SYTE - Enterprise Diversified

[DTEJD1997]

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]

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]

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?

[Ballinvarosig Investors]

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.

When you are dealing with lower end residential property, third party management is a bad idea. Any of the successful people I know who are involved in this area are all very hands-on and run their business directly, usually using a few trusted tradespeople. Yields on these properties are generally good, but the business requires more direct management (things get broken more often, tenants will try to stiff you, etc.). Third party management will simply not do as good a job as a motivated owner operator. They won't chase down tenants for arrears, they will not spend time on bodge repairs, etc.

 

Personally, I think it's a mistake for the company to part ways with Moore in this fashion. If they don't want to be in the business and want to back out, by all means start liquidating. But I would be surprised if it works any better with a third party manager.

[writser]

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.

 

The chairman is leaving the company effective immediately, a subsidiary is buying real estate without the company knowing and is deemed 'not financially prudent' and now the real estate portfolio will be restructured. There are still many unanswered questions re: internal controls, restructuring costs, estimated losses on the real estate portfolio, etc. etc. If Biglari would do something like this the board would go utterly crazy. I find it hard to believe that you sincerely think you can release such a press release during market hours because you think it won't move the market.

 

You know more than we do about the break-up so I guess it's possible you look at this press release with rosier glasses but still: blank out all the names, show the press release to any random investor and he/she will tell you in 5 seconds that this looks like major bad news. "I didn't think it would impact the market" vs. a 30% price drop on huge volume implies a ridiculous disconnect between what you think and what the market thinks. So either the market is crazy, you are way too optimistic or the press release was badly phrased. And in my experience it's never just the market being crazy ..

[Spekulatius]

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.

 

The chairman is leaving the company effective immediately, a subsidiary is buying real estate without the company knowing and is deemed 'not financially prudent' and now the real estate portfolio will be restructured. There are still many unanswered questions re: internal controls, restructuring costs, estimated losses on the real estate portfolio, etc. etc. If Biglari would do something like this the board would go utterly crazy. I find it hard to believe that you sincerely think you can release such a press release during market hours because you think it won't move the market.

 

You know more than we do about the break-up so I guess it's possible you look at this press release with rosier glasses but still: blank out all the names, show the press release to any random investor and he/she will tell you in 5 seconds that this looks like bad news and I think you should have considered that.

 

Yes, I don’t get it either how Jeff can buy another 83 properties (195-113) without the board knowing. there are not many charitable explanations for this. Managing a portfolio of 113 single home properties in Kentucky isn’t exactly like eating a piece of cake either and I think a disposition at a considerable loss is quite likely, now that interest rates move up. Jeff bought these so quickly in a geographically confined area, he almost must have cornered the market.

[valueyoda]

The current price still looks extremely expensive too me, given the likely writedowns on the real estate portfolio, the discount that should be placed on corporate governance issues and the ongoing volatile nature of cash flows from the asset management division. How do some of the bulls value this company now given these headwinds? I can't put more than a $5 valuation on the company if I am generous.

[DTEJD1997]

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.

 

The chairman is leaving the company effective immediately, a subsidiary is buying real estate without the company knowing and is deemed 'not financially prudent' and now the real estate portfolio will be restructured. There are still many unanswered questions re: internal controls, restructuring costs, estimated losses on the real estate portfolio, etc. etc. If Biglari would do something like this the board would go utterly crazy. I find it hard to believe that you sincerely think you can release such a press release during market hours because you think it won't move the market.

 

You know more than we do about the break-up so I guess it's possible you look at this press release with rosier glasses but still: blank out all the names, show the press release to any random investor and he/she will tell you in 5 seconds that this looks like major bad news. "I didn't think it would impact the market" vs. a 30% price drop on huge volume implies a ridiculous disconnect between what you think and what the market thinks. So either the market is crazy, you are way too optimistic or the press release was badly phrased. And in my experience it's never just the market being crazy ..

 

I was thinking about this later in the night.  Senior management didn't think it would affect the stock price?  wut, Wut, WUT?

