Tuesday, May 31, 2011

A new gorilla video.

I previously posted on "awareness of what you may not see..." In the same light, here is a new video:

All I could say after watching it was: Damn it! The bastards got me again! :D

Thoughts On Syms' Exploration Of Strategic Alternatives

Recently, it became official that the board of Syms is considering a possible sale of the company. Soon after, it came out that they had enlisted the help of Rothschild to explore strategic alternatives, but that when it came to a sale of the company, they would only take bids for the whole of the company pie.

As previously has been the case, they guys at Esopus Creek Advisors pointed out that such a decision is fool hardy, and should be reconsidered. For the good of shareholders and the financial stability of whatever form the company eventually takes, they are absolutely right. As I pointed out in a previous post, I am happy to be invested along side them, as they have the track record of being a good gatekeeper that keeps management from doing anything too off the wall (like de-listing the stock). I think that there is a good chance they will make headway in this matter, as the facts are so overwhelmingly slanted in their favor.

One of the reasons that only considering a sale of the whole company is a blunder, comes from the letter of Capstone which was published on Ragnar Is A Pirate last week. In it, Joshua Zamir points out that there are no board members with significant real estate experience... As the bulk of any investment thesis in this company more or less revolves around the real estate assets, I can't imagine that the board could make a strongly informed decision in regard to the sale of the company, or even the parts of it, without having someone in the know representing shareholders in the matter. This is something that needs to be addressed ASAP, so that the board can act in a judicious and fiduciary manner.

Let it be known that only considering the sale of the whole company to a single buyer is no doubt a value destroying blunder that would likely strongly benefit the buyer over shareholders... In this particular case, it is likely to be management. At a minimum, the Trinity store should never again be part of the Syms puzzle. As a retail store, it will constanly be underutilized by both society and whoever owns it... It needs to be sold off to a shrewd developer, demolished, and replaced with nice residential apartment units. At best, the company should likely selectively sell off a good bit of it's real estate, and then sell the leased and remaining owned locations to other off price retailers.

While there has been contentious debate in the blogosphere and various message boards in regard to the future of the retail operations, I believe that the bulk of the stores that are leased (mainly due to the acquisition of Filene's Basement) still have significant economic worth. At present, there is no doubt that operations are certainly not where they need to be; in different hands, they could do quite well. There could be huge potential synergies in advertising, name recognition, distribution, SG&A and many other items that would make the locations quite profitable in the right hands. It is important to remember that TJX trades at over 6x book value- Gordman's trades at well over 7x book. Syms on the other hand, was recently trading at 1/2 of an absurdly understated book value! There is a lot of room for operational improvement that others can, and are more than able to do, especially with locations that seem to be (at a minimum) not terribly placed in their respective markets... Many, are in superb locations! As a side note, companies like TJX are sitting on the cash to buy out Syms' assets, additionally, I wouldn't be surprised if bankers would not bat an eye for shelling out the cash to finance a project. Previously, in middle of one of the worst economies ever, Men's Wearhouse bid for the Filene's assets, so, it is no stretch of the imagination that they may again be interested in the assets of the entity. Other discount retailers will likely have an interest in the locations as well, since it wouldn't take much money to bring them under the umbrella of the Burlington Coat Factory, Gordmon's, or even the TJ Maxx brand names.

So, what happens if the company still manages to be taken out by management or nothing happens? I don't see this happening at anything close to book value, mainly because as I have already pointed out, the book value of the company is so freakishly understated on the books that there is no way that any body with anything resembling a brain could render a fairness opinion for that (and I have seen some crazy fairness opinions). Additionally, I would imagine that there would be a large amount of shareholders signing on to a lawsuit against the directors of the company if the price is to low.

So, in order to make things fly, management would have to pony up a fair amount of cash to take out the stock that they don't control. How could they do this? I see a bunch of options, a few of which, I will list below, with some thoughts:

1) Capstone helps them lever up the company in exchange for equity and some other perks... An option that I kind of like, since it is pretty quick. Again, this is a great option, provided that it doesn't screw the minority shareholders out of what is obviously a group of valuable assets.

2) Management uses debt, then starts shuttering stores like crazy (there are numerous leases getting ready to expire) and sells off real estate to cover the debt, making a killing in the process...

