SYTE - Enterprise Diversified

[wachtwoord]

Roll ups of HVAC have been tried a number of times and nobody has cracked the code.  The problem is that they are largely mom and pops who's success is tied to an owner/manager who lives the business.  The customer relationships and employee loyalties are tied largely to that owner.  Once they sell out and move on, those relationships slowly dissipate and die - especially when employees are now reporting to an Area Manager and have to focus on budgeting and targets and other "corporate" metrics.  There are very few synergies with the exception of some systems and purchasing but those tend to take more effort to integrate than they achieve in savings.

 

Historically the play has been to buy the mom-and-pops at 3x EBITDA with a parent that trades at 5x EBITDA and get the value pop there.  But over time that EBITDA shrinks instead of growing and the whole thing dies slowly.

 

Based on my (fairly limited) experience dealing with commercial HVAC companies, I agree with this 100%. The best managed companies are run by owner-operators who have worked in the business for decades and have long term customers built on personal relationships and customer trust in the owner's personal expertise and operational skill. The moat is the owner and without him/her the business would likely wither and die. Although I could very well be wrong, I see a rollup here as an uphill battle.

 

So theoretically organizing it as BRK is organized stands a chance of succeeding (set of wholly owned businesses, with their original owner operators in-place, with mandate and with equity in the holding company). Excluding insurance of course.

 

Why would an owner work for somebody else after they sell out? I imagine they would no sell in the first place, unless there is an issue with the business or a special personal situation.

 

Because they hold equity in the holding? This will lower their variance (but of course also lower their reward from their own work). This is why owner operators stay on when BRK acquires them I imagine.

[rkbabang]

FYI, I just noticed they have a corporate website.  I'm not sure how long this has existed, so maybe it is old news to some of you.

 

http://sitestarcorp.com/

 

 

[fareastwarriors]

I didn't realize Packer was on the Board...

[gfp]

Real Estate Investment announced -

https://www.sec.gov/Archives/edgar/data/1096934/000072174817000049/0000721748-17-000049-index.htm

[ScottHall]

Real Estate Investment announced -

https://www.sec.gov/Archives/edgar/data/1096934/000072174817000049/0000721748-17-000049-index.htm

 

I've personally worked with three of the people at Huckleberry. We share some of the same social networks, so I'm pretty sure I know exactly which real estate project this is, and if so, IMO it's a pretty attractive opportunity.

[InelegantInvestor]

 

I've personally worked with three of the people at Huckleberry. We share some of the same social networks, so I'm pretty sure I know exactly which real estate project this is, and if so, IMO it's a pretty attractive opportunity.

The contract specifically states 4  specific projects in the "Oak Street Properties" in Lakewood NJ with Platinum Developers as the developer:

https://www.sec.gov/Archives/edgar/data/1096934/000072174817000049/site_13.jpg

 

Were these the projects you were referring to? Lakewood is home to a fast growing Orthodox Jewish community of which the developer is a member. There is a huge amount of development of units for young couples and young families. I would guess that these properties are targeting that market.

[ScottHall]

 

I've personally worked with three of the people at Huckleberry. We share some of the same social networks, so I'm pretty sure I know exactly which real estate project this is, and if so, IMO it's a pretty attractive opportunity.

The contract specifically states 4  specific projects in the "Oak Street Properties" in Lakewood NJ with Platinum Developers as the developer:

https://www.sec.gov/Archives/edgar/data/1096934/000072174817000049/site_13.jpg

 

Were these the projects you were referring to? Lakewood is home to a fast growing Orthodox Jewish community of which the developer is a member. There is a huge amount of development of units for young couples and young families. I would guess that these properties are targeting that market.

 

I don't feel comfortable saying more, except that the reason I found it interesting had nothing to do with location necessarily.

[InelegantInvestor]

 

I don't feel comfortable saying more, except that the reason I found it interesting had nothing to do with location necessarily.

 

Cryptic.

[ScottHall]

 

I don't feel comfortable saying more, except that the reason I found it interesting had nothing to do with location necessarily.

 

Cryptic.

