Monday, January 21, 2013

Changing 13Ds At Trinity Place Holdings.

As I noted last week, any change in the situation at Trinity could be telling...

Here is a snippet from Esopus' latest 13D:

The Reporting Persons intend to closely monitor the Issuer’s operations and the decisions of its Board of Directors.  The Reporting Persons may be in contact with other shareholders of the Issuer from time to time.  The Reporting Persons reserve the right to propose transactions or other actions involving the Issuer; to oppose any contemplated actions by the Issuer which the Reporting Persons do not regard as in the best interests of shareholders; and/or to nominate directors and to solicit proxies for or against director elections or other matters.

Please note the difference between that and their prior 13D, after emergence from bankruptcy:

Mr. Sole serves as a director of the Issuer, and Ms. Krueger serves as President, Chief Executive Officer and Secretary. The Esopus Entities and Mr. Sole intend to facilitate the nomination of an Independent Director to the Board of the Issuer, as provided in the Joint Plan and the Certificate of Incorporation of the Issuer. The Joint Plan also calls for the ultimate disposition of the Issuer’s properties. Except as set forth above, the Esopus Entities, Mr. Sole and Ms. Krueger, have no intention to effect any of the transactions specified in Item 4 of Schedule 13D.

It seems that there may have been some tension in the board room... It will be interesting to see how this unfolds, given that Esopus has historically not been shy of litigating items related to Syms.

On a different note, I posted on Twitter, asking for someone to do some recon on the company's real estate for me:

A few days later, I got these:

To the person who took the picture (they wished to remain anonymous) "thanks very much!"

Anyway, while I am sure that there is still planning going on as to what needs to be done with the site, I am disappointed to see the building still standing, even though it may only be the case because there is still planning happening- the property would likely be much more valuable as a vacant lot than in it's present state of being a run down (vacant) department store and some other shoddy buildings. Despite appearing to have been painted since I was last there in person (~1.75 years ago) the properties are a real eyesore (bricked up windows and all! This eyesore comment is especially true for the building that connects Trinity and Greenwich, via Edgar (67 Greenwich):

View Larger Map

On the note of Twitter, feel free to follow me- Twitter is actually the reason why I stopped putting up so many links on here... it's an efficient micro-blog and a great way to chat with other investors.

Disclosure/Disclaimer:  I own and represent shares of Trinity Place Holdings, but that amount is a fraction of what it once was. I reserve the right to change the positions at any time. This post is my nothing more than my thoughts/opinion. Always do a ton of your own research before so much as contemplate anything that I say, do, write, or even think about.

Thursday, January 17, 2013

Trinity Place, A Bankrupt Xanadu, and Changing Leadership...

In the ever ongoing saga that is Syms/Trinity Place Holdings, the company recently went through a change in leadership. Since emerging out of bankruptcy, the CEO of the company was Lauren Krueger of Esopus Creek. In December, she notified the company of her resignation and that she would step down on January 11. In the same 8K, it was indicated that she and Esopus Creek were willing to aid in the transition of the company until March 1st.

Even more recently, the day after Ms. Krueger stepped down, the company announced in a single filing that it had elected Mark Ettenger to be the Chairman of the Board and is now basically the Interim CEO. TPHS also announced that the day after, Andrew Sole (of Esopus Creek) resigned, effective immediately... There was no mention of Esopus aiding the company in it's transition, which was noted just a month or so ago.

Given what as stated in the filing, it would seem that Mr. Ettenger has an impressive resume:

"Mr. Ettenger, 56, has been an independent consultant and private investor since 2006. He served from 2004-2006 as President of Mills Corporation (“Mills”), a publicly traded real estate investment trust. In this role, he chaired the Operating Committee of Mills among other responsibilities. Before joining Mills, Mr. Ettenger was a Managing Director in the Real Estate Department of Goldman, Sachs & Co. Mr. Ettenger holds an LLM in tax from New York University School of Law, a Juris Doctor from the University of Virginia School of Law and a Bachelor of Arts degree from Duke University."

What the filing doesn't say, is that when Ettenger went to Mills Corp, that it was the company owning and developing the lavish Xanadu Center in New Jersey (complete with a ski slope). They expected that it would take 2 years to complete, and cost around a touch more than billion dollars... After 2 years, Ettenger, according to news sources was fired from the Mills Corporation. However, the 8K the company released was worded a bit differently:

Effective August 11, 2006, Mark Ettenger’s service as President of The Mills Corporation terminated, but he remains employed by The Mills Corporation and continues to receive salary and benefits as provided in his employment agreement dated as of February 2, 2004. No determination has been made as to any payments or benefits to which Mr. Ettenger may be entitled under the terms of his employment agreement.

