Business Context and Reporting Period
Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 31, 2006
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 locations in Brooklyn, Jamaica, Fishkill, and Levittown.
Key Financial Metrics
| Metric | Q1 FY2007 (Oct 31, 2006) | Q1 FY2006 (Oct 31, 2005) |
|---|---|---|
| Total Revenues | $3,316,698 | $3,340,919 |
| Net Income (Loss) | $(177,896) | $127,309 |
| Income (Loss) Per Share | $(0.09) | $0.06 |
| Operating Cash Flow | $(7,815) | $1,183,409 |
| Cash and Equivalents (End of Period) | $1,986,414 | $700,014 |
| Total Assets | $56,356,573 | $57,290,305 |
| Total Liabilities | $18,888,062 | $19,650,898 |
| Long-Term Debt | $12,709,440 | $12,727,664 |
Debt Composition: Fixed-rate debt totaled $7,637,444 and variable-rate debt totaled $6,133,735 as of October 31, 2006.
Material Changes vs. Prior Period
- Profitability Reversal: The Company reported a net loss of $177,896 compared to a net income of $127,309 in the prior year. This shift was driven by increased operating and interest expenses outweighing revenue stability.
- Revenue Decline: Total revenues decreased by approximately 0.7% ($24,221). This was attributed to vacancies at the Jamaica and Fishkill properties, partially offset by new tenants in Brooklyn.
- Expense Increases:
- Real Estate Operating Expenses: Increased by $283,800 (15.4%) due to higher rental expenses, maintenance, payroll, and lease commissions.
- Interest Expense: Increased by $24,372 due to additional bank loans, partially offset by scheduled debt repayments.
- Cash Flow Volatility: Operating cash flow swung from a positive $1.18 million to a negative $7,815, primarily due to a $794,314 payment of income taxes payable and changes in working capital.
Outlook, Risks, and Management Commentary
- Leasing Activity: Management secured three new lease agreements in August and September 2006 totaling over 108,000 square feet across Brooklyn, Jamaica, and Levittown. These leases are expected to offset prior rental losses, with rent commencement dates ranging from November 2006 to June 2007.
- Liquidity Strategy: Management considers current working capital adequate but is considering the sale of the Circleville, Ohio property and a small Brooklyn property to generate additional working capital if necessary.
- Debt Management: The Company extended a $2.74 million loan on the Jamaica property for five years. A $12 million multiple-draw term loan is being utilized for tenant improvements and capital projects (e.g., new elevators).
- Risks and Contingencies:
- Tenant Bankruptcy: A tenant in the Jowein building filed for Chapter 11 protection in October 2005. The lease was assigned to a new entity with a 12% rent reduction for the first year and a waiver of pre-petition arrears.
- Interest Rate Risk: A 100 basis point increase in interest rates on variable-rate debt would decrease net income by approximately $61,337.
- Legal: Various lawsuits are pending, though management does not expect a material adverse effect.
Investor Verification Checklist
- Lease Commencement Dates: Verify the actual start dates and rent collection for the new leases signed in late 2006, as delays could impact future revenue projections.
- Debt Maturities: Review the specific terms of the Jamaica property loan maturing April 1, 2007, and the status of negotiations for its extension.
- Variable Rate Exposure: Monitor interest rate fluctuations given the $6.1 million in variable-rate debt.
- Asset Sales: Track progress on the potential sale of the Circleville, Ohio property and the small Brooklyn property.
- Working Capital: Assess the impact of the significant income tax payment on future liquidity and operating cash flow generation.