Author Topic: SYTE - Enterprise Diversified  (Read 244857 times)

racemize

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Re: SYTE - Sitestar
« Reply #390 on: March 30, 2018, 04:37:30 PM »

1) The business is essentially a $15m investment fund/conglomerate with >$2m in operating expenses (~13% annual management fee). I donít see how we can expect any net outperformance with that kind of drag. If assets grew to $100m, this wouldnít be as big of a drag, but how do we get there? Even growing assets at a 20-25% will take a decade or two to get there. Would be nice to see management at least acknowledge they understand it is an issue.

I'm a little confused by this statement--they showed an ROE of 13.5% this year.  That seems decent to me for a conglomerate.  Are you expecting google-like operating margins?  If 13.5% is repeatable (and it appears to include a fair amount of growth investment in costs), then I imagine that will result in long-term outperformance of the S&P.

There's also a fair amount of operating segments (HVAC/Internet and operating the real estate sections), so I don't think its appropriate to compare it to a pure investment fund.


Spekulatius

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Re: SYTE - Sitestar
« Reply #391 on: March 30, 2018, 07:06:23 PM »
Thanks for the update. I continue to have interest in the story but a few concerns make it uninvestable to me, even if shares were to trade down to a more reasonable 1-1.5x book value. Admittedly, I haven’t reviewed the 10-K or the exhibits yet, but I was a little disappointed with the letter. Heavy on the folksy fluff, light on the substance or long-term plan:

1) The business is essentially a $15m investment fund/conglomerate with >$2m in operating expenses (~13% annual management fee). I don’t see how we can expect any net outperformance with that kind of drag. If assets grew to $100m, this wouldn’t be as big of a drag, but how do we get there? Even growing assets at a 20-25% will take a decade or two to get there. Would be nice to see management at least acknowledge they understand it is an issue.

Their corporate expenses are about 660k. Essentially, the slowly dying internet business is paying for it. The earnings come mostly from gains from their investment in Alluvial, which had a pretty good year. This is not  a conglomerate, it’s my more like a venture capital fund with a couple of totally unrelated startups.

2) I assume management is not willing to disclose the terms of their arrangements with the hedge funds, which unfortunately makes it impossible to understand what the upside is in that business segment. The profit share could be 1% of the performance fees or 50%. I would have also expected to see the AUM of each fund disclosed annually.

3) HVAC business – would like to hear more about what was the cause of the disappointing results. This business seemed questionable from the start. It was pitched as a high ROI lay-up type business opportunity, and now it is losing money? That’s a huge swing, and would seem to warrant a more substantial explanation.

I wish Mt Melrose was spun off as a REIT or MLP and I could directly invest in Jeff.

Edit - not sure where my list went the first time.

Corporate expenses are $660k , not $2M, still high, but the slowly dying Internet business covers most of them. The earnings  came $2M+ appreciation  their Alluvial investment, which had a great year in 2017. I think the biggest headache seems to be the HVAC roll up business (HVAC value fund is a terrrible name for it, IMO) with its operating losses. ok, they hired a new GM, so we will see how this does this year. I don’t really understand all these fee sharing deals, it sound like Alluvial helps other asset management business to get off the ground


This is not a conglomerate, it’s more like a venture capital fund housing several upstarts, thwt really don’t have anything to do with each other. It will be interesting to see, how capital allocation decisions will be done in the future , because I am fairly sure, not all of them will work out and when to pull the plug is important.
« Last Edit: March 31, 2018, 05:18:56 AM by Spekulatius »
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Morgan

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Re: SYTE - Sitestar
« Reply #392 on: March 30, 2018, 08:20:06 PM »
I own both, but I just got into apartments and plan to continue down the apartment path right now. The apartments get much better leverage terms and are easier to raise capital for. Apartments are also valued differently, despite them both being rent-able.

I've made close to 100% return on equity in a short amount of time with houses by small sums. And it required an appreciating market and it's obviously small sums.

Not to derail the thread any, but I disagree that houses are the same as apartment buildings. In my market (and yours may be different), houses get the same rent, but are 3-4x as big and thus have way more maintenance costs. They also cost more to buy per unit (50-100% in my market), and seeing as they are single family homes you only get one unit per costly closing.

ROI does however depend on how you structure the deal. Sometimes buying a house can generate a great ROI, but tend to prefer multi unit buildings even if they are less commonly for sale.

LR1400

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Re: SYTE - Sitestar
« Reply #393 on: March 30, 2018, 09:02:43 PM »
I own both, but I just got into apartments and plan to continue down the apartment path right now. The apartments get much better leverage terms and are easier to raise capital for. Apartments are also valued differently, despite them both being rent-able.

I've made close to 100% return on equity in a short amount of time with houses by small sums. And it required an appreciating market and it's obviously small sums.

Not to derail the thread any, but I disagree that houses are the same as apartment buildings. In my market (and yours may be different), houses get the same rent, but are 3-4x as big and thus have way more maintenance costs. They also cost more to buy per unit (50-100% in my market), and seeing as they are single family homes you only get one unit per costly closing.