Kind of odd wording... This all came after the company terminated all 14 of it's officers. By that point, the company was heading towards bankruptcy and was eventually saved by a buyout. The project, which the WSJ described as "Disney-esque," then had a price tag over ~$2 billion- nearly double what was first thought. Fast forward to today, and the center has gone through a lot- collapsing walls, several owners, and ultimately still has yet to be completed... even with further financing in the hundreds of millions of dollars.

To what role did Ettenger have in the project's ultimate demise? It's hard to say, and often, good and capable people can get caught up in ill-fated projects. However, this is a touch more bothersome because Trinity Places' main asset is a piece of land in a prime area of Manhattan, needs to be developed- and is presently headed by a person with a less than stellar recent history.

Furthermore, given that at the time of the last 13D filing for Trinity, the entity that Ettenger is associated with, which owns over 1/4 of outstanding shares, had this to say:

"...the Reporting Persons currently have no plans or proposals that would relate to or would result in: (a) any extraordinary corporate transaction involving the Issuer; (b) a sale or transfer of a material amount of assets of the Issuer; (c) any change in the present Board of Directors or management of the Issuer; (d) any material change in the present capitalization or dividend policy of the Issuer; (e) any material change in the operating policies or corporate structure of the Issuer; (f) any change in the Issuer's charter or by-laws; (g) the Shares ceasing to be authorized to be quoted in the over-the-counter security markets; or (h) causing a class of equity securities of the Issuer to become eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934.
The Reporting Persons reserve the right, at a later date, to effect one or more of such changes or transactions in the number of Shares they may be deemed to beneficially own."

This struck me as odd language to put into a 13D, however may have been added because of the history of the parties involved, due to time served at Goldman Sachs where these items were routine. Still, it seems odd. I think that the following months could potentially be quite telling as to what may unfold for the company.

Having 2 people seeming to end their relationship with a company, who are from the same entity does strike me as odd, especially when looking at the 13D from Marcato, the fact that Ettinger is now CEO, after Krueger resigned... If the company has some sort of re-capitalization or Ettenger doesn't end up stepping down as head of the company, it could be an indication of things to come and frankly, would make this a much harder animal to dissect. This uncertainty generally makes investors a touch skittish. Since emergence from bankruptcy, I have some pauses as well- I would really like to know what is going on with the re-development efforts. When I checked for various permits on NYC Building, I couldn't find anything relating to the property... One item that I think is unfortunate about public companies, is just how un-public many seem to be about what they are doing. Some sort of plan of action to the outsiders of the company, published on Trinity's (lack of a) website, or talked about on a conference call would be a really nice thing.

All this said, the people running the company are heavily incentivized to do well, as they are essentially the majority owners. I just hope that there isn't some sort of moon shot that happens with the companies real estate, which could turn it into the next Xanadu. Trinity Place seems to have a lot of low hanging fruit that it can take advantage of too easily.

As with most things, time will tell.

Disclosure:  I own and represent shares of Trinity Place Holdings, but that amount is a fraction of what it once was. I reserve the right to change the positions at any time. This post is my nothing more than my thoughts/opinion. Always do a ton of your own research before so much as contemplate anything that I say, do, write, or even think about.

Thursday, January 10, 2013

Newspapers seem to be good for ads, if you can keep people paying...

Here is a rather hilarious video, that is reminiscent of the this attention experiment...

Keep in mind that the video does say that it was done on behalf of Newspaperswork. So, there should be a grain of salt served up with it.

Newspapers are interesting, in that it seems that they offer a better deal for advertisers than readers. Advertisers get great focus on their product, or at the very least, the words that the ads surround.

Readers on the other hand, have to pay for the distraction. With the newspaper taking in money from both ends, provided that they are a low cost operator (at least, thus far in history).

It would be interesting to see if this experiment were cross referenced with iPads and to see what the people did notice. I would also think it would be interesting to spread this out across demographics, even if only on the intelligence (and personality) spectrum. These advertisers are likely able to focus quite well, and have brains that likely want to read a newspaper, which may not hold true for all.

I for one never read a newspaper, as I find it a lot less efficient (and expensive) than the internet... Plus, there is all the fluff in papers...

