Business Context and Reporting Period
Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 31, 2005
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, primarily in New York (Brooklyn, Jamaica, Fishkill) and Ohio.
Key Financial Metrics
| Metric | Three Months Ended Oct 31, 2005 | Three Months Ended Oct 31, 2004 |
|---|---|---|
| Total Revenues | $3,340,919 | $3,156,943 |
| Net Income | $127,309 | $114,876 |
| Earnings Per Share | $0.06 | $0.06 |
| Operating Cash Flow | $1,183,409 | $918,897 |
| Cash and Equivalents (End of Period) | $700,014 | $1,807,310 |
| Total Assets | $57,116,062 | $57,177,045 |
| Total Liabilities | $19,545,287 | $19,838,504 |
| Long-Term Debt | $14,214,807 | $14,400,688 |
Debt Composition: Fixed-rate debt totaled $8,441,798 and variable-rate debt totaled $5,814,726 as of October 31, 2005.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by approximately 5.8% ($183,976) compared to the prior year quarter. This was driven by new leases at the Jowein building (Brooklyn) and a retail tenant in Jamaica, partially offset by a tenant vacating the Levittown premises in September 2004.
- Expense Increases:
- Real Estate Operating Expenses: Increased to $1,842,091 from $1,781,134, primarily due to higher real estate taxes, utilities, and lease commissions.
- Depreciation: Increased to $379,200 from $323,810 due to additional improvements in Brooklyn and Jamaica.
- Interest Expense: Increased significantly to $232,759 from $156,867 due to additional bank loans and a note payable from a director.
- Net Income: Despite higher expenses, Net Income rose to $127,309 from $114,876, aided by revenue growth and a reduction in income tax provision ($80,000 vs. $107,000).
- Liquidity: Cash and cash equivalents decreased by approximately $1.1 million year-over-year, though operating cash flow improved by $264,512.
Outlook, Risks, and Management Commentary
- Leasing Activity:
- New leases commenced in October 2005 for 25,000 sq. ft. at the Jowein building (Brooklyn).
- New leases signed in August 2005 for 14,505 sq. ft. at the Bond Street building (Brooklyn), with rent commencing in late 2005 and early 2006.
- Significant Risks and Contingencies:
- Tenant Vacancies: A major tenant at the Jamaica property (47,100 sq. ft.) will vacate on February 28, 2006, resulting in an estimated annual rental income loss of $575,000. A tenant at the Fishkill property also vacated, causing an estimated $180,000 annual loss.
- Bankruptcy Filing: A tenant at the Jowein building filed for Chapter 11 protection on October 11, 2005. This tenant represents 6% of projected annual income. If the lease is rejected, cash flows could be adversely affected by approximately $70,000 per month.
- Interest Rate Risk: The Company has $5.8 million in variable-rate debt. A 100 basis point increase in interest rates would decrease net income by approximately $58,147.
- Capital Resources: Management considers current working capital and borrowing capabilities adequate to cover planned operating and capital requirements.
Investor Verification Checklist
- Lease Replacement Strategy: Verify the Company's progress in re-leasing the 47,100 sq. ft. Jamaica space and 118,000 sq. ft. Circleville space to mitigate the projected $755,000 annual revenue loss.
- Chapter 11 Tenant Impact: Monitor the status of the Jowein building tenant's bankruptcy proceedings to assess the risk of a $70,000/month cash flow reduction.
- Debt Maturities: Review the repayment schedule for the $2.7 million Jamaica property loan maturing August 1, 2006, and the $1.35 million Jamaica loan maturing April 1, 2007.
- Interest Rate Exposure: Assess the impact of rising interest rates on the $5.8 million variable-rate debt portfolio.
- Internal Controls: Note the Company's disclosure that its four-person accounting department cannot fully segregate duties, relying instead on compensating controls.