MAYS

Business Context and Reporting Period

Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 30, 2010 (Nine months ended April 30, 2010)
Business Overview: The Company operates as a real estate enterprise, deriving revenue primarily from rental income. The reporting period includes significant activity related to the termination of a lease at the Jowein building in Brooklyn, New York, and a subsequent property exchange settlement.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Income Decline: Net income decreased by approximately 30% year-over-year, primarily driven by a net loss from discontinued operations in the current period compared to a profit in the prior period.
• Discontinued Operations: The Company reported a loss of $37,260 for the nine months ended April 30, 2010, compared to income of $66,006 in the prior year. This was due to a $1,000,000 settlement payment and $141,861 in transfer taxes related to the Jowein building lease termination.
• Revenue Composition: While total revenues increased slightly, the increase was largely due to a $129,172 real estate tax recovery in the current quarter. Rental income from continuing operations grew modestly due to new leasing activity at the Bond Street property, offset by a tenant vacancy at the Jowein building.
• Liquidity Improvement: Cash and cash equivalents increased significantly from $653,719 at the beginning of the period to $2,914,886 at April 30, 2010, driven by strong operating cash flows and a reduction in debt principal.
• Expense Increases: Administrative and general expenses rose to $2,798,537 (from $2,686,213) due to higher legal and professional costs. Real estate operating expenses also increased slightly.

Guidance, Outlook, and Risks

• Property Settlement: The Company settled litigation regarding the Jowein building by paying $1,000,000 and transferring title to 484 Fulton Street (appraised at $4.49M) in exchange for title to 14 Hanover Place (appraised at $0.9M). The Company surrendered possession of the Jowein premises on May 1, 2010.
• Tenant Bankruptcy Risk: A tenant at the Bond Street building filed for Chapter 11 protection in August 2009. This tenant represents approximately 1.66% of projected annual net rental income. If the lease is rejected, cash flows could be adversely affected by approximately $23,000 per month.
• New Leasing: The Company entered into a 49-year lease for 20,000 square feet at 25 Elm Place to replace space lost at the Jowein building. Additionally, a drive-in restaurant lease at the Massapequa premises is expected to commence in late 2010, offsetting previous vacancy losses.
• Debt Structure: The Company holds $10.56 million in fixed-rate debt and $80,000 in variable-rate debt. A 100 basis point increase in interest rates would impact net income by approximately $800.
• Internal Controls: Management noted that due to a small accounting department (four persons), complete segregation of duties is not possible, requiring reliance on compensating controls.

Investor Verification Checklist

• Settlement Valuation: Verify the appraised values of the properties exchanged (484 Fulton St. vs. 14 Hanover Place) and the impact of the $1.14M total settlement cost on long-term asset value.
• Tenant Concentration: Review the status of the Chapter 11 tenant at Bond Street and the likelihood of lease rejection.
• Lease Renewals: Confirm the execution and terms of the new 49-year lease at 25 Elm Place and the drive-in restaurant lease at Massapequa.
• Debt Covenants: Assess compliance with loan covenants, particularly regarding the $12M multiple draw term loan and the related party note.
• Internal Controls: Evaluate the effectiveness of compensating controls given the limited segregation of duties in the accounting department.