MAYS

Business Context and Reporting Period

Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: January 31, 2003
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, primarily in New York and Ohio.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased by approximately 9.4% for the six months ended January 31, 2003, compared to the prior year. This was driven by rental income increases, partially offset by the termination of an affiliated company lease in August 2002.
• Net Income Decline: Net income for the six-month period decreased by 9% ($65,393) compared to the prior year, primarily due to higher operating expenses and a reduction in bad debt recoveries relative to the prior year's specific adjustments.
• Expense Increases: Real estate operating expenses rose by 12.6% and administrative expenses by 17% year-over-year, attributed to increases in payroll, real estate taxes, insurance, and legal costs.
• Bad Debt Recovery: A significant non-recurring item of $163,009 was recorded as a bad debt recovery in the current period. This represents the collection of a receivable from a retail tenant at the Jamaica, NY property that had been written off in the prior fiscal year after the tenant filed for Chapter 11 bankruptcy.
• Interest Expense: Interest expense decreased due to a reduction in the interest rate on a mortgage for the Jamaica property and scheduled debt repayments.

Outlook, Risks, and Management Commentary

• Tenant Vacancies and Leases:
  • Circleville, Ohio: A lease for the entire property terminated in September 2002 but was extended for three years. The tenant has an option to surrender up to 73,350 square feet of space by May 31, 2003.
  • Jamaica, NY: A retail tenant vacated the premises in March 2003 after paying arrears. The Company is actively seeking new tenants for this space, which previously generated approximately $1,000,000 in annual revenue.
  • Jowein Building, Brooklyn: The City of New York, a major tenant, exercised an option to terminate its lease effective May 31, 2004. This is expected to result in an approximate annual revenue loss of $2,350,000 starting June 1, 2004. The Company is seeking replacement tenants for this space and an additional 95,000 square feet.
• Legal Contingencies: The Company obtained a judgment against the State of New York regarding a condemnation of the Fishkill property. The award was reduced on appeal to $81,677. The Company is seeking leave to appeal directly to the New York State Court of Appeals.
• Liquidity: Management considers current working capital and borrowing capabilities adequate to cover planned operating and capital requirements. Capital expenditures of approximately $1.2 million were incurred in the six-month period for building renovations.

Investor Verification Checklist

• Lease Renewal Risk: Verify the status of the City of New York's lease termination at the Jowein Building and the Company's progress in leasing the vacated 95,000+ square feet to mitigate the projected $2.35 million annual revenue loss.
• Tenant Concentration: Review the concentration risk where two tenants accounted for over 32% of rental income in the first half of the fiscal year.
• Bad Debt Recurrence: Assess the likelihood of future bad debt write-offs given the history of tenant bankruptcies (e.g., the Jamaica retail tenant) and the current economic environment.
• Legal Outcome: Monitor the outcome of the appeal regarding the condemnation award for the Fishkill property, as the current award ($81,677) is significantly lower than the original judgment.
• Capital Expenditures: Confirm the completion and ROI of the $1.2 million in capital expenditures for building renovations in Brooklyn and Jamaica.