3) They spin off the real estate assets and continue to operate the stores... The only downfall here, is that the retail operations would have to turn around even more than they need to now. After all, unless they start making money, how can they make rent payments on the ~20 properties that they own, and were paying virtually nothing on before?

4) The company stays public. Operations may or may not improve, but, we still sit on a mound of real estate to protect investment. Recent results have shown that something has to be done to save the ship.

Most of these, or many other potential options seem to lead us back to the beginning of the post, which is that the company needs to be split up, in some way, shape, or form, at some point in the not so distant future... Honestly, I don't see that management has much of a choice but to do so, given the losses. Furthermore, since it is a company that bears a family name, the family should have a strong desire to see what they have worked so hard for not be destroyed AND get a nice pay day in the process.

For all of these reasons, I believe that there is much more upside to the price of Syms stock, despite complaints of the retail sector being in a secular decline. Any concerns that I have, or could have with the company and/or industry have likely been more than priced into the stock (even at $9 bucks a share). On this note, since I have repeatedly been asked what I think this thing is worth, I will give the following answer:

I almost never tell anybody so much as even a range of what I think anything is worth. Simply put, there are way to many variables to assume to come up with a range, let alone an exact amount. If I would ever need to break out a DCF calculator then it is probably too close to the line for me to get to excited about! Without over complicating things (and, likely, under complicating them): as a mental exercise, let's say that the real estate of the company is worth $200 million as that is the low end that the guys at Capstone suggest (then, we value those ops at nothing), then, lets say that their leased locations are worth ~$1.5 million bucks a piece- a value of which happens after taking out debt, allowing for inventories, and allowing a nice bit for the upside that a really good operator could juice out of them (keep in mind that number is a lot less than Syms paid for the Filene's stores almost 2 years ago when things were a lot more scary)... With those assumptions, the stock is worth ~$250 million, or put another way, there is another ~80% upside from the date of this publication.

To show why someone might want to acuire the ops of the company, if the stock trades at the premium to book value that TJX or GMAN does, then, we are looking at the stock being at well over $60 bucks a share... Which is actually part of why I think that it is such an attractive candidate for another discount retailer to buy. If the acquire buys it with stock for $35/share, and get operations to what is an industry standard in a few years, then shareholders of Syms, those of the acquirer win and the executives that orchestrated the deal. Big time. Maybe the insiders at Syms would also get to keep their jobs working at another firm? Which, in a tightly knit company is often a concern. Certainly, I am not saying that is what the stock is going to trade at, as TJX and the like are a lot more capital lite operationally than Syms, but, it is a way of starting the process to think about what could potentially happen. Use your own assumptions and models.

In closing, I again will say that I still plan on being at the annual meeting. I encourage all shareholders to attend. It is important to meet with the people running and overseeing the company that you are a minority owner of and to let your opinion be known. It actually does make a difference (remember the reversal of the decision to do the last reverse stock split at Biglari Holdings? Or the modification of Biglari's pay package due to shareholder uproar?). For those of you who don't think it is justified to show up based on a small ownership of stock, consider this:

Even if you own just $5K in stock, and you spend a whopping 10% of that to go to the meeting, you may be part of something that could generate even greater returns... plus, you would get to take a few days off work, know your company a lot better, and likely write a good bit of the expense off of your cost basis for the stock (talk to your tax guy before hand), and chill in NYC for a few days!

Disclosure: I am long SYMS. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, write, do, or so much as even think about.

Friday, May 27, 2011

Rand Paul: Lewis Gilbert of the Senate

Here, Paul is written up for his principled stands.

Mr. Paul largely votes with his party, but stood with more Democrats than Republicans in his opposition to the Patriot Act; he was alone in voting against a bill that would penalize people for aiming laser pointers at airplanes.

Monday, May 23, 2011

Capstone Letter To Syms (Full Text).

Here is a copy of the letter from Capstone to SYMS, which I received from whom I believe to be a reliable source nearly a week before it was scheduled to be released... I hope that you enjoy the letter as much as I did. Certainly, I believe that the tides may quickly be turning at Syms. Hopefully, management sees the light and does what is correct and value creating for shareholders.