Sunday, January 6, 2013

Where Food Comes From (WFCF)

This post was sparked by a remark I made on Twitter a few days ago. I asked "Serious question: wld u want to see this in 10K? "This rev. source is still in its infancy & we anticipate exponential growth in the future"

The quote came directly from the 10K for Where Food Comes From (WFCF). Not only that, but the company recently changed it's name to "better reflect it's industry-leading brand."

WFCF has a lot of things going for it. The company owns 60% of International Certification Services, with a right of first refusal to the last 40% of shares. As best I can tell, it is one of the few of these firms that seems to actually make money. Apparently, training and certifications for these companies is a time consuming and tedious process.

It was also recently talked up on MicroCapClub, with a nice presentation, which the company touted in a press release. Why companies like this and Nevada Gold (UWN, which I am long) don't simply put it out in a 8K to save money for shareholders, I don't know. There have previously been some odd stock transactions with the founders, but then again, the founders (which is present management) also put their house on the line and have offered to lend the company money to keep it afloat. Years later, there seems to be no need for that as the earnings of the company are solid. Obviously, there is a management team in place (owning a HUGE amount of the company) that wants to see, and believes the company can succeed. They don't seem to want to destroy the earnings of the company with huge salaries either.

And the industry... Oh boy. It's a doosey! Verification of food. That's right! This company is the dream of every person who sleeps better knowing that their food was killed in a humane way, only ate grass, or didn't get injected with antibiotics. Even Kraft, maker of the cheese amalgamation called Velveetarecognizes the importance of food tracking.

Check out what one of WFCF's customers- Chipotle (CMG) has done with marketing the concept:

Do you really want to eat that KFC after being serenaded by Willie Nelson (who probably just had a bowl... from Chipotle) and watching a dreamy scenario of the industrial meat industry getting torn down? Doesn't that make you feel all warm inside!?

One of the items that works really well for the company, is that there is probably a lot of pricing power, which you can read up on in The Undercover Economist. Basically, people that are willing to pay more for organic, grass fed, or Fair Trade products, are REALLY price insensitive- so they are willing to pay the company offering such product, a really high margin. Just look at TOMS shoes. No one can tell me that 2 pairs of shoes, that are little more than an insole with a t-shirt sewn on top should ever cost in excess of $50 bucks (for cheap ones). The things are basically house slippers and a diservice to poor kids- they would be much better off with Chuck Taylors. When you can sell a marked up product that is inferior for the money, that can make for a great high return investment.

Taking this to the household level, a BIG family dinner would probably cost less than an additional 25 cents for a whole lot of utility. PLEASE KEEP IN MIND... this is only for the food verification service. Where Food Comes From could potentially have a lot of pricing power too- just think if they up their price by a single cent!? The only real threat isn't people not wanting the meat that they service, it's people like Whole Foods wanting to go elsewhere... Over a single cent. However, people that are buying beef that the company verifies is likely paying a lot more for food than if they were buying what I would call "industrialized meat."

There are some hitches with this though. The way that I see it is that this is a services company, and as such, would generally demand a lower than market multiple. This isn't the sort of business that if another company wanted to destroy, couldn't do so with $100 million dollars... The CEO notes that they have a lot of unique and repeat customers (who all seem to grow their relationship with the company). And that you have to do enough business to get above $2mm in SG&A to be profitable...

As noted, the company charges 3 cents per pound of beef. Take a look at their margins... They grow pretty heftily with every incremental increase in revenue... With every acquisition, they can probably eliminate a lot of corporate overhead, and essentially buy a book of business to integrate into their own systems. This allows them to buy companies that are barely working, and make them into real profit centers. That's works out well, because with its trailing P/E of 30, there is a really healthy growth rate that is expected for the company...

Unfortunately, BIG margins and BIG growth attract competition... From where I sit, the main problem for the operations of the company is the stability of their revenue.

While the company does work with Whole Foods, it does have others that are working with the company as well... Steritech, EarthClaims (which has one of the worst websites I have seen), and AUS-Meat. This leads to the labels on the food (pictured) that they support, which the company has no name association with. The employees at the Whole Foods that I went to explained it as a program that is done by a non-profit, that is done by Whole Foods, that is actually done by other companies (which, as best I can tell, is pretty accurate.)... Anyway, you can see from the pictures what the labeling looks like for yourself. I'd think that since there is no real branding for the company, people probably already assume that they are doing something great for the world, simply by shopping at a place that has "organicy" stuff. It may be a different case at the high end grocers (which have signage) that the company has attracted (and got a board member from), but the amount of protection they have from being dropped by Whole Foods is a mixed bag and far from certain. The company claims that the industry is all about trust and that getting into the business is hard to do... Which, is a fair claim. I might worry about other established firms coming in on them, but a lot of the farmers that they do business with probably value the relationship and don't want to change things up too much- choosing to focus on their business instead. Again, I would be more worried about a super market chain dropping them due to a bankruptcy or even lower a cost structure.