 

Sorry, don't want to dish on other people's deals with potentially outdated info. Just thought people would benefit from some knowledge from someone who has met & briefly worked with Sean Sun, etc.

 

Sean Sun is a really bright guy. He's a good growth investor but also has a great value skill set. He doesn't (or didn't) shy away from esoteric things; he found the Walker's Manual quite fascinating, for instance. There are smart people on both sides of this deal and if I had to guess, it'll work out very well for all involved.

[InelegantInvestor]

 

I don't feel comfortable saying more, except that the reason I found it interesting had nothing to do with location necessarily.

 

Cryptic.

 

Sorry, don't want to dish on other people's deals with potentially outdated info. Just thought people would benefit from some knowledge from someone who has met & briefly worked with Sean Sun, etc.

 

Sean Sun is a really bright guy. He's a good growth investor but also has a great value skill set. He doesn't (or didn't) shy away from esoteric things; he found the Walker's Manual quite fascinating, for instance. There are smart people on both sides of this deal and if I had to guess, it'll work out very well for all involved.

Understood.

[DooDiligence]

Can anyone comment on this

 

http://www.inelegantinvestor.com/2017/01/30/steven-kiel-continues-enrich-pockets-sitestar-shareholders/

[maybe4less]

Can anyone comment on this

 

http://www.inelegantinvestor.com/2017/01/30/steven-kiel-continues-enrich-pockets-sitestar-shareholders/

 

At the very least there seems to be a misunderstanding of how Dodd-Frank-mandated shareholder advisory votes on compensation work. They are backwards looking, so last year's annual meeting had to do with 2015's compensation, not 2016's or 2017's.

 

I'm also not sure why anyone would expect the CEO to work for free. Yes, he controls a lot of stock, but being the CEO of a public company is a lot more work than being a passive shareholder, regardless of how big the company it is. I don't think a relatively small salary is egregious.

[DooDiligence]

Can anyone comment on this

 

http://www.inelegantinvestor.com/2017/01/30/steven-kiel-continues-enrich-pockets-sitestar-shareholders/

 

At the very least there seems to be a misunderstanding of how Dodd-Frank-mandated shareholder advisory votes on compensation work. They are backwards looking, so last year's annual meeting had to do with 2015's compensation, not 2016's or 2017's.

 

I'm also not sure why anyone would expect the CEO to work for free. Yes, he controls a lot of stock, but being the CEO of a public company is a lot more work than being a passive shareholder, regardless of how big the company it is. I don't think a relatively small salary is egregious.

 

Thanks (I was a bit surprised to see Inelegants article & was just curious to hear opinions...)

 

I was under the impression that these guys are really trying to sort out a mess & have good intentions.

 

 

[TBW]

Imo that blog post is just wrong. Steve Kiel will get 100k + 150k bonus if book value goes up 20% in a year. (Formula is 10x book value change - 5% hurdle x base salary).

 

To me that seems like a great deal for shareholders. I for one have been very impressed by what the guys have achieved so far.

 

That shareholder has had a problem from the start with new management. I think he is misguided. But time will tell.

[Parsad]

Can anyone comment on this

 

http://www.inelegantinvestor.com/2017/01/30/steven-kiel-continues-enrich-pockets-sitestar-shareholders/

 

At the very least there seems to be a misunderstanding of how Dodd-Frank-mandated shareholder advisory votes on compensation work. They are backwards looking, so last year's annual meeting had to do with 2015's compensation, not 2016's or 2017's.

 

I'm also not sure why anyone would expect the CEO to work for free. Yes, he controls a lot of stock, but being the CEO of a public company is a lot more work than being a passive shareholder, regardless of how big the company it is. I don't think a relatively small salary is egregious.

 

That article is somewhat off the mark.  Not sure how much of a discount the shares were being bought for against market price, so I can't comment there.  In terms of salary, the number doesn't look egregious at all and his bonus is performance-based. 

 

Yes, he may be running his investment fund, but that doesn't mean that he isn't working hard at Sitestar.  I run Corner Market Capital, but I personally put in a lot of hours at PDH, at the expense of my evenings, leisure time, holidays and weekends.  You combine my time on CMC stuff and PDH stuff and I'm closing in on 90 hours per week!  To tell you the truth...running PDH is far, far more difficult and time-consuming than running an investment fund...simply due to all of the operations, components, employees, day to day stuff, etc. 

