Syms: Undervalued Real-Estate Holdings Hide Huge Upside

Apr.21.11 | About: Syms Corp (SYMSQ)

A company that I have been following for quite sometime is a small off-price clothing retailer called Syms Corp. (SYMS). (My friend John over at Shadow Stock had originally written the company up. Syms' retail operations operate under the Syms and Filene's Basement names. Additionally, it has a very significant real estate portfolio.

I believe it to be one of the cheaper securities that I have seen. In fact, it is presently priced relatively close to what it was two years ago when the bottom of the markets fell out, despite being worth significantly more today.

Real Estate

Here is the list of properties it owns or leases, according to its most-recent 10K.

I took the liberty of linking to the owned locations on Google Maps, as well as giving you some info on the assessed/estimated market values of the properties per the various tax roles for the governments in which the properties are located. I either linked to the webpage where I found the assessment, linked to a screen shot in Picasa (when I wasn't sure the site was set up to give a reliable web address), or had to call the government body which was in charge of assessing the property. Many times, I had to make a few calls to track down the correct city or county, as some of its stores are in bedroom communities of larger cities, and in its annual report the store is listed as being located in the larger city.

All amounts are in the greenest of U.S. fiat dollars.

  • Fairfield, CT: Appraised value of $5,638,500 with a construction date of 1993.
  • Ft Lauderdale, FL: Located in Boward County, with an appraised value of $6,114,350, the main property was last sold in 1979 for $6.3 million (meaning that on the books, the property has been depreciated down to virtually nothing). There is an additional piece in the area which is owned by Syms that is valued at $406,902.
  • Miami, FL: Upon calling the tax office for Miami-Dade County, since the website didn't seem to co-operate with me, I found that the property is assessed at $4,757,435 and has an address of 4601 NW 77th Ave, in Doral which differs slightly with the address on Google Maps.
  • West Palm Beach, FL: Various pieces, assessed at $371,679; $6,229,566; $558,345; $434,506; and what appear to be several other pieces of property, of which, the site spout out an error message to me over... The tax site of Palm Beach County can be searched here. Another piece sits in Tampa, which has an assessed market value of $2.765 million
  • Atlanta, GA: The store, which is actually in Gwinnett County, is valued at $3,550,000. While the info on assessment value wasn't on the webpage, when I called Gwinnette County, I got a parcel number (r6216040), which resulted in me being able to see the outline of the lot (which has a ton of parking in it; so much, that it appears to provide parking for the neighboring Pier 1 (NYSE:PIR) store. As a side note, there are 2 parcels that the assessor's office told me were located at the address of 5775 Jimmy Carter; the other belongs to a guy named Kieth Chung, and is valued at $3,267,900.
  • Marietta, GA: Various pieces valued by the Cobb County Assessor's Office at $231,954; $2,460,000;$1,050,000; $15,940; $447,185; and $791,604. As an interesting tidbit, it looks like the company has a coin laundry operation in Marietta, which is non-material to the business as it is not mentioned in their 10K.
  • Addison, IL: Located in a township, the location is valued at $4,341,644.
  • Rockville, MD: Property assessed at $10,383,800 and just sold on March 3, as noted in this newly released 8K for $15 million, in what will eventually manifest as a type of sale-lease back transaction.
  • Southfield, MI: Southfield County assesses the value at $1,632,350 and $57,840.
  • Cherry Hill, NJ: I had to call on this one, but, the Cherry Hill Assessor told me that the location (which is 4 lots) was valued at a total of $6,279,900. This article from 2009 estimates that the property is potentially worth over $20 million.
  • Paramus, NJ: I had to call on this one as well, but the Paramus Tax Collector's office told me that the property was located at 334 North Rt 17, and not 330, as Google Maps said. Regardless, it is valued at $18 million. The land made up $12,229,00 of the value with the building making up the remaining $5,771,000. The block number is 3601, and the building is on the 6th lot.
  • Secaucus, NJ: I had to make a call to the city of Secaucus. They gave me a website, and after a long conversation, we figured out that Syms owned 3 pieces of land. The first, is noted as 1 Emerson Lane, is valued at $16,876,800; 1 Syms Way, I couldn't find it on the tax website, but I was told by the Building Department that it is valued at $419,000. Maybe it's a parking lot? Interestingly, Syms also owns a condo in the city, at 429 Dunlin Plaza which is valued at $153,800. The main property was just added as collateral to a short-term credit agreement with bank of America.
  • Buffalo, NY: After a few calls, I was led to the City of Clarence, where the Assessor's offices told me that the location is worth $3,100,000 million, along with another parcel, which includes an access road to the Eastern Hills Mall, which is valued at $230,000.
  • Elmsford, NY: This is one of the most interesting stories in regards to property owned by Syms. In the annual report, there is a note that there is a land lease that expires in 2068. This lease, as they told me in the Division of Building in the Elmsford Government, is, more or less, solely for a stop light that is owned by a judge in the town. Furthermore, the company owns 3 parcels on E Main St (which is called Terry Town Rd in the record books due to 9-11 compliance). The first is a vacant lot, located at 295 Terry Town Rd which is valued at $26,600; the lot where the Syms store rests is valued at $326,400; and the lot which Syms leases to another party, which in turn leases to Bed Bath and Beyond, is valued at $620K (this info comes from how the Department of Building understands the leases to work). I have a hunch that since the Syms store alone is 59,000 sq ft., a neighboring parcel owned by a local judge, and that they both sit under 1,000 ft. from an interstate exit, the assessed values are understated due to how many small town governments seem to operate. I can't imagine that commercial real estate would be valued at under $10/sq-ft anywhere in the country other than a place like Detroit, Michigan or even Gary, Indiana.
  • New York, NY: This, despite it's shoddy appearance (yeah, I actually did some scuttlebutt on this one, and took the pics that I link to), this location is the gem of the Syms crown. It is located in the middle of Trinity Place, and sits between a Subway entrance and exit. The city of New York assesses the market value at $9,580,000. As if that isn't enough, it is a stone's throw from the NYSE on Wall St and the Trinity Church.

