MAYS

Business Context and Reporting Period

Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 30, 2005 (Nine months ended April 30, 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 (Bond Street and Jowein buildings), and Fishkill.

Key Financial Metrics

Note: Total Debt includes mortgages payable, notes payable to related parties, and security deposits payable. Working Capital is calculated as Total Current Assets minus Total Current Liabilities.

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased by approximately 7.3% for the nine-month period ($745,822 decrease). This was primarily due to the vacating of the New York City Department of Finance from the Jowein building (June 2004) and a tenant at the Levittown, NY premises (September 2004). These losses were partially offset by new leases at the Bond Street and Jowein buildings.
• Profitability Drop: Net income fell significantly by 72.4% for the nine-month period. This was driven by lower rental revenues, increased interest expense from new borrowings, and a reduction in investment income (specifically gains on the sale of marketable securities which occurred in 2004 but not 2005).
• Increased Leverage: Total long-term debt increased by over $5 million to $13.68 million. This includes a $12 million multiple-draw term loan secured in August 2004 for capital improvements and refinancing, a $1 million note from a director, and a $1.7 million construction loan.
• Capital Expenditures: Investing cash outflows were significant ($5.1 million), driven by capital expenditures of $4.97 million for property renovations and the purchase of partial interests in Brooklyn properties.

Outlook, Risks, and Management Commentary

• Liquidity: Management considers current working capital and borrowing capabilities adequate. Cash and cash equivalents increased to $1.64 million, supported by financing activities.
• Leasing Activity: The Company is actively seeking tenants for the vacated Levittown space (annual loss approx. $350,000). New leases have been signed for office space at the Jowein building and retail space in Jamaica, with rent commencement dates ranging from March 2005 to October 2005.
• Debt Structure & Interest Rate Risk: The Company holds both fixed-rate ($8.8 million) and variable-rate ($5.3 million) debt. A 100 basis point increase in interest rates would decrease net income by approximately $46,547 for specific variable loans and $6,449 for the securities broker loan.
• Contingencies: Various lawsuits and claims are pending, though management believes they will not have a material adverse effect.
• Internal Controls: Management noted that due to a small accounting department (four persons), complete segregation of duties is not possible. Compensating controls are being monitored to ensure accurate reporting.

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 Covenants and Maturities: Review the terms of the $12 million term loan and the $1.7 million construction loan, specifically regarding interest-only periods and conversion to permanent amortization.
• Related Party Transactions: Confirm the terms and necessity of the $1 million note payable to a director and the $1.7 million loan from a bank where the president is a director.
• Capital Expenditure ROI: Assess the return on the $4.97 million in capital expenditures regarding tenant improvements and property acquisitions.
• Internal Control Limitations: Evaluate the effectiveness of the compensating controls mentioned regarding the lack of segregation of duties in the accounting department.