Author Topic: SYTE - Enterprise Diversified  (Read 231547 times)

InelegantInvestor

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Re: SYTE - Sitestar
« Reply #50 on: December 03, 2015, 10:08:02 PM »
All you folks who would buy shares if Jeff were CEO- buy shares now and help make it happen.


ratiman

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Re: SYTE - Sitestar
« Reply #51 on: December 04, 2015, 04:27:10 AM »
Is SWAY  earning 10% yield on the properties BEFORE expenses? No. Total investment in properties is $2.2B. Total rent revenues last quarter was $46M, annualize that it's $184M. So SWAY is not even generating 10% yield before expenses and depreciation. FFO yield on the real estate is about 2.5%. So how are they going to generate a 10% return after expenses? It doesn't make sense.

Residential real estate is not meant to be owned in a public company. It's a cottage industry with no economies of scale run by small entrepreneurs who invest their own untaxed and uncompensated labor in the business. Meanwhile, SYTE has to pay a CEO, CFO, auditor, board, HQ expenses, etc etc. SYTE is just an uneconomic enterprise and it isn't worth more than $0 to anyone who isn't Frank Erhartic.
« Last Edit: December 04, 2015, 04:32:37 AM by ratiman »

InelegantInvestor

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Re: SYTE - Sitestar
« Reply #52 on: December 04, 2015, 04:43:26 AM »
Is SWAY  earning 10% yield on the properties BEFORE expenses? No. Total investment in properties is $2.2B. Total rent revenues last quarter was $46M, annualize that it's $184M. So SWAY is not even generating 10% yield before expenses and depreciation. FFO yield on the real estate is about 2.5%. So how are they going to generate a 10% return after expenses? It doesn't make sense.

Residential real estate is not meant to be owned in a public company. It's a cottage industry with no economies of scale run by small entrepreneurs who invest their own untaxed and uncompensated labor in the business. Meanwhile, SYTE has to pay a CEO, CFO, auditor, board, HQ expenses, etc etc. SYTE is just an uneconomic enterprise and it isn't worth more than $0 to anyone who isn't Frank Erhartic.
I agree that real estate is not where they should be allocating capital. It should be sold off, and they shouldn't buy more. I'm flabbergasted at how you can claim that its value is $0. Surely the 40+ properties must have some value!

When the market cap is far smaller than the value of the company's assets, as is the case here, you don't need a 10% yield to make money, you just need to get back to par. Is this a cigar butt? Sure, but it has quite a few puffs left.

ratiman

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Re: SYTE - Sitestar
« Reply #53 on: December 04, 2015, 04:58:44 AM »
Is SWAY  earning 10% yield on the properties BEFORE expenses? No. Total investment in properties is $2.2B. Total rent revenues last quarter was $46M, annualize that it's $184M. So SWAY is not even generating 10% yield before expenses and depreciation. FFO yield on the real estate is about 2.5%. So how are they going to generate a 10% return after expenses? It doesn't make sense.

Residential real estate is not meant to be owned in a public company. It's a cottage industry with no economies of scale run by small entrepreneurs who invest their own untaxed and uncompensated labor in the business. Meanwhile, SYTE has to pay a CEO, CFO, auditor, board, HQ expenses, etc etc. SYTE is just an uneconomic enterprise and it isn't worth more than $0 to anyone who isn't Frank Erhartic.
I agree that real estate is not where they should be allocating capital. It should be sold off, and they shouldn't buy more. I'm flabbergasted at how you can claim that its value is $0. Surely the 40+ properties must have some value!

When the market cap is far smaller than the value of the company's assets, as is the case here, you don't need a 10% yield to make money, you just need to get back to par. Is this a cigar butt? Sure, but it has quite a few puffs left.

You can always buy cash on the balance sheet for much less (50% haircut) than cash in your bank account. I'm not sure the reason for that, but that's how the market works.

But the question is whether investors will ever get money out of Sitestar. Hmmm . . . no. Frank effectively owns the business and always will. All cash flows through his hands and will end up in his pocket. He doesn't need investors to grow the business. So basically all the cash in the business will end up in his hands. If you don't believe me, paint a scenario in which the 46 year old FE pays a dividend or buys back shares instead of paying himself a bigger salary. I don't see it happening. 

InelegantInvestor

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Re: SYTE - Sitestar
« Reply #54 on: December 04, 2015, 05:08:41 AM »

You can always buy cash on the balance sheet for much less (50% haircut) than cash in your bank account. I'm not sure the reason for that, but that's how the market works.

