SYTE - Enterprise Diversified

[gfp]

I had not seen that yet.  They really seem gifted at turning millions of dollars into thousands of dollars.

 

Surprised no one is talking about this: https://www.sec.gov/Archives/edgar/data/1096934/000143774919013461/syte20190703_8k.htm

[writser]

Well done. Buy it for $3.5m in December 2017, sell 65% for $100k in July 2019. Also props for a well-timed July, 3 after hours filing.

[gfp]

I was trying to figure out why he thought Woodmont Lexington was Jeff.  Who knows who it is, its a Delaware LLC registered to an incorporation service's address.  I guess when they say unaffiliated 3rd party that's what they mean

[stahleyp]

Not sure what time it was released but markets closed at 1pm today.

[ragnarisapirate]

Not sure what time it was released but markets closed at 1pm today.

 

Ok, so I was incorrect on the after hours part of it. Regardless, I didn’t buy anything back.

[alpha asset strategies]

Tice Brown appears to be the managing member of Woodmont Lexington, LLC.

 

https://www.linkedin.com/in/tice-brown-10576850/

 

 

I can't believe it wouldn't have been more profitable to liquidate the real estate portfolio via auction or some other "fire sale" method.

[stahleyp]

Not sure what time it was released but markets closed at 1pm today.

 

Ok, so I was incorrect on the after hours part of it. Regardless, I didn’t buy anything back.

 

I feel your pain. My wife thinks I'm incorrect all the time. ;)

[ragnarisapirate]

Tice Brown appears to be the managing member of Woodmont Lexington, LLC.

 

https://www.linkedin.com/in/tice-brown-10576850/

 

 

I can't believe it wouldn't have been more profitable to liquidate the real estate portfolio via auction or some other "fire sale" method.

 

40 act.

[stahleyp]

Tice Brown appears to be the managing member of Woodmont Lexington, LLC.

 

https://www.linkedin.com/in/tice-brown-10576850/

 

 

I can't believe it wouldn't have been more profitable to liquidate the real estate portfolio via auction or some other "fire sale" method.

 

40 act.

 

Can you please explain more about what you mean here?

[Drokos]

What an embarrassing transaction. Management(Steve?) continues to show their complete incompetence. A great sweet heart deal for a friend. I know real estate investors in Lexington that would have paid much more for that deal, it's a shame they didn't maximize the value for shareholders.

 

 

[Ballinvarosig Investors]

The cynical attempt to hide this news tells you all you need to know about this management team.

[ragnarisapirate]

Tice Brown appears to be the managing member of Woodmont Lexington, LLC.

 

https://www.linkedin.com/in/tice-brown-10576850/

 

 

I can't believe it wouldn't have been more profitable to liquidate the real estate portfolio via auction or some other "fire sale" method.

 

40 act.

 

Can you please explain more about what you mean here?

 

Sure. There is a law called the 40 act that has lots of requirements for investment companies. If you have more than 40% of your assets in securities (but not t bills and cash) you have to do an ungodly amount of reporting and such. It would destroy most companies. There is an exemption you get for like a year, every 3 years. You can read about it in the SYTE 10k and do a google search on it. Prolly did some good things back when it was passed (just like limitations on hedge fund investors from back in the day). But both have waaaaayyyy outlived their usefulness and intent.

 

It’s a shame that it is the way it is. Keeps there from being a lot of value created.

[ragnarisapirate]

The cynical attempt to hide this news tells you all you need to know about this management team.

 

Or, they wanted to give the market a way (and time) to digest the info and react appropriately. Personally, I think it’s kind of shitty to release significant in the middle of a market day when someone may have a limit sell or buy order, and the person on the other end of the trade reads a filing and does a back of the envelope calculation quicker than them.

[stahleyp]

Tice Brown appears to be the managing member of Woodmont Lexington, LLC.

 

https://www.linkedin.com/in/tice-brown-10576850/

 

 

I can't believe it wouldn't have been more profitable to liquidate the real estate portfolio via auction or some other "fire sale" method.

 

40 act.

 

Can you please explain more about what you mean here?