 

Rightly or wrongly, some shareholders are going to be concerned/upset about this.  That alone will lead to a lot of "forced" selling as investors re-evaluate the investment thesis.

 

If senior management was blindsided by the market's reaction, what else are they missing?

[Tim Eriksen]

Either I am going to look foolish or others are.  Some of the comments do not make sense to me.

a disposition at a considerable loss is likely now that interest rates are moving up -

1. they are not selling all the properties, only ones that are not rehabbed (I suspect they may even rethink this).

2. higher interest rates are good for rents.  So that is a positive on properties they hold.  They are going to hold nearly all the properties to stay in compliance with the 40 Act.  They have to.  Investments must be less than 40% which means they must have more than $26 million of assets.

 

Jeff is smart... expect a HUGE loss on disposition.

1. I agree Jeff is smart.  That implies Jeff made good purchases, appropriately rehabbed, secured good renters.  Jeff sold for stock not cash.  Meaning he was essentially a buyer in the transaction as well.  So which is it?  Is Jeff smart or dumb?  The only way to have a huge loss is if Jeff was dumb or SYTE irrationally sells off the properties, which they will not and can not do.   

 

Here is another point.  If Jeff bought 80 properties.  That would cost roughly $5 million.  If he is keeping the properties, then all SYTE is hit with is the interest charge during the period.  Let's assume 6% or $300k per year, or $75k for the quarter.  That creates a loss but not a huge one.  If you add in staffing in the quarter - let's assume five people at 5k per month would be another 75k for the quarter.  I do not expect a large charge this quarter or next.

 

Yet investors have taken $10 million off the market cap.  Nearly the whole value of all the Lexington properties.  Three times the net purchase price (equity issued to Jeff). 

 

I buy the story that it was a difference over execution - grow with cash generated internally from the business with acquisition debt available from the parent (mgmt thought) versus grow rapidly with interim losses being acceptable (Jeff thought).  We will see.   

[valueyoda]

Hey Tim. I agree with most of your points. But what is the bull case at this price?

[bizaro86]

The bull case is that one of the hedge funds they're incubating blows up to $10B AUM, and they get a fee override.

 

This is terrible news though. Single family residential is an owner-operator business, it isn't something that scales well. But before the story was we have a great owner operator who is chairman and has a big stake. Now we have a hedge fund type who has a big portfolio of low end single family houses in Kentucky getting professionally managed for income. Hard to see how that could go very well, imo.

 

I really don't like 'not selling because of the 40 act' as a reason to own something. If it's not a good business to own I'd rather sell and buy something that is.

[matts]

 

I buy the story that it was a difference over execution - grow with cash generated internally from the business with acquisition debt available from the parent (mgmt thought) versus grow rapidly with interim losses being acceptable (Jeff thought).  We will see. 

 

Tim, that story is certainly possible, but to me, it would seem a lot more likely if the story ended with:

 

1) Moore resigns

2) Moore issues a statement saying "difference of opinion on strategy folks, I'm off to do it the way I want"

 

how do you explain what actually happened?

 

1) they terminate their up-until-a-month-ago chairman effective immediately

2) file a public document stating Moore's actions "were not financially prudent".

3) Don't bother with a press release, just dump an 8-k during market hours

 

 

Don't you think if this was just a difference of opinion Jeff would fight like heck not to have his reputation impacted this way in a public document that lives forever?! and wouldn't Steve also want to avoid the optics of a termination and such harsh language in the filing?

 

We've all read hundreds of these kinds of corporate announcement and it seems to me, that whenever possible, companies allow everyone to save face. "he went to spend time with family", "I'm leaving, but I believe in the company and in fact I will keep a substantial position in the stock." This is in fact what Steve has attempted via his tweets late last night after the market reaction. But what prevented a mutual press release in the first place? To me, the simple "difference of strategy" narrative just does not fit with the events surrounding the announcement.

 

[matts]

The bull case is that one of the hedge funds they're incubating blows up to $10B AUM, and they get a fee override.