As I pointed out earlier, my friend John at Shadowstock, wrote up about the potential worth that the property has (at the height of the great bubble, potentially $102 million). The property that it is compared to is located a few blocks away on Stone, on where the Double Tree Hotel chain built a 42 story hotel. Apparently, the lot was sold in 2008 for whopping $60 million, but was bought by Sam Chang's McSam Hotel group in 2007 for just $17 million.

To further bolster this, it should be noted that the company bought some of the airspace above this store for the sum of $3.1 million in 2008. According to Robert Kelling, the company could build a 16 story building on the location. This was, and is, a small price to pay to have the option to be closer to fully utilizing this property. It is possible that the company will be able to pick up more air rights, giving it the ability to construct an even larger building. It just raised some cash from the sale of a property, and people may be willing to sell some development rights on the cheap in light of the slow economy.

If that isn't enough for you, then here is the 8K from 2008, where Syms bought the building that neighbors the Trinity store for a sum of $8,000,000. In it, the company states that "Discussions relating to the acquisition, which were initiated by the owners of 67 Greenwich Street, commenced in 2002. Although the Company does not have any plans to develop the site, it believed it prudent to complete the purchase in order to protect its property at 42 Trinity Place from encroachment. The property at 67 Greenwich Street includes a landmark structure along with appurtenant air rights." This shows the long-term view that the company has, as it took 6 years to buy the property.

From my understanding of the deed, Syms paid the $8 million for ~2,900 sq ft of land that is presently assessed at a meager $750K by the city of New York; the rumor is that the building isn't structurally sound, which I could believe. The place has a single deadbolt lock on it, so, if anyone ever has a pair of bolt cutters and the guts to go in, I'd be interested to hear their findings ;). Syms even went to the trouble of taking care of any potential zoning issues. If this is any indication of what they feel they can do with the rest of block that they own, look out above.

Conclusion On The Real Estate

My back-of-the-envelope calculation shows that the total assessed value of the company's real estate holdings is roughly $120 million. And that is when you don't include the assessed value of the recently sold property in Rockville, Maryland. When you throw in that property to the total assessed values of the other Syms locations, the number goes up to ~$130 million. Compare that to the property, plant, and equipment that is on the books, it implies that ALL of the company's fixtures, desks, and such, are actually worth a negative number. That's right, all of these items for 48 stores are valued at a negative ~$10 million dollars. When a company is trading at 1/2 of book value, this is simply an absurdity.

Another interesting bit of info in regards to the PP&E is that the company picked up roughly $22 million in PP&E due to the Filene's Basement acquisition. Which puts the book value of said PP&E at each of those stores at just under a million bucks a piece (how much Syms felt they were worth of the purchase price, is another thing).

The reason for this discrepancy between the assessed value of the company's real estate (as has been speculated on, but never publicly detailed; see here and here), and its value on the books, is that a lot of it has been on the books for such a long time that it has been depreciated down to a very small amount. Despite this, the company is trading at just over 1/2 of it's stated book value.

In 2009, the company entered into an asset-based credit agreement for $75 million. It seems that Syms Corp. is one of the few companies that is actually able to borrow money against it's real estate (the agreement was literally just amended).

I am sure that there are some locations that I couldn't find which were also not addressed in the annual report as they were not viewed as being material to operations; but, I did find some pieces, like the condo in Secaucus, New Jersey. It is estimated by one investment firm that the company has understated its owned real-estate portfolio by as much as 33%! Here, we see that the company had thought of an interesting way to monetize it's real estate, but, ultimately decided not to.

One of the things that I absolutely love about the real estate holdings of Syms is that they are spread out along the east of the U.S., and are in some pretty desirable localities. This, is in stark contrast to a company such as Income Opportunity Reality Investors (NYSEMKT:IOT), which is tied to the real estate of a single city and the origination of mortgages which may or may not preform for a long period. With Syms, the properties as a whole generate stable cash flows and should for the distant future.

It is important to remember that the company does have a history with profitably investing in and subsequently selling real estate assets. In 2006, it gained over $10 million from the sale of 2 properties in 2006, as is noted in page 6 of its 10K from early 2007.

Come back for more in post #2...

Disclosure: I am long SYMS. All info here is assumed to be reliable, correct, and up to date, but no assurances of any kind can be given.