Most investors know GAAP requires real estate to be recorded at its historical cost. Given real estate purchased many years ago is likely to have a fair market value materially higher than the historical cost, I decided to search companies for this hidden asset. Furthermore, my initial search was to buy these inefficiently priced real estate assets with companies that have an optimistic future evident by a sound balance sheet, cash flow and desirable products and services. The real estate market has been in what some would say a depression and for some properties liquidity can be near nonexistent at this time. But some of these outsized real estate holdings can provide an overlooked margin of safety.
The approach is relatively straight forward, but can often be overlooked especially on companies lacking Wall Street or financial press coverage. For this article I focus on just one idea as the material became too long. But I will try to introduce the other ideas in a follow up piece.
This idea is more of a real estate play because their existing business is distressed. SYMS (Syms Corp) is an off price apparel retailer known for their catchy sales pitch and trademarked slogans, "where an educated consumer is our best customer" and "The More You Know About Clothing, the Better it is for Syms". Some of us may remember their commercials.
There are many angles and what if analysis to this Ben Graham style stock, but in an effort to keep the article a reasonable length for this venue and also lean on an interesting observation Graham made in his latter years.
"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities"
SYMS is 57% family controlled. Their valuable real estate holdings are potentially outstanding and the reward may far out weigh the risk of being a potential value trap. The stock could easily be worth twice the current net tangible asset value currently at $12.25 per share. Their first location was purchased in 1959 in the heart of the NYC financial district and is on the balance sheet for the original cost. This one NYC property out of an additional 22 owned locations may be worth far more than 100 million. Most of their real estate holdings were purchased a long time ago.
Esopus Creek Value controls 3.7% or about 8.76% of the non-controlled portion of the company. In their 4/22/08 13D filing they sent a letter to the independent board members noting that as a large minority holder they intend to examine the board more closely for their performance as fiduciaries. The letter also addresses the need for a full independent appraisal of the company's owned real estate and asks to make their conclusions public. Furthermore, a request was made to review the financial performance of all stores and where necessary, sell the property, lease or close the location. Their comments get even more interesting as they focus on the specific value of the 42 Trinity NYC location.
Some of their comments were as follows:
"And just to illustrate the enormous value that has yet to be unlocked by the Company, on April 17, 2008, just four days ago, New York City property records revealed that a nearby parcel located at 8 Stone St., having approximately 100,000 buildable square feet and the same zoning characteristics as 42 Trinity, sold for over $60 million to a hotel developer. This transaction equates to $600 per buildable square foot, thus implying a valuation for 42 Trinity at $102 million."
Some activist value funds believe management has demonstrated little concern for shareholders. This belief partially stems from the company's attempt to delist from the New York Stock exchange around December 2007 to gain a listing on the pink sheets. Minority shareholders stopped their attempt from a pink sheet listing. SYMS compromised and listed on the NASDAQ where it currently trades.
Syms quietly expanded its NYC real estate holdings and if they were successful in their pink sheet listing this information would not have been disclosed. In the April 25 annual report, Syms revealed the purchase of 16,500 square feet of air rights for its NYC 42Trinity flagship location for 3.1 million. The adjacent property was also purchased for 8 million. These two transactions may have increased the value of the Trinity location greater than the 102 million estimated by Esopus. Could Syms see value in doing something other than selling off price clothing at this location? So they paid 8 million for an adjacent building and 3 million for air rights. Are the purchased air rights to put an additional 16 floors of off priced clothing merchandise, including expanding operations to the new adjacent location in this difficult retail environment, hmmm?
Further evidence of the potential value of their real estate holdings was recognized in 2006 when SYMS sold 2 locations in Rochester NY and Dallas Texas reporting a gain of 10,424,000. The company also owns stores in many prime locations such as
- Miami, FL
- West Palm Beach, FL
- Cherry Hill, NJ
- Westbury, CT
- Commack Long Island NY
- Ft. Lauderdale, FL
- Paramus, NJ
- Houston TX
- Buffalo, NY
- Secaucus, NJ
- Fairfield, CT
- Ft. Lauderdale, FL
- Tampa, FL
- Norcross, Georgia
- Marrietta, Georgia
- Addison, IL
- Rockville, MD
- Southfield, MI
- Hurst, TX
- King of Prussia, PA
- Monroeville, PA
I went back to the 1995 10k and found all of these properties on the books. Prior to 1995, their 10k filings were on paper according to Edgar.
In my opinion, management's financial transactions indicate they believe the stock is significantly undervalued and desire to increase their percentage ownership. There is an active share repurchase program from minority shareholders. The annual cash flow statements from 03/2004 to 03/2008 reported $17,340,000 expended on net transactions for stock buybacks offset by money received from options exercised. The shares outstanding continue to drop from 16,362,000 for the period ending 05/22/2000 to the current amount of 14,590,000.
The potential opportunity of SYMS attracted famed contrarian value investor Michael Price. He owns about .97% of the total shares outstanding although he sold some of his original position. Irving Kahn, Loeb, Barrington and Espous have also recognized SYMS as an opportunity.
SYMS basic financial data
Per Share Data
Price = $7.33
EV = $8.54
NTA (Net Tangible Assets) = $12.28
Book Value = $13.018
EBITDA/EV = 6.07%
CFFO/EV = 9.94%
EV/Sales = .48
Market Cap = 106.9 Million
EV = 119.72 Million
Disclosure: I have a long position in SYMS