 

This is terrible news though. Single family residential is an owner-operator business, it isn't something that scales well. But before the story was we have a great owner operator who is chairman and has a big stake. Now we have a hedge fund type who has a big portfolio of low end single family houses in Kentucky getting professionally managed for income. Hard to see how that could go very well, imo.

 

I really don't like 'not selling because of the 40 act' as a reason to own something. If it's not a good business to own I'd rather sell and buy something that is.

 

Sure, except each of their current managers have stated multiple times in public that their strategies only work with small amounts of capital. I really wouldn't want to be in that 10 billion dollar OTC Adventures fund...

 

 

[Foreign Tuffett]

Either I am going to look foolish or others are.  Some of the comments do not make sense to me.

a disposition at a considerable loss is likely now that interest rates are moving up -

1. they are not selling all the properties, only ones that are not rehabbed (I suspect they may even rethink this).

2. higher interest rates are good for rents.  So that is a positive on properties they hold.  They are going to hold nearly all the properties to stay in compliance with the 40 Act.  They have to.  Investments must be less than 40% which means they must have more than $26 million of assets.

 

Jeff is smart... expect a HUGE loss on disposition.

1. I agree Jeff is smart.  That implies Jeff made good purchases, appropriately rehabbed, secured good renters.  Jeff sold for stock not cash.  Meaning he was essentially a buyer in the transaction as well.  So which is it?  Is Jeff smart or dumb?  The only way to have a huge loss is if Jeff was dumb or SYTE irrationally sells off the properties, which they will not and can not do.   

 

Here is another point.  If Jeff bought 80 properties.  That would cost roughly $5 million.  If he is keeping the properties, then all SYTE is hit with is the interest charge during the period.  Let's assume 6% or $300k per year, or $75k for the quarter.  That creates a loss but not a huge one.  If you add in staffing in the quarter - let's assume five people at 5k per month would be another 75k for the quarter.  I do not expect a large charge this quarter or next.

 

Yet investors have taken $10 million off the market cap.  Nearly the whole value of all the Lexington properties.  Three times the net purchase price (equity issued to Jeff). 

 

I buy the story that it was a difference over execution - grow with cash generated internally from the business with acquisition debt available from the parent (mgmt thought) versus grow rapidly with interim losses being acceptable (Jeff thought).  We will see. 

 

Aren't you missing the larger point here? The whole point of buying the properties was so that Jeff and his team could manage them. With Jeff and his team out, the rationale for SYTE owning 119 low quality single family rental properties in Lexington, KY is gone. I don't know who the best owner of these properties is, but I guarantee that it's not SYTE. If they need to hold on to some of them to avoid 40 Act concerns that's one thing, but let's not pretend like this isn't a dumpster fire.

 

Also, SYTE was trading at a large premium to TBV because "the market" had lots of faith in the company's management. To put it mildly, that faith has now been shaken.

 

 

The bull case is that one of the hedge funds they're incubating blows up to $10B AUM, and they get a fee override.

 

This is terrible news though. Single family residential is an owner-operator business, it isn't something that scales well. But before the story was we have a great owner operator who is chairman and has a big stake. Now we have a hedge fund type who has a big portfolio of low end single family houses in Kentucky getting professionally managed for income. Hard to see how that could go very well, imo.

 

I really don't like 'not selling because of the 40 act' as a reason to own something. If it's not a good business to own I'd rather sell and buy something that is.

 

These are smart thoughts.

 

 

[matts]

I feel I should explain my reasoning for making some of my skeptical comments

 

I'm not a shareholder. I was up until a month ago, so I made a lot of money thanks to Jeff and Steve. I'm not bitter in the least. I feel very bad for Steve, Jeff, and everyone involved here, including all shareholders. Looks like Steve made some strategic mistakes. No one is perfect.

 

I'm posting here and pushing back on the narrative because I think this is an area we can all get better. After years of doing this, you start to understand the numbers along with everyone else, but this, this reading of the tea leaves when we really don't know what is happening inside a company and must read between the lines, this is a valuable skill that if developed can be a huge advantage, especially with small caps.