 

Cheers!

[Jurgis]

Can anyone comment on this

 

http://www.inelegantinvestor.com/2017/01/30/steven-kiel-continues-enrich-pockets-sitestar-shareholders/

 

At the very least there seems to be a misunderstanding of how Dodd-Frank-mandated shareholder advisory votes on compensation work. They are backwards looking, so last year's annual meeting had to do with 2015's compensation, not 2016's or 2017's.

 

I'm also not sure why anyone would expect the CEO to work for free. Yes, he controls a lot of stock, but being the CEO of a public company is a lot more work than being a passive shareholder, regardless of how big the company it is. I don't think a relatively small salary is egregious.

 

The salary is possibly not egregious.

 

The stock deals at 20-30% market price discounts to buddies is another question.

[InelegantInvestor]

Just got back to my desk and saw that my post had been posted here, and commented upon. I appreciate everyone's perspective and I will attempt to respond with my own thoughts.

 

I understand how Dodd/Frank works. I do, however, think that it is curious that rather than award Mr. Kiel a compensation package before the annual meeting so that shareholders might give their input, the company allowed the annual meeting to pass with him receiving no salary and only grant him one afterwards. Also, though it is modest, he is being doubly compensated as funds that he manages own the majority of the company's equity.

 

 

Thanks (I was a bit surprised to see Inelegants article & was just curious to hear opinions...)

 

I was under the impression that these guys are really trying to sort out a mess & have good intentions.

 

I can't speak to their intentions, just to their actions. Mr. Kiel wanted majority control of the company. In order to get it, rather than purchasing shares on the open market, he issued shares to his funds at well below what it would have cost him to buy those shares on the market. Shareholders were not willing to sell him their voting rights at $.048 a share. There is an alternate history where Mr. Kiel could have chosen to work with existing shareholders rather than seize control from them. He did not, despite, in my case, multiple offers.

 

That article is somewhat off the mark.  Not sure how much of a discount the shares were being bought for against market price, so I can't comment there.  In terms of salary, the number doesn't look egregious at all and his bonus is performance-based. 

 

Yes, he may be running his investment fund, but that doesn't mean that he isn't working hard at Sitestar.  I run Corner Market Capital, but I personally put in a lot of hours at PDH, at the expense of my evenings, leisure time, holidays and weekends.  You combine my time on CMC stuff and PDH stuff and I'm closing in on 90 hours per week!  To tell you the truth...running PDH is far, far more difficult and time-consuming than running an investment fund...simply due to all of the operations, components, employees, day to day stuff, etc. 

 

Cheers!

Parsad, I appreciate your response. As a shareholder of PDH, I have no problem with your compensation- but it was an arrangement I entered into knowingly when I purchased my shares. When Mr. Kiel, et. al. were selling themselves shares at $.048, the market bid and ask were each above $.08. If Mr. Kiel wanted full control of the company, he should have paid a premium to that- not received a discount. Further, given that he is compensated by investors in his funds for managing the capital that he has invested in SYTE, he is getting paid twice for managing the same money.

The issue here is not about Mr. Kiel's results or what he deserves, but how he went about it. You very publicly split with Mr. Biglari when he began taking by force things that he could have gotten cooperatively had he just tried. Mr. Kiel chose to take what he wanted rather than allow the owners of the company to decide on their future. That is really my objection here.

 

 

 

To me that seems like a great deal for shareholders. I for one have been very impressed by what the guys have achieved so far.

 

That shareholder has had a problem from the start with new management. I think he is misguided. But time will tell.

I do have a problem with this management, but not from the start. I was quite supportive of them, in fact. My problem began when Mr. Kiel decided he needed a public company vehicle and created one against the interests of outside shareholders.

[InelegantInvestor]

 

The salary is possibly not egregious.

 

The stock deals at 20-30% market price discounts to buddies is another question.

I don't think the salary is egregious in and of itself. I think that looking at it as part of a series of events that willfully disregards shareholder input gives it a very different color.

