Real estate secrets at Syms?…

June 13, 2008

The motto of discount clothing retailer Syms Corp (SYMS) is: “An educated consumer is our best customer.”

An educated shareholder, on the other hand, can be a pain in the butt.

Esopus Creek, an activist hedge fund holding about 4% of Syms stock (the Syms family controls the majority), has been educating itself about the firm’s property holdings by digging into municipal records. (Esopus, which filed this 13D in April, already won a battle against Syms, forcing it to re-list its stock after the company decided to slink away and trade on the “pink sheets” late last year.)

This week Esopus shot off a letter, quaintly quoting Robert Louis Stevenson (“the cruelest lies are often told in silence”) and bashing Syms for understating its real estate assets by “a whopping 33%” in its SEC filings. Though this got the press’s attention (even making the New York Post), it might boil down to a wonky dispute over SEC disclosure requirements. Among yesterday’s batch of 8-Ks was this letter to Esopus from CEO Marcy Syms, who fired back her own Robert Louis Stevenson quote (you go, girl) and claimed that most of the “missing” real estate can be found right in the firm’s last 10-K. From a quick glance this looks to be true, but the 10-K uses approximations and scatters real estate information among various sections of the filing.

Ms. Syms did allow that the 10-K omitted about 400,000 square feet of space, mostly leased out to third parties. But she said the income from those leases was immaterial, adding:

Surely you must understand that not every bit of information you manage to unearth having “donned your miner’s hat” ought to be included in a public company’s SEC reports; indeed, to do so would overwhelm the users of the reports with an avalanche of minutiae, causing them to miss the forest for the trees.

Whether or not Syms got its disclosure right, companies watching this dust-up might decide to err on the side of greater transparency, at least for information that’s publicly available elsewhere. From management’s perspective, it’s probably better to have your investors miss the forest than to risk lawsuits over a few missing trees.

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