May 19, 2011

Mr. Bernard H. Tenenbaum
Ms. Beth L. Bronner
Mr. Henry M Chidgey
Mr. Thomas E. Zannechia

Dear Sirs & Madam,

My name is Joshua Zamir and I am the managing member of Capstone Equities Capital Management LP (“CECM”) which is a holder of common stock of SYMS Corporation (“SYMS”). I am also a principal of Capstone Equities LLC, an affiliate of CECM, which is a real estate investment firm based in the New York Metro region (“Capstone”). Capstone has acquired over Five million square feet of properties - more than half of which located in the financial district of Manhattan. Principals of Capstone currently own interests in 14 Wall Street, 156 William Street, 4 New York Plaza, 30 Flatbush Avenue and other properties throughout the region. I believe our background is extremely relevant in understanding the value of SYMS’ real estate holdings.

The purpose of this letter is to provide certain constructive ideas for consideration which I believe would be worthwhile for management to explore and enhance shareholder value. I have reviewed letters from other shareholders trying to persuade SYMS to monetize its real estate holdings as well as Marcy Syms response indicating that SYMS is “not a real estate development company.” However, I have done extensive research contacting local brokers in each market which SYMS has a location it owns and have determined that the market value of the real estate exceeds $200,000,000. The company is worth at least 50% more as a collection of retail real estate than as a retailer with substantial operating losses.

Therefore, I urge you as fiduciaries, to give the below list of alternatives that would enhance shareholder value serious consideration:

• The Sale of Certain Assets Using Proceeds to Buy-Back Shares- 42 Trinity in the Financial District of Manhattan is a prime development site worth over $40,000,000. Selling this site and using proceeds to buy back shares would allow you to reduce share count by 30%. Capstone is the Landlord at 14 Wall Street (a property of close proximity to 42 Trinity) and we have recently signed a long term lease with TJ Maxx for retail space. TJ Maxx also competes in the “off-price” space and has significantly more resources and now a better location than SYMS. In the 2010 10-K it is mentioned that “competition vs. retailers with larger resources” will impact margins. The TJ Maxx lease at 14 Wall Street, the “My Suit” store opening at 30 Broad Street and continued dominance of Century 21 at 22 Cortland Street indicate that a sale of the Trinity Store is timely.

• Spin-Off Real Estate Assets to a Triple Net Lease Buyer- Under this plan SYMS would enter into long term leases (15+ years) with a buyer at a rent level which is sustainable. We have been in touch with an extremely well capitalized fund that would be very interested in this type of transaction even if the Secaucus location and 42 Trinity were to be excluded. An “asset lite” business model can be achieved without significant operation disruption. Your peers with simpler business models trade as much as 6X book value, SYMS does not even trade for book value which is a significant understatement of market value. Unlocking the value of your real estate this way would benefit all shareholders.

• Taking the Company Private. Clearly the public markets are significantly undervaluing SYMS both as a retail business as well as the significant real estate holdings which it possesses. CECM would be interested in making a minority investment to help privatize SYMS in a management led LBO as well as assisting SYMS in the financing of such a transaction.

• Adding Additional Board Seats of Highly Qualified Real Estate Professionals- Despite the fact that SYMS primary assets are commercial real estate, there are no independent directors with substantial real estate experience on the company’s board. The Board also lacks significant shareholder representation, with current directors (other than Marcy Syms) owning less than 300 shares of the Company’s outstanding common stock.

• Consider Significant Cost Reductions to Mitigate Losses- SYMS’ selling, general and administrative plus occupancy costs have averaged 42% of net sales in each of the last two years. This compares very unfavorably with other comparable discounters we analyzed whose costs for these line items were between 25%-30% of net sales.

• Continue to Close Non-Performing Stores.

Final Observations:

In reading the most recent annual report for fiscal year end February 26, 2011 it appears that the company has incurred significant additional debt and sold assets to fund losses. Over a long period of time such a strategy will leave shareholders with a highly leveraged company and no assets. It is imperative that the Company refine the business model to prevent further erosion of shareholder value.

To be clear, we do not doubt your efforts or intentions; however, the Company's poor operating performance and more importantly, the extremely poor share price performance speak volumes and indicate that a different approach for creating shareholder value is needed.

We intend to release this letter to the public for other shareholders’ review on the morning of May 31, 2011 and hope to speak with you in advance of doing so.