[Parsad]

Can anyone comment on this

 

http://www.inelegantinvestor.com/2017/01/30/steven-kiel-continues-enrich-pockets-sitestar-shareholders/

 

At the very least there seems to be a misunderstanding of how Dodd-Frank-mandated shareholder advisory votes on compensation work. They are backwards looking, so last year's annual meeting had to do with 2015's compensation, not 2016's or 2017's.

 

I'm also not sure why anyone would expect the CEO to work for free. Yes, he controls a lot of stock, but being the CEO of a public company is a lot more work than being a passive shareholder, regardless of how big the company it is. I don't think a relatively small salary is egregious.

 

The salary is possibly not egregious.

 

The stock deals at 20-30% market price discounts to buddies is another question.

 

20-30% discounts?  That isn't ethical.  If they are issuing such huge discounts, then the placement should be open to all shareholders.  Cheers!

[InelegantInvestor]

Can anyone comment on this

 

http://www.inelegantinvestor.com/2017/01/30/steven-kiel-continues-enrich-pockets-sitestar-shareholders/

 

At the very least there seems to be a misunderstanding of how Dodd-Frank-mandated shareholder advisory votes on compensation work. They are backwards looking, so last year's annual meeting had to do with 2015's compensation, not 2016's or 2017's.

 

I'm also not sure why anyone would expect the CEO to work for free. Yes, he controls a lot of stock, but being the CEO of a public company is a lot more work than being a passive shareholder, regardless of how big the company it is. I don't think a relatively small salary is egregious.

 

The salary is possibly not egregious.

 

The stock deals at 20-30% market price discounts to buddies is another question.

 

20-30% discounts?  That isn't ethical.  If they are issuing such huge discounts, then the placement should be open to all shareholders.  Cheers!

Exactly! Especially for a control position. Mr. Kiel claimed on this thread that the intrinsic value was lower than the market price- that is entirely irrelevant.

[Tim Eriksen]

I beg to differ that he is getting paid twice to manage the same money.  They are two separate issues it is just that the same person is doing both.  He is getting paid as a fund manager to allocate capital.  He is also getting paid as the CEO which entails a whole lot more than managing the company's capital.  Being in that situation as a part time CEO I can attest to the different use of time.  It is not an overlap.  I suspect you would have no problem if a hired CEO got paid that amount.  To expect him to work for nothing when you would happily pay someone else shows the rationale of your argument is flawed. 

 

     

[InelegantInvestor]

I beg to differ that he is getting paid twice to manage the same money.  They are two separate issues it is just that the same person is doing both.  He is getting paid as a fund manager to allocate capital.  He is also getting paid as the CEO which entails a whole lot more than managing the company's capital.  Being in that situation as a part time CEO I can attest to the different use of time.  It is not an overlap.  I suspect you would have no problem if a hired CEO got paid that amount.  To expect him to work for nothing when you would happily pay someone else shows the rationale of your argument is flawed. 

 

     

The company has one operating business- the ISP. The employee in charge of the ISP makes around $35,000, if I recall correctly. The vast majority of the firm's capital is now tied up in various investment partnerships- HVAC, Alluvial, and now Huckleberry. For all practical purposes, this is a Fund of Funds. His salary as CEO is primarily tied to his capital allocation.

 

I think it would also be relevant to disclose that you were one of the select few who was allowed to participate in the second below market private placement, purchasing 10,000,000 shares at $.05 when trades on the open market were crossing well above $.08

[Parsad]

Hi Inelegant,

 

Didn't realize you wrote that post...thought it was written by someone else and posted to your site.

 

In terms of your comments:

 

Also, though it is modest, he is being doubly compensated as funds that he manages own the majority of the company's equity.

 

This isn't quite correct.  Owning a significant amount of a company in the funds is a double-edged sword.  He will benefit greatly if things work out well.  If things go sideways, he receives no compensation from either the fund or Sitestar.  If things work out poorly even though he worked hard and diligently, he will not only have worked for free at Sitestar, but will not receive any compensation from his fund until he reaches his high watermark. 