 

Sure. There is a law called the 40 act that has lots of requirements for investment companies. If you have more than 40% of your assets in securities (but not t bills and cash) you have to do an ungodly amount of reporting and such. It would destroy most companies. There is an exemption you get for like a year, every 3 years. You can read about it in the SYTE 10k and do a google search on it. Prolly did some good things back when it was passed (just like limitations on hedge fund investors from back in the day). But both have waaaaayyyy outlived their usefulness and intent.

 

It’s a shame that it is the way it is. Keeps there from being a lot of value created.

 

Thanks. I'm somewhat familiar with that part but I don't quite understand why they can buy a bunch of properties but not sell them off one by one.

[Gregmal]

The cynical attempt to hide this news tells you all you need to know about this management team.

 

Or, they wanted to give the market a way (and time) to digest the info and react appropriately. Personally, I think it’s kind of shitty to release significant in the middle of a market day when someone may have a limit sell or buy order, and the person on the other end of the trade reads a filing and does a back of the envelope calculation quicker than them.

 

So I guess they had no choice then but to pick July 3, after market close?.... Couldn't have waited til December 24 closing bell I guess. You know, to really, really give people time to digest?

 

Something like this is as deliberate as it gets, and shouldn't be to anyone's surprise. All this company has done is throw in turd after turd, burn shareholder money, and then make excuses and spin shit off like its all just fine and merry and things are ok. What a disaster.

[alpha asset strategies]

Unless those properties are total crap, how would it have not made more financial sense to hire a reputable property management company and incorporate some performance incentives?  As is, they sold the portfolio at an equity valuation (excluding debt) of ~$150k (plus some potential future distributions).  They paid $3.5m (excluding debt) approximately 1.5 years ago. 

 

So what happened here:

 

1.  Dramatically over-paid for the acquisition?

2.  Gave Mr. Brown & Co. an incredible deal on the sale?

3.  Mismanaged the properties and destroyed millions in value over the past 1.5 years?  To the best of my knowledge, the Lexington real estate market hasn't collapsed during the past 1.5 years.

4.  Some combination of 1 through 3? 

 

If the debt is non-recourse to Mr. Brown, he appears to have made the deal of the century.

[Tim Eriksen]

The cynical attempt to hide this news tells you all you need to know about this management team.

 

Or, they wanted to give the market a way (and time) to digest the info and react appropriately. Personally, I think it’s kind of shitty to release significant in the middle of a market day when someone may have a limit sell or buy order, and the person on the other end of the trade reads a filing and does a back of the envelope calculation quicker than them.

 

So I guess they had no choice then but to pick July 3, after market close?.... Couldn't have waited til December 24 closing bell I guess. You know, to really, really give people time to digest?

 

Something like this is as deliberate as it gets, and shouldn't be to anyone's surprise. All this company has done is throw in turd after turd, burn shareholder money, and then make excuses and spin shit off like its all just fine and merry and things are ok. What a disaster.

 

It is amazing the amount slander people ignorantly throw around.  What day was the transaction?  What day was SEC required filing?  Do you know the rules?  Probably not.  So you are slandering them for deliberately following SEC rules.  Pathetic. 

 

I get being upset about performance or the price of the sale that is fair game but attacking character when you are completely in the wrong is disgusting.  A company I am involved with made a filing today too.  Why?  Because it was legally due on Friday and the office is closed on Friday and Thursday is a holiday.  SYTE's filing was due today.  Oftentimes lawyers are still finishing up details on documents that have to get reviewed before submission. 

[Tim Eriksen]

Unless those properties are total crap, how would it have not made more financial sense to hire a reputable property management company and incorporate some performance incentives?  As is, they sold the portfolio at an equity valuation (excluding debt) of ~$150k (plus some potential future distributions).  They paid $3.5m (excluding debt) approximately 1.5 years ago. 

 

So what happened here:

 

1.  Dramatically over-paid for the acquisition?

2.  Gave Mr. Brown & Co. an incredible deal on the sale?

3.  Mismanaged the properties and destroyed millions in value over the past 1.5 years?  To the best of my knowledge, the Lexington real estate market hasn't collapsed during the past 1.5 years.

