Business Context and Reporting Period
Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 31, 2007
Business Overview: The Company operates as a real estate enterprise, deriving revenue primarily from rental income across properties in Brooklyn, Jamaica, and Levittown, New York. The Company discontinued its retail department store segment in 1989.
Key Financial Metrics
| Metric | Three Months Ended Oct 31, 2007 | Three Months Ended Oct 31, 2006 |
|---|---|---|
| Total Revenues | $3,477,207 | $3,316,698 |
| Net (Loss) | $(36,138) | $(177,896) |
| (Loss) Per Share | $(0.02) | $(0.09) |
| Operating Cash Flow | $(367,073) | $(7,815) |
| Cash and Equivalents (End of Period) | $4,080,629 | $1,986,414 |
| Total Debt (Long-Term + Current) | $14,340,956 | $14,496,674 |
| Interest Expense | $239,813 | $257,131 |
Note: Total Debt calculated as Long-Term Debt ($13,422,200) plus Current portion of mortgages ($918,756).
Material Changes vs. Prior Period
- Profitability Improvement: Net loss narrowed significantly from $(177,896) in the prior year to $(36,138) in the current quarter. This improvement was driven by increased investment income ($64,445 vs. $23,500) and a reduction in the excess of interest expense over investment income.
- Revenue Growth: Total revenues increased by approximately 4.8% to $3.48 million. This was due to leasing to five additional tenants, partially offset by a tenant vacating a Brooklyn property in July 2007.
- Expense Increases: Real estate operating expenses rose slightly to $2.15 million due to higher rental expenses (based on a significant estimate for the Jamaica property), utilities, and lease commissions. Administrative expenses increased to $780,356 primarily due to payroll and insurance costs.
- Cash Flow: Operating cash flow turned negative at $(367,073), compared to a minimal outflow of $(7,815) in the prior year. This was largely due to a significant payment of income taxes payable ($1.46 million) and changes in accrued liabilities.
Outlook, Risks, and Contingencies
- Tenant Vacancy and Leasing: A tenant occupying 22,192 square feet in Brooklyn vacated in July 2007, resulting in an estimated annual rental income loss of $470,000. The Company is actively seeking new tenants. Conversely, a new restaurant lease in Levittown is expected to open in fiscal 2008, offsetting previous losses.
- Capital Projects: The Company is undertaking renovations at the Jamaica property (estimated total cost $600,000) and constructing two new elevators at the Bond Street building (estimated total cost $1.1 million, partially financed).
- Legal Contingency: The Company is involved in litigation with landlords regarding the Jowein building in Brooklyn. A preliminary injunction was granted in May 2007 preventing eviction, but the outcome remains uncertain, and significant costs to cure defaults may be required.
- Subsequent Event: On November 8, 2007, a major tenant (Levitz Home Furnishings), accounting for 5.60% of annual rental income, filed for Chapter 11 bankruptcy. The impact on operations is currently undetermined.
- Interest Rate Risk: The Company holds variable-rate debt of $6.25 million. A 100 basis point increase in interest rates would decrease net income by approximately $62,514.
Investor Verification Checklist
- Levitz Bankruptcy Impact: Verify the status of the Levitz Home Furnishings lease and potential rent loss following their Chapter 11 filing.
- Jamaica Property Rent Estimate: Confirm the final resolution of the significant estimate regarding rent expense for the Jamaica property, which may be subject to arbitration.
- Jowein Building Litigation: Monitor the outcome of the lawsuit regarding the termination notice and potential costs to cure defaults.
- Debt Maturities: Review the schedule for the $12 million multiple draw term loan and other mortgages, noting the option to convert variable rates to fixed rates.
- Working Capital: Assess the sustainability of cash reserves given the negative operating cash flow and ongoing capital expenditures.