Joshua Zamir

CC: Marcy Syms, The SYMS Corporation
Tom Kahn, Kahn Brothers Group Inc.
Bruce Baughman, Franklin Resources Incorporated
Alex Matina, Michael F. Price
Elizabeth Bosco, Tocqeville Asset Management LP
Christopher Crossan, Dimensional Fund Advisors LP
Esopus Creek Value Series Fund LP, Andrew Sole

Disclosure: I am long shares of SYMS. This is not advice of any kind. Always do a ton of your own research whenever thinking about doing anything that I say, write, do, or so much as even think about.

Saturday, May 21, 2011

Another Reason Why My Senator Kicks Ass: Part 2

From here:

“We go week after week in the Senate and do nothing. I feel like sometimes I should return my check because I go up, they do no votes and no debate,” the freshman senator griped during an interview on “Anderson Cooper 360.”

“We go up week to week, and there's no debate in Congress, no debate in the Senate. We sit idly by,” he continued.


But Paul told CNN’s Anderson Cooper that Obama is already in violation of the law.

“The War Powers Act says there's only three reasons a president can go to war: Declaration of war by Congress, authorization or force by Congress or imminent danger,” Paul said.

“He should have come to Congress, spoken to a joint session of Congress and said, I need the power to go to war, this is why, and explain to the people.”

Here is the video with Anderson Cooper: Senator Paul has needed to use parliamentary procedure to get control of the floor, just to get the bill addressed. Absolutely absurd. It seems that many of our legislators are to concerned with talking about the matters that effect our nation, for fear that they might say something that might come back and bite them in the ass someday.


Friday, May 20, 2011

Activism At Syms?

From the NY Post, in regards to the sale of the Rockville property:

"Over a long period of time such a strategy will leave shareholders with a highly leveraged company and no assets," the letter continued, demanding that Syms "refine the business model to prevent further erosion of shareholder value."

A better strategy, according to Capstone, would be to spin off certain Syms real estate to fund a share buyback, or even take the retailer private. A sale of the company's downtown flagship at 42 Trinity Place could fund a buyback of as much as 30 percent of Syms' stock, according to Capstone.

The real-estate firm added that it "would be interested in making a minority investment to help privatize Syms in a management-led (leveraged buyout) as well as assisting Syms in the financing of such a transaction."

Read more here.

One of the previous complaints that many people had with Syms, is the "lack of a catalyst". While the stock price has appreciated nicely since my initial writeup (despite a 10K that probably looks a lot more gloomy than it really is), the story is far from over. Sometimes, a stock simply being cheap is enough of a reason to buy it. While this is certainly to early to call this a catalyst, sometimes, waiting for a catalyst is the thing to do, as in this case, it certainly wasn't priced into the stock. Other times, when a company is so cheap, larger institutions will come in and try to monetize the assets. I love the idea of the company doing a management led LBO (at a fair price). I don't know what Marcy Syms would think about the debt involved in doing so (in her book she seemed to have a bad taste for it), but, think that a transaction of that nature could do wonders for all shareholders, the company, and even it's employees. Presently, it looks like we will be able to read the letter on May 31st.

Additionally, it is nice to know that more and more people are thinking like I am. This company is crazily undervalued, and they seem to be pushing the company in the right direction of monetizing it's real estate that is drastically understated on the books. This coming shareholder meeting may well be one of the more interesting that I have attended; and that says a lot, since I was at the MOT meeting, the first time that Carl Icahn tried to take control of the board.

Disclosure: I am long shares of SYMS. This is not advice of any kind. Always do a ton of your own research in regards to anything that I say, do, write, or so much as even think about.

Friday, May 13, 2011

Beware of Market Timing.

A very insightful tid-bit from claphands22 (who posted it on my favorite message board):

I had committed a cardinal sin: I had become a market timer. It was a slow process cataloged by a first glace at a Case-Shiller's index then by a monthly, then weekly, then daily look at GuruFocus's "Where Are We With Market Valuations." I became skittish about investing because I thought the markets were too overvalued, I figured I should be timid about my positions because of a possible market revaluation. Yet now, I see I was just being a market timer. To use the supermarket analogy of investing, I was saying no to 50 cent pound bananas because the strawberries and peaches were selling for 10 dollars a pound. I was letting the prices of other securities dictate my position size and what I invested in - not my own independent valuations.

