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.


Ravi Nagarajan said...

While I hope that the letter results in some action, I am skeptical given Marcy Syms prior reaction to activists and her control of the majority of shares. She clearly has emotional and non-economic reasons for continuing to operate money losing operations. Is there any reason to believe this approach will not be dismissed like similar approaches in the past?

(No position in Syms)

jeff said...

I am the first to say that this may yield nothing. However, it does draw attention to the poor operational results of the company, and has the potential to attract more like minded investors. As we have seen with other controlled companies, a lot of activists working together can create a lot of change: If just 1 property (almost irrespective of which one) is sold and stock is bought back, that would thrill me.

While previous attempts have failed, none have been of this nature, where the proposal was suggested by a person who was willing to take part in the proposed transaction. Additionally, it has seemed as if Marcy Syms has wanted to take the company private for sometime.

While looking at one possibility for the company would most certainly be a blunder, I think that there are enough out there to make it a compelling case.

Anonymous said...

We see how little strategy means to Marcy Syms. Little sense did she have to step aside, after a decade + of loss, to allow seasoned operators run the company. Bully the Board and Bully anyone else that had a point of view different than hers.
She must have thought herself transparent but her vanity, pride and actions of a spoiled brat always stood in the way of the success of the brand her father made famous.