Author Topic: SYTE - Enterprise Diversified  (Read 212064 times)

InelegantInvestor

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Re: SYTE - Enterprise Diversified
« Reply #520 on: November 05, 2018, 08:10:54 PM »
Let me see if I've got this right:

SYTE agreed to acquire Mt Melrose and all of its owned properties late last year. At the time Mt Melrose owned 122 properties. The owner operator of My Melrose was also SYTE's Chairman.

Fast forward 11 months to the present. Now Mt Melrose carries 195 properties on its balance sheet. 113 of these properties are actually owned by SYTE. Contra the original plan, SYTE won't be acquiring the remaining properties. Instead, SYTE will either sell the properties it already owns, or contract with a 3rd party leasing manager.

Hmmmm......

If Moore and his team aren't going to be managing the 113 owned properties, then all of the properties should likely be sold off -- something I recognize will take some time.

The new Sytestar looks like the old Sytestar. Reminds me of a book I read a long time ago in school - the title was ďAnimal FarmĒ.
Indeed. This all began with "All shareholders are equal, but some are more equal than others"


Tim Eriksen

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Re: SYTE - Enterprise Diversified
« Reply #521 on: November 05, 2018, 08:23:07 PM »
I may be wrong but I think you are all over reacting.  It is not about selling all the properties.  Some certainly will be.  I doubt there is a meaningful write down. 

Outsourcing management is how it should be done and is much better.    Let's assume all 113 properties are rented for $800 month average = $90,400 per month.  You can use 90% occupancy at $900 if you like.  Assume a property manager takes 6-8% to manage or $5,400 to $7,200 per month.  That is a whole lot cheaper than building a property management team.  That is cheaper than one decent accountant or maintenance person.  With 113 properties are you better off with in house maintenance and contracting out services as needed.  If it were a single apartment complex maybe an in house person makes sense but if you have properties spread around a city contracting out services as needed seems cheaper.   

My read is that Mt Melrose was just buying too quickly and over hiring.  There is no evidence that the problem is that the properties are bad or that they over paid.  With a holding company approach you are sometimes going to have issues like this.  In their case it has happened twice, since HVAC had some similar problems.  Asset management and Internet are doing well.  VA real estate is being liquidated.   

matts

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Re: SYTE - Enterprise Diversified
« Reply #522 on: November 05, 2018, 08:42:26 PM »
I may be wrong but I think you are all over reacting.  It is not about selling all the properties.  Some certainly will be.  I doubt there is a meaningful write down. 

Outsourcing management is how it should be done and is much better.    Let's assume all 113 properties are rented for $800 month average = $90,400 per month.  You can use 90% occupancy at $900 if you like.  Assume a property manager takes 6-8% to manage or $5,400 to $7,200 per month.  That is a whole lot cheaper than building a property management team.  That is cheaper than one decent accountant or maintenance person.  With 113 properties are you better off with in house maintenance and contracting out services as needed.  If it were a single apartment complex maybe an in house person makes sense but if you have properties spread around a city contracting out services as needed seems cheaper.   

My read is that Mt Melrose was just buying too quickly and over hiring.  There is no evidence that the problem is that the properties are bad or that they over paid.  With a holding company approach you are sometimes going to have issues like this.  In their case it has happened twice, since HVAC had some similar problems.  Asset management and Internet are doing well.  VA real estate is being liquidated.

If this is just a case of going too fast, why would Steve terminate the man who up until a month ago was chairman of his board? Sure, change course and hire an external manager, but wouldn't you let Jeff keep his job and have Jeff issue a statement with the announcement saying "Hey, we figured out a more efficient way of running Melrose" ?? Or the other logical option is that you let him resign. To me, Jeff's silence is telling here. As is the general lack of communication other than the filing at 2:30pm. They couldn't wait 90 minutes and also issue a press release to explain better and let the market digest outside market hours? The fact that we are trying to figure out what the filing is trying to say indicates that the company dropped the ball on communicating with shareholders on top of everything else. I'm surprised it's only down 30%.

« Last Edit: November 05, 2018, 09:10:33 PM by matts »

slkiel

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Re: SYTE - Enterprise Diversified
« Reply #523 on: November 05, 2018, 08:44:45 PM »
Please find below a thread that I tweeted out earlier about the situation.

The bottom line is that we decided to restructure the subsidiary to better support our asset management operations. The goal is to generate predictable cash flow from the real estate. Jeffís goals were different as he was more focused on capital appreciation. There is no animosity between Jeff and the company, simply different goals.

Things have not worked out exactly as planned for HVAC and Mt Melrose, but those challenges have pushed us to focus on our strengths and on the operations that we control at the corporate level. That is a big long-term plus. Doing things in a decentralized manner, as we attempted with HVAC and Mt Melrose, in a small company is very, very difficult. The public company aspect is much different than a private company.

The stock price will do what it does, and, as we all know, it is not always rational (especially for a small company). Our operations, though, are no different than yesterday. As we said in the 8-K, we are cutting expenses and simplifying the business. There isnít much more to it than that.

https://twitter.com/steven_kiel/status/1059661220507250688?s=21

slkiel

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Re: SYTE - Enterprise Diversified
« Reply #524 on: November 05, 2018, 08:49:29 PM »
Also, I appreciate the comments about the timing of the filing. We typically try to file the Qs on Friday afternoons, for example. In retrospect we should have been more sensitive about the timing of this filing. Clearly we did not believe that it would be market moving.

