MAYS

Business Context and Reporting Period

Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: January 31, 2005 (Six months ended January 31, 2005)
Business Overview: The Company operates as a real estate enterprise following the discontinuance of its retail department store segment in 1989. It owns and manages commercial properties in New York, including Jamaica, Brooklyn, and Fishkill.

Key Financial Metrics

Margins: Operating income for the six months ended January 31, 2005, was $523,491 (approx. 8.3% of revenue), compared to $889,219 (approx. 13.2% of revenue) in the prior year period.

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased by approximately $432,000 (6.4%) compared to the prior six-month period. This was primarily due to the vacating of the Jowein building by the New York City Department of Finance in June 2004 and the Levittown, New York premises in September 2004. These losses were partially offset by new leases at the Nine Bond Street and Jowein buildings.
• Profitability Drop: Net income decreased by $278,360 (64.9%) to $150,799. The decline was driven by lower rental income and a significant increase in interest expense.
• Increased Leverage: Total long-term debt increased by approximately $3.84 million to $12.31 million. This includes a $12 million multiple draw term loan secured in August 2004 for capital improvements and refinancing, and a $1 million note payable from a director.
• Expense Trends: Real estate operating expenses decreased by $233,160 due to lower rental and maintenance costs. However, administrative expenses increased by $93,223, and depreciation increased by $73,387 due to new property improvements.

Outlook, Risks, and Management Commentary

• Liquidity: Management considers current working capital and borrowing capabilities adequate to cover planned operating and capital requirements. Cash and cash equivalents increased to $662,024.
• Leasing Activity: The Company is actively seeking tenants for the vacated Levittown space (annual loss approx. $350,000). New leases were signed for 28,801 sq. ft. at the Jowein building (rent commencing June 2005) and 4,320 sq. ft. at the 9 Bond Street building (rent commencing April 2005).
• Capital Projects: Significant capital expenditures ($3.45 million) were incurred for purchasing partial interests in Brooklyn properties and renovating office space. A $1.55 million renovation project at the Jowein building is anticipated to be completed in April 2005.
• Interest Rate Risk: The Company holds variable-rate debt of $5.31 million. A 100 basis point increase in interest rates would decrease net income by approximately $46,547 for specific loans and $6,559 for the securities broker loan.
• Contingencies: Various lawsuits and claims are pending, but management believes the resolution will not have a material adverse effect.
• Internal Controls: Management concluded disclosure controls are effective. However, the accounting department consists of only four persons, preventing complete segregation of duties, requiring reliance on compensating controls.

Investor Verification Checklist

• Tenant Vacancy Impact: Verify the timeline for re-leasing the Levittown property and the Jowein building space previously occupied by the City of New York to assess revenue recovery.
• Debt Service Coverage: Review the terms of the new $12 million term loan and the $1 million director note to ensure cash flow can support the increased interest expense and future principal amortization.
• Capital Expenditure ROI: Confirm the completion and occupancy of the $1.55 million Jowein building renovation to ensure projected rental income materializes.
• Related Party Transactions: Scrutinize the $1 million loan from a director and the purchase of property interests from related parties for fair value and terms.
• Interest Rate Sensitivity: Monitor floating interest rates (LIBOR + spread) on the $5.31 million variable debt portion to gauge future earnings volatility.