Something else to consider is that this is an industry that often has a lot of non-profit tendencies... What happens if that mentality moves into this profit center, and the food verification industry goes non-profit, or even governmental? Is there a guarantee that this company will be OK? Not really, but, I wouldn't think that it would be something that the company couldn't weather... This isn't a conspiracy or anything.

Regardless, this industry seems ripe to grow for a long time. This seems like a way to even bet on the growth of Whole Foods and the organic market in general (despite it not making up more than 10% of WFCF's revenues)... Whole Foods carries a P/E of well over 35, indicating a market acceptance of the idea that the good food industry should thrive. More directly though, what happens if WFCF can land a contract with Trader Joe's? Ruth's Chris? Kroger? Or dare I say, Wal-Mart!? I don't think this is a far stretch, especially since even Wal-Mart, which strives to cut costs everywhere they can, sees benefit in tracking some of their fish products, which I would imagine would be a hit in their Corner Market style of stores... The company seems to already have enough farms that they work with that they work with to be able to scale up.

Given the growth potential for the industry, it leads me to wonder... Why doesn't the company figure out some way to get a commercial a kin to the one that I linked to earlier (see below, for good measure), on the Super Bowl? It could be a huge game changer and be the modern day equivalent of "The Jungle." Super Bowl ads aren't cheap, but surely a consortium of third party verifiers, co-ops, and grocers would get on board as they would all benefit greatly.

Any media attention that this could generate has the chance to be a double-edged sword for the company (though, probably not the industry). Obviously, the company has the moral high ground... Until they screw up. To me, the biggest concern is similar to what led Warren Buffett into American Express: What happens if the auditors of the company screw up and food, that they have verified, has mad cow or some other terrible disease? It may be a stretch, and the public may not blame them, but we live in an era where the new media can destroy companies on a whim... PRXI, anybody? WFCF does have diversification of product verification though- so, there is a bit of a hedge I can't imagine them messing up with beef would translate to them not verifying some sort of vegetable. Potentially pork or something of that nature, though.

But maybe at the end of the day, people don't care who certifies their food. They just want a label on it so that they can sleep at night, thinking that they aren't slowly killing their families with meat that's tainted with things other than just a ton of saturated fat. I don't guess there is any way of telling until some event like that happens. As others slowly come into the market, this could become a commodity sort of product. Do the auditors have non-compete clauses?

Even with my hangups, there probably shouldn't be a big hang up on the exponential growth comment or even the likelihood of them not getting consistent revenue... Either through growth to the industry or acquisition.

In light of all this, I find myself not long the stock, as I am trying to wrap my head around the growth rate.

It just seems too damn expensive! But then again, I am notoriously cheap with these sorts of things... Especially when there isn't a ton of depreciation or hidden assests that obfuscate earnings or book value. This is basically a bet on WFCF transforming into the cash churning machine that it has a lot of potential to turn into (and, has had a decent amount of success doing in the past few years).

If it were priced as it was a year ago, with an earnings multiple of closer to 10, even 15, I would probably bet a lot on it... Who knows though, it could be that I am just too contrary for my own good, and the fact that the stock has already been talked about makes me not like it nearly as much.

But, who knows, maybe we'll see it come back to earth, or I will get my head wrapped around its growth story. It does happen from time to time, which is one of the reasons I try to I follow stocks. Until the price to obvious value gets more in line with what I want for a margin of safety though, I will be missing the boat.

EDIT: As Ian from MicroCap Club pointed out in the comments section, I did omit their tagging business (which in their 10K they talk about being pretty low margin- even talking about suppliers of tags). I didn't feel much of a need to talk about that any since this piece was about the growth story. Though, I realize that could have been a touch misleading. I don't agree with all the points he makes (such as 20% growth for their presently core business), but his comments are noteworthy. Read them, do some research, and see what you think.

EDIT 2: Here is a cool site to look at industry developments and such.

Disclosure:  I have no position in regard for or against any of the entities mentioned. I reserve the right to change my positions at any time. This post is my opinion. Always do a ton of your own research before even contemplating anything that I say, do, write, or so much as think about.