 

Again, this is based him operating a fund like mine with only an incentive fee and no management fee.  If he has a management fee, then this doesn't apply.  Also, if there was an agreement with shareholders before the AGM that he would work for free, and then suddenly added a compensation package after the AGM, that isn't ethical either.  Is that what happened?

 

When Mr. Kiel, et. al. were selling themselves shares at $.048, the market bid and ask were each above $.08.

 

If this is correct also, then I agree that this is completely unethical!

 

Cheers!

[InelegantInvestor]

Hi Inelegant,

 

Didn't realize you wrote that post...thought it was written by someone else and posted to your site.

 

In terms of your comments:

 

Also, though it is modest, he is being doubly compensated as funds that he manages own the majority of the company's equity.

 

This isn't quite correct.  Owning a significant amount of a company in the funds is a double-edged sword.  He will benefit greatly if things work out well.  If things go sideways, he receives no compensation from either the fund or Sitestar.  If things work out poorly even though he worked hard and diligently, he will not only have worked for free at Sitestar, but will not receive any compensation from his fund until he reaches his high watermark. 

 

Again, this is based him operating a fund like mine with only an incentive fee and no management fee.  If he has a management fee, then this doesn't apply.  Also, if there was an agreement with shareholders before the AGM that he would work for free, and then suddenly added a compensation package after the AGM, that isn't ethical either.  Is that what happened?

 

When Mr. Kiel, et. al. were selling themselves shares at $.048, the market bid and ask were each above $.08.

 

If this is correct also, then I agree that this is completely unethical!

 

Cheers!

The AGM was four months ago. As you know, the proxy includes an advisory vote on executive compensation. He was receiving nothing at that time. Four months later, this was added. Was there explicit agreement? No. But I would argue that it was implicit. This comes down to a question of what is legal and what is proper. I would argue that it is legal, but improper.

 

I believe my statement about the bid & ask to be true, but it is possible my memory is faulty. I can assure you that the market trades were happening well above the price Mr. Kiel paid. He justified that earlier in this thread by stating that the shares are restricted and the restrictions depress their value.

 

Keep up the good work at PDH. I know it's been a challenging year, but I think the moves you are making make eminent sense.

[Parsad]

I beg to differ that he is getting paid twice to manage the same money.  They are two separate issues it is just that the same person is doing both.  He is getting paid as a fund manager to allocate capital.  He is also getting paid as the CEO which entails a whole lot more than managing the company's capital.  Being in that situation as a part time CEO I can attest to the different use of time.  It is not an overlap.  I suspect you would have no problem if a hired CEO got paid that amount.  To expect him to work for nothing when you would happily pay someone else shows the rationale of your argument is flawed. 

 

     

The company has one operating business- the ISP. The employee in charge of the ISP makes around $35,000, if I recall correctly. The vast majority of the firm's capital is now tied up in various investment partnerships- HVAC, Alluvial, and now Huckleberry. For all practical purposes, this is a Fund of Funds. His salary as CEO is primarily tied to his capital allocation.

 

I think it would also be relevant to disclose that you were one of the select few who was allowed to participate in the second below market private placement, purchasing 10,000,000 shares at $.05 when trades on the open market were crossing well above $.08

 

Yes, it has one business now, but he's getting paid to grow and add businesses, correct? 

 

When I took over PDH, it only had one operating business (China) and the Burnaby clinic was shut down.  Now China (I will discuss in the letter, but obvious) is the more troubled business, the Burnaby clinic is operating great and growing, and we have two other businesses...Sequant Re, GOeVisit.com, an investment portfolio (Russell Breweries and other holdings) and real estate development (Kingswood).  And there were probably discussions with four other businesses we didn't close, but were in negotiations with.  So all of that takes a considerable amount of work.

 

If all Kiel is going to do is manage the one existing ISP, then you might be able to make a case.  If he is being paid to grow and add businesses, then he has to receive some sort of compensation.

 

I do think you have a real case with the share discount though.  Doesn't matter if intrinsic value was lower.  If there were bids at around $0.08, you can't issue a nearly 40% discount...it's just not right...even if volume is thin.  Cheers!