4.  Some combination of 1 through 3? 

 

If the debt is non-recourse to Mr. Brown, he appears to have made the deal of the century.

 

May I suggest it was cash flow related.  The price paid was not necessarily unreasonable, but too many properties were not cash flowing.  Many needed rehabbing so they would continue to consume cash.  SYTE was not equipped to handle the negative cash flow.  The deal saves 200k per quarter in expense.  If the buyer can handle the negative cash flow for the next year or two until stabilization they will do well.   

[ragnarisapirate]

Everything Tim says make sense (both on filing dates, and the sale). From my now arm chair quarterback perspective, what he says is correct.

[Gregmal]

The cynical attempt to hide this news tells you all you need to know about this management team.

 

Or, they wanted to give the market a way (and time) to digest the info and react appropriately. Personally, I think it’s kind of shitty to release significant in the middle of a market day when someone may have a limit sell or buy order, and the person on the other end of the trade reads a filing and does a back of the envelope calculation quicker than them.

 

So I guess they had no choice then but to pick July 3, after market close?.... Couldn't have waited til December 24 closing bell I guess. You know, to really, really give people time to digest?

 

Something like this is as deliberate as it gets, and shouldn't be to anyone's surprise. All this company has done is throw in turd after turd, burn shareholder money, and then make excuses and spin shit off like its all just fine and merry and things are ok. What a disaster.

 

It is amazing the amount slander people ignorantly throw around.  What day was the transaction?  What day was SEC required filing?  Do you know the rules?  Probably not.  So you are slandering them for deliberately following SEC rules.  Pathetic. 

 

I get being upset about performance or the price of the sale that is fair game but attacking character when you are completely in the wrong is disgusting.  A company I am involved with made a filing today too.  Why?  Because it was legally due on Friday and the office is closed on Friday and Thursday is a holiday.  SYTE's filing was due today.  Oftentimes lawyers are still finishing up details on documents that have to get reviewed before submission.

 

All these people have done is make boneheaded at best, and self serving at worst, moves and then make excuses or just shrug it off as "we tried and it didn't work".

 

Most material events must be reported within 3 days. I find it hard to believe that the ONLY time, any filing could have occurred was after the close on July 3. Why not before the market open when people are paying attention? I've even spoke with management teams that request closing of transactions get delayed/moved up a few days so that it can be reported and recorded at a more appropriate time, ie able to be discussed during an earnings call, or lumped into a quarter or calendar year in which it was figured into guidance.

 

Its a real feat to destroy capital like this, in a real estate transaction, in such a short period of time. I don't even think I could do this if I tried to. This deal saves $200K per quarter? How much would they have saved having never done this transaction, which if you read back, many here questioned to begin with(some even for the exact same reasons cited as why it had to be sold)....

 

Where is the accountability? This should be liquidated immediately.

[stahleyp]

Unless those properties are total crap, how would it have not made more financial sense to hire a reputable property management company and incorporate some performance incentives?  As is, they sold the portfolio at an equity valuation (excluding debt) of ~$150k (plus some potential future distributions).  They paid $3.5m (excluding debt) approximately 1.5 years ago. 

 

So what happened here:

 

1.  Dramatically over-paid for the acquisition?

2.  Gave Mr. Brown & Co. an incredible deal on the sale?

3.  Mismanaged the properties and destroyed millions in value over the past 1.5 years?  To the best of my knowledge, the Lexington real estate market hasn't collapsed during the past 1.5 years.

4.  Some combination of 1 through 3? 

 

If the debt is non-recourse to Mr. Brown, he appears to have made the deal of the century.

 

May I suggest it was cash flow related.  The price paid was not necessarily unreasonable, but too many properties were cash flowing in fact they needed rehabbing so they would consume cash.  SYTE was not equipped to handle the negative cash flow.  The deal saves 200k per quarter in expense.  If the buyer can handle the negative cash flow for the next year or two until stabilization they will do well. 

 

Interesting. thanks, Tim.

