Business Context and Reporting Period
Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended January 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, primarily in New York (Brooklyn, Jamaica, Fishkill) and Ohio.
Key Financial Metrics
| Metric | Six Months Ended Jan 31, 2006 | Six Months Ended Jan 31, 2005 |
|---|---|---|
| Total Revenues | $6,727,703 | $6,328,846 |
| Net Income | $69,112 | $150,799 |
| Net Income Per Share | $0.03 | $0.07 |
| Operating Cash Flow | $1,217,311 | $714,688 |
| Cash and Equivalents (End of Period) | $604,512 | $662,024 |
| Total Assets | $57,497,251 | $57,177,045 |
| Total Long-Term Debt | $14,017,266 | $14,400,688 |
| Interest Expense | $482,094 | $330,617 |
Note: For the three months ended January 31, 2006, the Company reported a net loss of $58,197 ($0.03 per share), compared to net income of $35,923 ($0.01 per share) in the prior year quarter.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by approximately 6.3% for the six-month period, driven by new leases at the Jowein building (Brooklyn) and a retail tenant in Jamaica, NY. This was partially offset by a tenant vacating the Levittown, NY premises in September 2004.
- Profitability Decline: Net income decreased by 54% year-over-year for the six-month period. The decline is attributed to a significant increase in interest expense ($151,477 increase) due to additional bank loans and a related-party note, alongside higher operating and administrative costs.
- Expense Increases: Real estate operating expenses rose by 6.1% due to higher taxes, utilities, and lease commissions. Administrative expenses increased by 3.1% due to legal and professional costs.
- Debt Structure: Total long-term debt decreased slightly by $383,422 due to scheduled repayments, though new borrowings were taken for tenant improvements and capital projects.
Outlook, Risks, and Management Commentary
- Leasing Risks and Vacancies:
- Jamaica Property: A major tenant occupying 47,100 sq. ft. vacated on February 28, 2006, resulting in an estimated annual rental income loss of $600,000. The Company is actively seeking replacement tenants.
- Fishkill Property: A tenant vacated upon lease expiration in November 2005, causing an estimated annual income loss of $180,000.
- Circleville, Ohio: A lease extension covered only 75,000 sq. ft. of the building; the Company is seeking tenants for the remaining 118,000 sq. ft.
- Bankruptcy Risk: A tenant in the Jowein building filed for Chapter 11 protection in October 2005. This tenant represents approximately 6% of projected annual income. If the lease is rejected, cash flows could be adversely affected by approximately $70,000 per month.
- Interest Rate Sensitivity: The Company holds $5.75 million in variable-rate debt. A 100 basis point increase in interest rates would decrease net income by approximately $57,547 for specific loans and $5,509 for a securities broker loan.
- Liquidity: Management considers current working capital and borrowing capabilities adequate to cover planned operating and capital requirements.
Investor Verification Checklist
- Vacancy Replacement: Verify the status of leasing efforts for the vacated Jamaica (47,100 sq. ft.) and Fishkill properties to assess the impact of the $780,000 combined annual revenue loss.
- Chapter 11 Tenant: Monitor the bankruptcy proceedings of the Jowein building tenant to determine if the lease will be assumed or rejected, which could impact monthly cash flow by $70,000.
- Debt Maturities: Review the maturity schedule for the $2.74 million Jamaica property loan due August 1, 2006, and confirm the Company's ability to exercise its extension option.
- Capital Expenditures: Confirm the completion and rent commencement dates for the $1.075 million renovation project at the 9 Bond Street building, anticipated for June 2006.
- Related Party Transactions: Note the $1,000,000 unsecured note payable to a director and the $550,916 payable to a securities broker secured by marketable securities.