Author Topic: SYTE - Enterprise Diversified  (Read 244995 times)

Tim Eriksen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 788
Re: SYTE - Enterprise Diversified
« Reply #510 on: November 05, 2018, 01:01:58 PM »

Wow - this seems like a huge deal. Moore was the reason or the catalyst for all of the others getting involved with this right. And wasn't the Mt. Melrose deal just struck in January or so of this year?

So is what Enterprise Diversified is now saying is that the properties were not as advertised or expected in the purchase agreement? And additionally that since the purchase agreement for Mt. Melrose was struck - that they added expenses beyond what were warranted? This makes me quite sad, because I enjoyed following what Moore did with Sitestar when he learned of its problems and I guess I'm just really surprised by this turn of events.

Sad yet in the long run may be good.  Mt Melrose is capital intensive and going to be hit with depreciation charges, meaning low return on capital and low EPS.  Asset management is the opposite once it is to scale.  Moving away from real estate may prove very beneficial over time.

Other thoughts:
1. You should not put out an 8-k like this during market hours.
2. It reads to me that there was increased staffing, and hence higher operating costs.  Since this was not prudent it must mean increased loss from operations in the unit.  Poor management at the unit level.  Implied is some miscommunication between unit and corporate parent at best.  We shouldn't assume anything worse than that.  Hopefully that proves correct.


InelegantInvestor

  • Full Member
  • ***
  • Posts: 161
Re: SYTE - Enterprise Diversified
« Reply #511 on: November 05, 2018, 01:22:41 PM »
From Dec 11, 2017:
"Mt Melrose is at an inflection point. It owns 122 residential properties and has the potential, with Sitestar’s help, of becoming the dominant property owner in Lexington, Kentucky. Jeff’s strategy is to find undervalued properties, repair and upgrade them, rent them out to tenants, and own them indefinitely. This is a similar strategy that attracted us to Sitestar in the first place. 

 Mt Melrose’s current portfolio is exceptional. Jeff is an excellent, passionate, operator. He uses debt appropriately. And, Lexington is the ideal location to take advantage of rising rents and rising property values.

...

Sitestar intends to commit the next $10 million of cash that we internally generate to the subsidiary. Some of that will come from debt that we will raise at the corporate level. The initial allocation to the subsidiary will likely be in the range of $3 million. 

Jeff will not earn a salary. He will receive an annual bonus based on book value growth with a high-water mark.

As an investor, I have a strong preference for a stable or decreasing share count. We have done the opposite over the last year and a half. Believe actions, not words. We will work to prove those words over time. On this issue, I prefer Sitestar to be less of a Teledyne (issuing shares at opportune times and then buying them back when attractive) and more of a Berkshire (only using shares for acquisitions in unique cases). We think this transaction will prove to be more akin to Burlington Northern than Dexter Shoes. I am certain we will not regret issuing shares."

 
While we are certainly excited about this transaction, you should be patient. We urge our subsidiaries to think long-term. Often that negatively affects short-term results."

-Steven Kiel

"I bring this up to say that, coming from a person who values his autonomy as much as the air he breathes, if you are a person who is looking to sell your business or partner with a public entity while still remaining at its helm, then you should consider partnering with Sitestar."
-Jeff Moore

Less than a year later, the arrangement ends with some insinuations, but no clear statement. The insinuations seem to imply that Mr. Moore did what Mr. Kiel had expected him to do, but the company no longer had an interest in its funding commitment or in granting autonomy. Is Mr. Moore still on the Board? 

Tim Eriksen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 788
Re: SYTE - Enterprise Diversified
« Reply #512 on: November 05, 2018, 01:40:23 PM »
I think the insinuation is that debt was not used appropriately.  Growing too fast and not getting properties on the rental market quickly and efficiently means high carrying costs.  In that sense I read the 8-K as implying that the operating philosophy changed after the purchase - buying too many properties on debt = increased carrying costs plus increased operating cost structure.  We will find out more in the quarterly financials.  Many organizations struggle with growth. 

As a shareholder this sucks in the short term, but these issues are fixable.  How much it will cost to fix is the issue. 

roark33

  • Hero Member
  • *****
  • Posts: 623
Re: SYTE - Enterprise Diversified
« Reply #513 on: November 05, 2018, 01:50:30 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.....


fishwithwings

  • Full Member
  • ***
  • Posts: 115
Re: SYTE - Enterprise Diversified
« Reply #514 on: November 05, 2018, 03:15:26 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).

matts

  • Full Member
  • ***
  • Posts: 211
Re: SYTE - Enterprise Diversified
« Reply #515 on: November 05, 2018, 03:31:31 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.

oddballstocks

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2252
    • Oddball Stocks Blog
Re: SYTE - Enterprise Diversified
« Reply #516 on: November 05, 2018, 04:21:21 PM »
This is such a weird situation. So Jeff cashed out and they’re stuck with the buildings? Is that good or bad? Is the portfolio decent? It seemed like Jeff knew what he was doing pre-purchase. Did he suddenly go rogue or something?

Why the sudden reversal on RE?

I guess I have more questions than the 8-k has answers. The optics doesn’t look great.
The ultimate edge for bank investors: http://www.completebankdata.com

Foreign Tuffett

  • Hero Member
  • *****
  • Posts: 1037
Re: SYTE - Enterprise Diversified
« Reply #517 on: November 05, 2018, 05:46:31 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.


DTEJD1997

  • Hero Member
  • *****
  • Posts: 1774
Re: SYTE - Enterprise Diversified
« Reply #518 on: November 05, 2018, 05:58:59 PM »
Hey all:

If SYTE is going to be liquidating the property portfolio of 100+ properties...that is going to be a large amount of properties in the lower cost housing segment for that market.

If they liquidate over the course of a year, I imagine they will have to discount them OR offer seller financing, OR a combination of both.

Who would buy a lot of those properties?  Somebody who is familiar with the market.

If SYTE is outsourcing management of the properties, that is going to take away a lot of their income.  The management company will get a lot of it.

SYTE is probably going to liquidate the internet company.  Maybe they get 1x or 2x EBIDTA for it?  There are no earnings for the HVAC, so either sell it at a large loss or shut it down.

I am going to predict that there is going to be a big writedown(s) in the near future for SYTE.

I am further going to predict that the share price is going to be going SUBSTANTIALLY lower in the upcoming year. 

One could even argue that the whole thing just had it's wheels come off.

Spekulatius

  • Hero Member
  • *****
  • Posts: 3577
Re: SYTE - Enterprise Diversified
« Reply #519 on: November 05, 2018, 06:03:55 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 “Animal Farm”.
Life is too short for cheap beer and wine.