To be clear, I'm not saying you should be fully invested 100% of the time. If you don't see a security with a large enough margin of safety, don't buy it or if a position size keeps you up in night you should trim it down. Yet, don't let the market's valuation keep you from purchasing a great idea.

Here is a comment from Buffett about investing his personal money during the 2000 Nasdaq high. Notice market valuations didn't keep him away from making a rational investment choice.

I have less than 1% of my net worth outside Berkshire and when the Nasdaq hit its high, I had nearly all of it in REITs, which were selling at a discount to their liquidation values. (BRK Annual Meeting 2005 Tilson Notes, via http://buffettfaq.com/ )

Market valuations is a tool you should be careful using since they can infect your thinking. Beware of using market valuations because they might use you.

Disclosure: None. This is not advice of any kind. Always do a ton of research in regard to anything that I say, talk, write, or so much as even think about.

Tuesday, May 10, 2011

Another Reason Why Share Price Doesn't Matter

Here, we see that Citi just did a reverse share split on their common stock. While it may have cashed out some smaller shareholders (making certain filings and transactions cost a little less) it did little, if anything substantive to increase the value of the stock-other than have a minor repurchase effect.

On the flip side of this coin, we can also surmise that a regular share split (or, share dividend, as some call them) have little effect on the value of the stock, other than making uninformed people feel good about their holding growing, by share count.

On this note, I was alerted to this quote from a fellow message board member:
"Why would anybody own Citigroup when they can own JPMorgan for the same share price?" said Mark Sebastian, chief operating officer of Option Pit Mentoring, an options education firm in Chicago.

"JPMorgan is a much better company. Now there is actual price risk for the stock when it wasn't at $4.50."

Wow, I can't believe the stupidity of this statement. As the board member that alerted me to this article noted, Mark Sebastian is in the management of a company that educates investors!

Monday, May 9, 2011

Coming Earnings From SYMS.

It looks like Syms will be filing their 10K with the SEC at the end of the week.

Here is what I expect to see for the last quarter:

1) Further communication about the turnaround and synchronization efforts of the Syms and Filene's Basement (FbSy) brands.

2) Cap-ex levels being relatively high, for the new stores being opened or the older ones that are being integrated together with the Filene's brand.

3) Some discussion of the recently laid off workers in Secaucus.

4) Nice cash flow from inventory reductions due to the holidays. Note that I am not saying over all cash flow will be superb.

5) I won't even comment on what I think earnings will be, as I wouldn't be surprised by anything that happens, I could see the company having significant losses, but, also doing OK.

Things that we won't see until next quarter:

1) Discussion about the sale of the Rockville real estate: While I doubt that there will be much, if any discussion about the sale leaseback of the Rockville property, we will learn about the cash flow provided from the property, as well as the more recent borrowings of the company.

2) A better idea of the integration of the Filene's brand.

3) A better idea of recent borrowings.

In light of whatever happens with the coming earnings release, it does little to effect my original investment thesis: The company sits on a mound of real estate, which is understated on the books. Even if the retail operations continue to stagnate, the company is worth more than it is trading at. Anything that happens to the positive on the retail side is icing on the cake.

Regardless, it is important to remember, regardless of if the results are positive or negative, that the company is reporting results that are will be nearly 3 months old.

Additionally, I am optimistic that results will turn around, as the company is in the process of opening new and expensive stores. I can't imagine that this would happen if the Syms family wasn't comfortable with the financial footing of the company... after having read Marcy Syms' book, I have a much better feeling for management.

Disclosure: I am long Syms. This is not advice of any kind. Always do a ton of your own research when so much as thinking about anything that I say, do, talk, or write about.

Activism At Scott's Liquid Gold

Scott's Liquid Gold is a company that trades at a substantial discount to book value. It sits on a nice piece of real estate, which has perpetually been for sale, and also has significant (and consistent) losses.

Here, we see that the company had a 13D filed on them. Here, we see the newest letter that was sent to the board. Basically, the activist is going to withhold votes for every single director except one. Additionally, it seems that this may be one of the more interesting annual meetings to be at this year. If anyone is in Denver on May 18th and decides to attend the meeting, I'd love to hear about what happens.

Disclosure: I own no shares of Scott's Liquid Gold. This is not advice of any kind. Always do a ton of your own research in regards to anything that I say, write, do, or so much as even think about.