But the question is whether investors will ever get money out of Sitestar. Hmmm . . . no. Frank effectively owns the business and always will. All cash flows through his hands and will end up in his pocket. He doesn't need investors to grow the business. So basically all the cash in the business will end up in his hands. If you don't believe me, paint a scenario in which the 46 year old FE pays a dividend or buys back shares instead of paying himself a bigger salary. I don't see it happening. 
As I understand it, the whole Graham method is buying that cash at a 50% haircut and profiting when the value is realized. Frank has 1/3 of the shares. Possibly. It actually looks like his ex-wife owns or co-owns a bunch of them(the filings are contradictory). That is not enough for him to maintain control. As part of the settlement agreement with the Moore group, he must hold an annual meeting by the end of June. I don't imagine he will be uncontested, and I don't see how he gets a single vote beyond the shares that he owns.
 
The settlement agreement also limits what he can do without permission of the Moore group. 

ratiman

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Re: SYTE - Sitestar
« Reply #55 on: December 04, 2015, 05:19:28 AM »
1/3 is more than enough to control the company. I'd say 20% is enough. Most of the shareholders are probably unwilling to pay their brokerage $15 to sell $10 of shares, although many of the shareholders are probably unaware of what they own. Frank could probably do a 100-1 reverse split and buy the fractional shares. 
« Last Edit: December 04, 2015, 05:28:31 AM by ratiman »

InelegantInvestor

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Re: SYTE - Sitestar
« Reply #56 on: December 04, 2015, 05:48:50 AM »
1/3 is more than enough to control the company. I'd say 20% is enough. Most of the shareholders are probably unwilling to pay their brokerage $15 to sell $10 of shares, although many of the shareholders are probably unaware of what they own. Frank could probably do a 100-1 reverse split and buy the fractional shares. 
Based on the public filings of the Moore group and other shareholders I've spoken to, there is easily more than 1/3 of shares held in large blocks by people who are not supportive of management. If Frank didn't think so, why did he settle?

rmitz

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Re: SYTE - Sitestar
« Reply #57 on: December 04, 2015, 10:17:53 AM »

You can always buy cash on the balance sheet for much less (50% haircut) than cash in your bank account. I'm not sure the reason for that, but that's how the market works.

But the question is whether investors will ever get money out of Sitestar. Hmmm . . . no. Frank effectively owns the business and always will. All cash flows through his hands and will end up in his pocket. He doesn't need investors to grow the business. So basically all the cash in the business will end up in his hands. If you don't believe me, paint a scenario in which the 46 year old FE pays a dividend or buys back shares instead of paying himself a bigger salary. I don't see it happening. 
As I understand it, the whole Graham method is buying that cash at a 50% haircut and profiting when the value is realized. Frank has 1/3 of the shares. Possibly. It actually looks like his ex-wife owns or co-owns a bunch of them(the filings are contradictory). That is not enough for him to maintain control. As part of the settlement agreement with the Moore group, he must hold an annual meeting by the end of June. I don't imagine he will be uncontested, and I don't see how he gets a single vote beyond the shares that he owns.
 
The settlement agreement also limits what he can do without permission of the Moore group.

Remember that the Graham method is to buy a huge basket of these things, because many of them won’t work out.

InelegantInvestor

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Re: SYTE - Sitestar
« Reply #58 on: December 04, 2015, 10:59:15 AM »
Remember that the Graham method is to buy a huge basket of these things, because many of them won’t work out.
Rest assured, this is not the only stock I own.
That said, I think shining light on what is going on may increase the probability that shareholders realize value.

intothebreach

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Re: SYTE - Sitestar
« Reply #59 on: December 04, 2015, 11:01:43 AM »
Hindsight is always much easier, so I'll try to thread carefully here. No position here, ever.

It seems to me that at this point the thesis is essentially a bet on management being replaced (or strongly influenced) in the not-too-distant future, otherwise the value will likely never be realized for shareholders. So I would suggest determining the likelihood of such a scenario occurring, or the willingness into taking and paying for legal action to uphold the rights of minority shareholders (and the costs of doing so versus the potential reward).

Otherwise, while this is indeed legally a company with assets currently worth something, it is not a business you can invest in with any margin of safety. Surely I'm missing information, but the downside unfortunately looks like a zero as a scenario involving costly legal actions cannot be excluded. Might as well bet it all on red.

Put otherwise: would you buy this again today? if not, it may be worth asking why you're staying long, which is essentially the same thing. Best of luck either way.