[Drokos]

Tim, it is pretty bold of you to throw around "slander" for someone calling this a holiday weekend bad news dump (which it was). This 8-K could have been filed monday, tuesday, or wednesday morning. It only takes an hour to draft (yes even with legal review and the SEC typesetter formatting process).

 

Lets not forget that this is the same company that had its CEO, COO and board member resign on April 30th, but conveniently didn't disclose it until May 6th because there was a shareholder event on May 4th/5th. They have a history of intentionally gaming disclosing times. Combined with the absolutely poor capital allocation track record, I think any skepticism, criticism, or complaints about management are completely warranted.

[InelegantInvestor]

You have to earn the benefit of the doubt. Investors should be skeptical by default and the only thing management here has proven is that they have made a string of bad choices. In the context of those choices, it is difficult to look favorably upon issuing bad news on July 3 after the market close. It is another data point in a pattern that should make anyone give pause before investing or keeping their money with this management team.

 

Maybe the asset management business will be huge and shareholders will profit greatly. But what reason is there to believe that when HVAC and RE went so horribly wrong, so quickly?

[Tim Eriksen]

Tim, it is pretty bold of you to throw around "slander" for someone calling this a holiday weekend bad news dump (which it was). This 8-K could have been filed monday, tuesday, or wednesday morning. It only takes an hour to draft (yes even with legal review and the SEC typesetter formatting process).

 

Lets not forget that this is the same company that had its CEO, COO and board member resign on April 30th, but conveniently didn't disclose it until May 6th because there was a shareholder event on May 4th/5th. They have a history of intentionally gaming disclosing times. Combined with the absolutely poor capital allocation track record, I think any skepticism, criticism, or complaints about management are completely warranted.

 

It is not bold at all.  That is what it is.  You are attacking their integrity based on an assumption.  You assume they could have done it sooner.  You don't know that.

Regarding a news dump, markets are fairly efficient.  Are investors going to forget?  Really?  Second, it is not a holiday weekend.  The market is open Friday.  If in an hour you could finalize all the details on an agreement, complete all the reviews and double checks for buyer and seller, get Board approval (if necessary), draft proformas, get those reviewed internally (and possibly by the auditor) , submit the filing, proof the submission, etc. you could make thousands per hour.  A Form 4 filing takes longer than that. 

 

From what I know of the situation I was glad the CEO and COO resigned.  It was a better alternative for them and the company.  My recollection, is that it wasn't a shareholder event on May 4/5 it was a Willow Oak event.  It is also my understanding that they filed in the appropriate amount of time.  That is not gaming disclosure rules. 

[writser]

My recollection, is that it wasn't a shareholder event on May 4/5 it was a Willow Oak event.  It is also my understanding that they filed in the appropriate amount of time.  That is not gaming disclosure rules.

 

True, it's all legal of course and I understand that they wanted the Willow Oak event to be about value investing and not about the Sytestar CEO leaving. However, it still leaves a bit of a bad taste. Also, one of the Willow Oak funds owns 25% of Sytestar and Willow Oak is a subsidiary of Sytestar so it's not like this was a totally unrelated event.

 

Not to mention that a few days before the meeting (and a few days before the CEO resigned) the Arquitos fund wrote: "our CEO Michael Bridge is the person to direct any questions that you may have about the company. The annual meeting will be a good opportunity to talk with him and the rest of senior management, and I encourage you to attend.". Also leaves a bit of a bad taste.

 

A July 3, after hours filing also is completely legal but also leaves a bit of a bad taste.

 

And all these filing shenanigans are extra remarkable because last year Sytestar released news during market hours that made the stock drop 40% and management assured us they would look at the timing of future filings (after saying that they didn't expect the news was market moving - which also left a bad taste).

 

This forum (me included) is probably overreacting. But after a string of such incidents and failures I believe some skepticism is warranted.

 

Anyway, what's the company worth now? 9.5m in fund stakes, 2m in mortgaged real estate. What value does one assign to the 35% Melrose stake? The HVAC business? The internet business? Is there optionality in the asset management business? How to value corporate overhead and/or what holding discount does one apply? I like the Dave Waters / Packer exposure but I don't like the rest of the package. It would probably require a steep discount to book to get me interested.