by a reduction in the excess of interest expense over investment income, largely due to a $99,976 impairment charge on Lehman Brothers Holdings Inc. preferred stock recorded in the prior year period which did not recur.
- Expenses: Real estate operating expenses increased by $164,121 due to higher rental expenses and real estate taxes. Administrative and general expenses decreased by $84,609 due to lower legal and professional fees.
- Liquidity: Cash and cash equivalents increased by $886,754, driven by strong operating cash flows ($1.52M) and net financing activities ($304k), partially offset by investing outflows ($361k) for capital expenditures and securities purchases.
Outlook, Risks, and Contingencies
- Lease Expiration and Litigation: The Company is involved in litigation regarding its tenancy at the Jowein building in Brooklyn, NY, with a lease expiring April 30, 2010. Management estimates potential costs to separate the building and return the premises between $1,600,000 and $1,800,000 if the lease is not renewed. A preliminary injunction currently prevents eviction.
- Tenant Vacancy: A tenant occupying 26,110 sq. ft. at the Jowein building vacated in October 2009, resulting in an estimated annual rental income loss of $400,000. The Company is actively seeking new tenants.
- Tenant Bankruptcy: A tenant at the Bond Street building filed for Chapter 11 protection in August 2009. This tenant represents 1.66% of projected annual income. If the lease is rejected, cash flows could be adversely affected by approximately $23,000 per month.
- New Leasing: A new lease was signed in September 2009 with a drive-in restaurant at the Massapequa premises, expected to commence rent in late 2010, which is anticipated to offset previous rental losses at that location.
- Debt Maturities: Significant debt maturities include a term loan due May 1, 2010 ($133,726 current portion) and a variable rate loan due August 1, 2010 ($140,000 current portion).
Investor Verification Checklist
- Jowein Building Litigation Outcome: Verify the status of the lawsuit regarding the lease termination and the potential $1.6M-$1.8M restoration cost liability.
- Re-leasing Progress: Confirm the status of leasing the 26,110 sq. ft. vacant space at the Jowein building to mitigate the $400,000 annual revenue loss.
- Chapter 11 Tenant Impact: Monitor the Chapter 11 proceedings of the Bond Street tenant to assess the risk of a $23,000/month cash flow reduction.
- Debt Refinancing: Assess the Company's ability to refinance or repay the term loans maturing in May and August 2010.
- Real Estate Tax Refunds: Note that the 2009 period included a non-recurring $536k tax recovery; future periods should not be expected to include similar one-time gains.