ROI does however depend on how you structure the deal. Sometimes buying a house can generate a great ROI, but tend to prefer multi unit buildings even if they are less commonly for sale.


Didnít say they were the same. They both are viable is what I said.

But....to your point I prefer Multifamily for the same reasons you describe plus the better leverage.

Morgan

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Re: SYTE - Sitestar
« Reply #394 on: March 30, 2018, 09:13:23 PM »
I own both, but I just got into apartments and plan to continue down the apartment path right now. The apartments get much better leverage terms and are easier to raise capital for. Apartments are also valued differently, despite them both being rent-able.

I've made close to 100% return on equity in a short amount of time with houses by small sums. And it required an appreciating market and it's obviously small sums.

Not to derail the thread any, but I disagree that houses are the same as apartment buildings. In my market (and yours may be different), houses get the same rent, but are 3-4x as big and thus have way more maintenance costs. They also cost more to buy per unit (50-100% in my market), and seeing as they are single family homes you only get one unit per costly closing.

ROI does however depend on how you structure the deal. Sometimes buying a house can generate a great ROI, but tend to prefer multi unit buildings even if they are less commonly for sale.


Didnít say they were the same. They both are viable is what I said.

But....to your point I prefer Multifamily for the same reasons you describe plus the better leverage.

Touchť

LC

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Re: SYTE - Sitestar
« Reply #395 on: March 31, 2018, 07:40:38 AM »
Anyone think that everyone and their mother is trying to buy multi-family units to leverage the upkeep and such?

I would think this would create some room in the single family units for a smart operator who can standardize the types of repairs/maintenance that push people away from these units. Would be interested to hear your thoughts as I feel you guys are closer to this market than I am (as a lowly homeowner).
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LR1400

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Re: SYTE - Sitestar
« Reply #396 on: March 31, 2018, 10:20:59 AM »
Single family is a niche but as the poster above stated, you typically pay more per bed/unit, they donít have the scale benefits....
Most people Iíve know who start in single family move toward Multifamily Ns other real estate.

The benefits to single family:
1. many donít want to live in an apartment complex, they are valued different, so in an appreciating market you can get a run up on the value of the home. But in those markets Multifamily is also typically increasing in value.
2. When you sell, you usually arenít selling to other investors.

I will keep most of my single families but I am moving toward apartments in areas where population is growing and the new inventory is stagnant.

gfp

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Re: SYTE - Sitestar
« Reply #397 on: March 31, 2018, 10:28:18 AM »
This is probably the wrong thread for this, but the other big benefit of multi-family is that I use a much smaller percentage in my spreadsheet projections for vacancy - it is very unlikely that a big portion of the units will ever be vacant at the same time.  If it takes a month or more to find the right tenant for a single family house, you are at 100% vacancy for that time.  We just had 15 days of vacancy for an apartment turnover and it was barely a blip in cash flow.

But it is true - people don't like living in multi family nearly as much, and the price per square foot is lower if you decide to sell the property.

As for Sitestar, I thought the letter was really good. 

DTEJD1997

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Re: SYTE - Sitestar
« Reply #398 on: March 31, 2018, 11:49:47 AM »
Hey all:

It is going to be interesting to see SYTE progress in the future.

The property acquisition should be cash flowing right from day one.  The cash flows should be steady & growing over time.  Jeff is a good operator and should grow this division nicely.

The internet division is doing pretty good, but it is slowly shrinking.

I'm surprised the HVAC division has plumbing attached to it now.  When this division was started/acquired it was billed as a no-brainer, easy $$$.   It appears that not to be the case, with no earnings as of yet.

Obviously, no earnings is a problem. 

The real problem as I see it is that every division of SYTE needs to be successful in the beginning for SYTE to really grow.  If the HVAC division continues to disappoint, it is gobbling up capital & management's attention that is better spent on other things.

The other problem is that at this point, SYTE's earnings are heavily dependent on the gains from the asset managers that they've partnered with.  If there is a big market downturn, it is highly likely these earnings will not be there.  Of course, if the managers can anticipate the downturn and profit off it, SYTE will be off to the races.

Finally, what will internet earnings be in 2-3 years?  Certainly lower than what they are today.

So the only division that has a steady/reliable earnings stream (at this point) is the property division.

In order for SYTE to really take off, I think they need to do the following:

1). Get the HVAC division fixed PRONTO.

2). Get more assets under management.  Expenses are simply too high for what they currently have.  If they can grow quickly, this problem will dissipate.  Maybe expand real estate to other cities/regions?

3). They've got to put together some good years, back to back to back in terms of book value growth.  The first full year was no good.  The second year was OK, but not great.  You could even make an argument that they did OK (+16.7%), but didn't hit the ball out of the park,  IF you ONLY measure growth in book value.

If they can do those things, SYTE will be well positioned for the future.





 

Spekulatius

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Re: SYTE - Sitestar
« Reply #399 on: March 31, 2018, 02:21:04 PM »
A lot of the it book value growth came from issuing stock above book value.
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