 

Maybe I'm wrong, and they now go off and write a beautiful letter explaining everything. But even if that happens it will just prove the point that they mishandled this entire situation, made 2 massive blunders (by their own admission) and the jury is out on the third (the asset managers).

 

 

 

 

[Tim Eriksen]

 

Aren't you missing the larger point here? The whole point of buying the properties was so that Jeff and his team could manage them. With Jeff and his team out, the rationale for SYTE owning 119 low quality single family rental properties in Lexington, KY is gone. I don't know who the best owner of these properties is, but I guarantee that it's not SYTE. If they need to hold on to some of them to avoid 40 Act concerns that's one thing, but let's not pretend like this isn't a dumpster fire.

 

Also, SYTE was trading at a large premium to TBV because "the market" had lots of faith in the company's management. To put it mildly, that faith has now been shaken.

 

 

I don't think I am.  I think others are.  I understood the whole point of buying properties so Jeff and his team (whether employees or contractors) could reposition them.  The expertise and value creation was in repositioning not managing rentals.  The properties went from low quality to medium quality, or better.   

 

Maybe it is because I bought the stock before the Mt Melrose acquisition so it was never key to the thesis.  I never hated the property business but was never excited about it either.  I want them to be an asset manager.  They don't have to be big seeders.  They cannot do a bunch of Alluvial deals due to the 40 Act, but can do a bunch of Bonhoeffer deals.  I would like to see them acquire some closed end funds and grow AUM. 

 

I agree the market reaction is due to reputation.  That happens. 

[latticework]

"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."

 

"Mt Melrose’s crews are busy bringing properties online and the subsidiary is building out its infrastructure, so short-term results will not be fully informative to investors. Jeff built his predecessor company from $20,000 in value to more than $4 million. The strategy is to continue to grow Mt Melrose’s net assets. We are less concerned about Mt Melrose’s income statement and encourage you to focus on the value that the subsidiary creates over time."

 

"Jeff needs no advice from me, but I will constantly tell him to continue to focus on long-term success. There is no reason for him to change his mindset now that he is operating within a publicly-traded company."

 

"Jeff will become the president and continue to manage the business as he has done previously. Sitestar will add significant working capital to the business and provide Jeff with the freedom to allocate that capital." 

 

"Sitestar intends to commit the next $10 million of cash that we internally generate to the subsidiary."

 

"This transaction also embodies the Sitestar's bottom-up culture and the highly decentralized nature of the holding company that it has become. Because it is a reasonable conclusion to come to, everyone at Sitestar believes in letting people who are good at their jobs, do their jobs, and getting the hell out of the way."

 

"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."

 

If you told me when these letters were written that in less than a year the agreement with Mt Melrose would be terminated and Jeff would be terminated from Mt Melrose and the Board of ENDI I would say you're crazy.  But I'm going to start to believe the actions, not words of management. 

 

Obviously what Jeff and the co agreed on to begin with they no longer do.  Jeff had so much autonomy he was buying up homes and expenses were rising without management realizing?  Seems like a lack of internal controls, checks and balances or just outright communication.  Is this problem going on in other subsidiaries of the company?  Maybe that's part of the reason for the CEO change?  Was Steven Kiel too busy running his fund and ENDI simultaneously that he couldn't keep an eye on Jeff's spending?

 

It's clear that management wants to focus on the asset management business going forward.  That's the better business.  Capital light, scalable and in a way provides float.  That's a silver lining in this news.  The question is whether they will botch this business as well even though it's within their circle of competence.  The managers they partner with (Dave Waters and Keith Smith) have great track records, but will they continue into the future?  The managers have been granted autonomy to run the funds as they choose, but will management step in like they did with Jeff?  It will also be interesting to see how the Willow Oak Select Fund operates.  How will shares bought be allocated between fund managers in their own funds and in the Willow Oak Select Fund? 

