MAYS

Business Context and Reporting Period

Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 30, 2006 (Nine months ended April 30, 2006)
Business Overview: The Company operates as a real estate enterprise, having discontinued its retail department store segment in 1989. It owns and manages commercial properties in New York (Brooklyn, Jamaica, Fishkill) and Ohio (Circleville).

Key Financial Metrics

Note: Total Debt includes mortgages, term loans, related party notes, and current portions of debt.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased by approximately 7.9% ($748,269) compared to the prior nine-month period. This was driven by new leases at the Jowein building (Brooklyn) and Jamaica property, as well as a one-time recovery of real estate taxes ($195,605). This increase was partially offset by a tenant vacating the Levittown, NY premises.
• Net Income Decline: Despite higher revenues, Net Income decreased by 15.5% ($30,031). This was primarily due to increased operating expenses (real estate taxes, payroll, maintenance) and a significant rise in interest expense ($698,792 vs. $509,678) resulting from additional bank loans and a related-party note.
• Expense Increases: Real estate operating expenses rose to $5.89 million from $5.54 million. Administrative and general expenses increased to $2.32 million from $2.12 million, partly due to bad debt expense from a tenant vacating the Jamaica building.
• Debt Reduction: Total debt decreased by approximately $1.65 million due to scheduled repayments, despite new borrowings for tenant improvements.

Outlook, Risks, and Management Commentary

• Leasing Challenges: The Company faces significant vacancy risks. A major tenant at the Jamaica property vacated in February 2006, resulting in an estimated annual rental income loss of $600,000. Another Jamaica tenant intends to vacate in June 2006, representing a further $300,000 annual loss. Additionally, the Fishkill tenant vacated in November 2005 ($180,000 annual loss).
• Bankruptcy Impact: A tenant at the Jowein building filed for Chapter 11 protection. The Company agreed to a 12% rent reduction for the first year and a 10% reduction for the second year, plus a waiver of pre-petition arrears ($49,427). This tenant accounts for approximately 6% of projected annual income.
• Liquidity: Management considers current working capital and borrowing capabilities adequate. Cash and cash equivalents were $906,486 at period end. The Company continues to draw on a multiple-draw term loan to finance tenant improvements.
• Interest Rate Risk: The Company holds variable-rate debt of $5,694,726. A 100 basis point increase in interest rates would decrease net income by approximately $56,947 for specific loans and $5,416 for the securities broker loan.
• Internal Controls: Management noted that the Accounting Department consists of only four persons, making complete segregation of duties impossible. Compensating controls are being monitored to mitigate this risk.

Investor Verification Checklist

• Vacancy Mitigation: Verify the status of leasing efforts for the vacated Jamaica (47,100 sq ft and additional space) and Fishkill properties to assess the timeline for recovering the $1.08 million in annualized lost revenue.
• Bankruptcy Lease Assumption: Confirm the final approval of the lease assignment to PLVTZ, LLC and the Pride Capital Group for the Jowein building tenant to ensure the reduced rent terms are finalized.
• Debt Maturities: Review the maturity schedule for the Jamaica property loan (due August 1, 2006) and the extension option status to ensure refinancing or extension is secured.
• Related Party Transactions: Review the terms of the $1,000,000 note payable to a director and the $1,350,000 loan from an affiliated corporation to ensure terms are consistent with market rates.
• Capital Expenditures: Monitor the completion and cost overruns of the $1.075 million renovation project at the 9 Bond Street building, scheduled for completion in June 2006.