First the East Coast had an earthquake, then it was hit by a hurricane, and last week, a pre-Halloween mini-blizzard hit the area. Just when I thought things couldn't get any stranger, off-priced clothing retailer Syms (SYMS) (which operates both Syms and Filene's Basement stores, having "rescued" the latter from yet another bankruptcy a couple years ago), abruptly filed for bankruptcy on Wednesday morning.
The market's initial reaction to the news was about what you would expect, as the shares opened down 28% at $5.64, and they were even lower in premarket trading. But shares rose steadily from there, closing at $9.72, up 27% on the day. It was if the market welcomed the news. Frankly, I've never seen a situation quite like this one. Relatively unencumbered by debt, rich with real estate assets, but seemingly lacking any suitors, the company decided to close up shop after one more holiday retail season.
Certainly, purchasing Filene's assets out of bankruptcy a couple years ago turned out to be a bad move, and the synergies Syms expected never materialized; it was not a good marriage. In fact, Syms posted operating losses for the past eight consecutive quarters, and a positive bottom line just once during that time, but that was due to a gain on the sale of a property. Still, I never saw this one coming. I owned shares primarily because I believed that the value of owned real estate was worth significantly more than the operating businesses, and that this value would ultimately be extracted -- but not via chapter 11.
In bankruptcy filings, Syms listed total assets of $236 million, including $2.5 million in cash, $97.7 million in real estate, $65.8 million in inventory, and $70 million in other assets, the bulk of which appears to be deferred tax assets, according to the most recent 10Q. The company listed liabilities of about $94 million. Most companies declaring bankruptcy are in worse shape.
The real value here and reason that the market has not reacted as it normally would when a company declares bankruptcy is because of the real estate assets. Syms will enter bankruptcy owning 15 properties that include both the land and building, with a total of more than 1.1 million square feet of retail space. This includes the property at 42 Trinity Place in New York City, which is the company's most valuable piece of real estate. Last year, the company sold its Rockville, Md. location for $15 million.
It is unclear at this point what the real estate is actually worth, although when the company announced earlier this year that it was seeking "strategic alternatives," Capstone Equities valued the real estate at more than $200 million. The bankruptcy complicates matters in my view, but Mr. Market is telling us at this point that it is a positive event for shareholders. We'll see. While I am still holding shares at this writing, given the lack of clarity to any potential upside, I am inclined to think that $10 per share today may be a decent sale price.