 

Also they didn't think the 8-K would move markets?  I mean come on.  You're announcing the termination of a material agreement and a board member in an illiquid microcap stock.  What do you expect the stock to be up?

 

I am long the stock and consider myself a long-term investor, but these developments are deeply troubling to me. 

[stahleyp]

This might be a really stupid question, but let's say they bring in a manager that kills it and assets go up to several billion. What would stop the manager from setting up shop on their own?

[Sunrider]

This might be a really stupid question, but let's say they bring in a manager that kills it and assets go up to several billion. What would stop the manager from setting up shop on their own?

 

Nothing.

 

Also, from my own experience, I agree with whoever pointed out that in this space you better be hands-on. They will NOT get the same results with an external manager. All these guys do is find tenants (usually not very well vetted) and collect rent. They mindlessly instruct tradespeople to fix issues when a tenant calls. They don't care about costs, efficiency or logic.

[DTEJD1997]

Hey all:

 

SYTE is going to have severe problems bringing on money managers and future partners.  All they have to do is look at what has gone on.  Who is going to want to work with them?  Changing the nature of the company instantly, botching communications, probably big losses coming. 

 

SYTE has not been able to work with their prior partners/divisions.  How are they going to work with future ones?

[alpha asset strategies]

Also, from my own experience, I agree with whoever pointed out that in this space you better be hands-on. They will NOT get the same results with an external manager. All these guys do is find tenants (usually not very well vetted) and collect rent. They mindlessly instruct tradespeople to fix issues when a tenant calls. They don't care about costs, efficiency or logic.

 

Sunrider is 100% correct about this.  I've unfortunately experienced this myself on a relatively large scale.  Additionally, I've personally interacted with dozens of landlords over the years, and I can recall exactly 2 who had fair to decent results with external property managers.  If these properties require a decent amount of repairs and maintenance, the expenses will soar with an external property manager.

[oddballstocks]

This might be a really stupid question, but let's say they bring in a manager that kills it and assets go up to several billion. What would stop the manager from setting up shop on their own?

 

Nothing.

 

Also, from my own experience, I agree with whoever pointed out that in this space you better be hands-on. They will NOT get the same results with an external manager. All these guys do is find tenants (usually not very well vetted) and collect rent. They mindlessly instruct tradespeople to fix issues when a tenant calls. They don't care about costs, efficiency or logic.

 

This is a well trod path.  Most of corporate America "We're going to replace our internal team with home grown knowledge and expertise that costs us $65/hr fully loaded with an external consultant at $150/hr. Oh they also have 50 other clients, so we're sure they'll focus entirely on us.  Why...mumbles about scale<shrug>"

 

There is clearly more to this story. We will probably never find out. The mention of cash flow makes me think these were barely break-even and one day someone woke up and realized they probably didn't like having millions stuck in the middle of KY (which is a nice area btw) generating $0 or maybe even a loss.

 

Unless there was something illegal or unethical this seems like a big knee jerk reaction. Isn't this a long term thing? Yet less than a year later the plug is pulled?

 

To me this reads like: Something crazy and unimaginable came up and the liability loomed so large we wrote an 8-k and fired Jeff in one fell swoop as quick as we possibly could.

 

I say that from person experience.  When I've seen people terminated quickly the reason given is never the actual reason.  Maybe Jeff saw something and wanted out, maybe Steve saw something.  Who knows, I don't care either way.  It is what it is. I hope it was simply a difference of opinion.

[ragnarisapirate]

The same way that the below quotes from Nate and myself was pertinent to the operating business months ago, I could say similar things about the speculation over what happened with the situation at hand. Some a ton of the speculation that’s being talked about in regard to Mt Melrose is totally off base.

 

There will be more clarity given at an appropriate time.

 

I applaud Sanjeev for what he did.  Running a company is very difficult, very difficult.

 

I wouldn't want to be public, it's a curse.  A bunch of people who made a few clicks online have the ability to make armchair decisions and second guess.  I'd hate if those same clickers take a look at my own business.  I've made excellent decisions and also bad ones.  But to those at home making a bad decision seems to be a fatal flaw, as if they've never done it themselves.