Gregmal

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Re: SYTE - Enterprise Diversified
« Reply #525 on: November 05, 2018, 08:49:55 PM »
I'm not accusing this company of doing this, but generally speaking, IMO these type of deals are generally the equivalent of stock promotions for sophisticated investors. These communities(COBF) inadvertently cultivate a sense of "in the know" from members and "access" that generally speaking, impairs ones ability to look at a high risk, low quality businesses as such. I'm curious to know how many investors are involved in this and Premier Diversified simply because of this site? Again, I am not accusing the managers here of anything....But being here, amongst sophisticated investors, likely gives a bit of a boost somewhere. You see folks here rigorously rip through other investments, and I can't help but think there is less diligence with companies like these because people want to believe.

And in relation to this, why not just start an in house property manager? The ROI in that business is typically high. Asset light and very scale-able, much like money management. You wouldn't need an accountant, anyone who runs money should be able to do basic accounting or find a handyman. The problem with these "management" schemes is there's double and triple and quadruple layers of people getting paid to essentially do the same thing. If the CEO is managing the company, he should be able to do some accounting without drawing a fee or outsourcing it for one. I own investment properties and I do all my own management stuff. I guess if it was someone else's money I'd hire it off and bill them the cost though...

fishwithwings

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Re: SYTE - Enterprise Diversified
« Reply #526 on: November 05, 2018, 09:02:32 PM »
So, let me get this straight.  The company has made two private investments in operating companies, HVAC and real estate, and both have turned sour in short order.  And this guy is running an investment advisory business, where most of his returns are driven by his ownership in SYTE?  Yeah, this will not work out well.....

Well to be fair, I think they bought bad businesses but his portfolio @ Ark is very different as he is invested in higher quality companies (e.g. MMAC).

What do you mean by businesses? I thought Mt. Melrose was just a shell with a bunch of properties in it, which SYTE had appraised at the time of acquisition. And my impression was that there wasn't much to HVAC when SYTE "bought" that as well. Most of the apparent damage here seems to have taken place as these things were being scaled under current management, not before.

How does the CEO not know how many people Jeff is hiring until months later? or how many houses he is buying and how quickly they are getting into the rental market? Either Jeff was supposed to report up and didn't (which will make Jeff look very bad), or Steve wasn't engaged as he should have been, which will make him look bad.

HVAC is known to be a horrible business with low margins.  As for real estate it is very capital intensive and if I recall correctly, Buffett once said if there was an easy way to manage a lot of single family homes, he would do it. The businesses should not have been entered into the first place.

However, the poorly timed press release and firing (not resignation) of Jeff from the BOD and company leaves a lot of questions. Also, I donít understand why the new direction focuses on cash flow and not capital gains from the properties. These are SINGLE FAMILY homes which usiually provide very low cap rate. 
« Last Edit: November 05, 2018, 11:43:05 PM by fishwithwings »

DTEJD1997

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Re: SYTE - Enterprise Diversified
« Reply #527 on: November 05, 2018, 09:57:05 PM »
I may be wrong but I think you are all over reacting.  It is not about selling all the properties.  Some certainly will be.  I doubt there is a meaningful write down. 

Outsourcing management is how it should be done and is much better.    Let's assume all 113 properties are rented for $800 month average = $90,400 per month.  You can use 90% occupancy at $900 if you like.  Assume a property manager takes 6-8% to manage or $5,400 to $7,200 per month.  That is a whole lot cheaper than building a property management team.  That is cheaper than one decent accountant or maintenance person.  With 113 properties are you better off with in house maintenance and contracting out services as needed.  If it were a single apartment complex maybe an in house person makes sense but if you have properties spread around a city contracting out services as needed seems cheaper.   

My read is that Mt Melrose was just buying too quickly and over hiring.  There is no evidence that the problem is that the properties are bad or that they over paid.  With a holding company approach you are sometimes going to have issues like this.  In their case it has happened twice, since HVAC had some similar problems.  Asset management and Internet are doing well.  VA real estate is being liquidated.

I am going to guess that there is eventually a HUGE write down on these properties.

I doubt they will be able to get a property manager that cheap.  Maybe? Let us say that I am wrong assume that they do for that low a price. 

What of the quality and diligence of monitoring/watching/fixing/improving the properties?  A 3rd party management company is not going to be that good, certainly not for that price.

Remember, unless I am mistaken, most of the properties are "lower priced" houses.  They assets are a little rough around the edges and take a tremendous amount of management time/skill/experience.  You've got to know EXACTLY what you are doing, you've got to be ON TOP of everything, all the time.  If you aren't, things blow apart.

Why was Jeff scaling up the in house management/repair/development?  He built his fortune/business by doing this.  I am going to guess that he knows best.  Do you honestly think that Jeff would not have figured out, "Gee, what the HECK am I doing?  I should just farm this out to an external manager! What a dunce I've been wasting my time/energy/talent!"

I think property management companies work best with commercial/industrial properties and higher end residential.

Finally, something went terribly wrong here.  Either SYTE management was wrong in their judgement to begin with OR something went terribly askew with Jeff. 

My guess is that management just woke up one day and decided they want to be fund managers and not get their hands dirty with low priced houses, HVAC, and the interwebs.

Does ANYBODY think this a good turn of events?

Either way, doesn't really matter, end result is the same, damaged company, ruined reputation, and low stock price that is probably going lower.

Sportgamma

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Re: SYTE - Enterprise Diversified
« Reply #528 on: November 06, 2018, 02:58:03 AM »
If they are terminating the purchase agreement, how come they end up with all the properties? Or does the purchase agreement only apply to 113 of the 195?

gfp

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Re: SYTE - Enterprise Diversified
« Reply #529 on: November 06, 2018, 03:52:19 AM »
They were buying the properties and Mt. Melrose in stages, 44 properties in the first closing, 69 properties in the second, etc..  But they terminated the deal when they had only purchased 113.  If they hadn't, it is my understanding that they would have been set to acquire all 195 and counting.

If they are terminating the purchase agreement, how come they end up with all the properties? Or does the purchase agreement only apply to 113 of the 195?