 

As a public CEO you can either play it safe, or take risks and when you take risks public shareholders will cry and complain.  You cannot please everyone.

 

I stand by my mantra that EVERY investor should try to go out there and sell something.  Try to sell a "commodity" item.  You'll realize quickly that academic finance and theories don't match the real world.  Just because you're item is similar or a lower price doesn't mean people will buy it.

 

Very well put, Nate.

 

On a personal note, this is something that I have been thinking on- both since, and before selling my business to SYTE. I already know that a lot of people won’t understand what’s going on at Mt Melrose, and how we run things. It is also going to be hard for people to understand the intrinsic value of Mt Melrose, based solely on the balance sheet, income statement, and the like. I think that this is also the case for many companies, not just ones that are SYTE related. Certainly, we will do our best to communicate this in the future at the annual meetings (because that is the time efficient and ethical way to do this), but, there are 364 OTHER days in the year that people have to make assumptions about what is going on. Kinda one sided when putting that against arm chair quarter backing.

 

On that same note, (in general) it is hard for people to understand what goes on inside of a business as an outsider. 2 of our employees were literally working til 4 AM yesterday morning. One was our financial controller working on financials, and the other was our project manager. They are not the only people that work super long hours at Mt Melrose, nor are they the only people that are like this at SYTE and its subs. Everyone at Mt Melrose is all about the business, and does everything in their power to improve it. Many of the employees own stock, and want to build something. Again, this is the same for SYTE and it’s subsidiaries.

 

When reading things online that are so far off base and half informed, it does damage to that ethic. This also works the other way, if there is too much praise given to an organization- the ramifications can be dire. I have gotten a ton of praise on how great my real estate business is, yet, only a few people have seen it in action how credible does that make any of the claims? I don’t know. I think that we will do well for SYTE/ENDI... AND I think that people should view things objectively. If results of a business seem excellent, maybe ask “why? Are they really that good?” And if they seem terrible, maybe ask “Are they really that bad?” And try to get going with what is actually going on.

 

 

Certainly, we all try to sum up thousands (and with a company alike AAPL, MILLIONS if not BILLIONS) of hours of labor and such... all in the 15-60 minutes that we spend reading an annual report and whatever other research we do (even message board posting). I know I often do that. But maybe, just maybe, we should all remember and think about the implicit time leverage that is being employed, while we are making assumptions- it could improve the analytical process.

[Sportgamma]

This might be a really stupid question, but let's say they bring in a manager that kills it and assets go up to several billion. What would stop the manager from setting up shop on their own?

 

Nothing.

 

Also, from my own experience, I agree with whoever pointed out that in this space you better be hands-on. They will NOT get the same results with an external manager. All these guys do is find tenants (usually not very well vetted) and collect rent. They mindlessly instruct tradespeople to fix issues when a tenant calls. They don't care about costs, efficiency or logic.

 

I think Stahleyp is talking about the Asset Management Business.

[bizaro86]

 

Aren't you missing the larger point here? The whole point of buying the properties was so that Jeff and his team could manage them. With Jeff and his team out, the rationale for SYTE owning 119 low quality single family rental properties in Lexington, KY is gone. I don't know who the best owner of these properties is, but I guarantee that it's not SYTE. If they need to hold on to some of them to avoid 40 Act concerns that's one thing, but let's not pretend like this isn't a dumpster fire.

 

Also, SYTE was trading at a large premium to TBV because "the market" had lots of faith in the company's management. To put it mildly, that faith has now been shaken.

 

 

I don't think I am.  I think others are.  I understood the whole point of buying properties so Jeff and his team (whether employees or contractors) could reposition them.  The expertise and value creation was in repositioning not managing rentals.  The properties went from low quality to medium quality, or better.   

 

Maybe it is because I bought the stock before the Mt Melrose acquisition so it was never key to the thesis.  I never hated the property business but was never excited about it either.  I want them to be an asset manager.  They don't have to be big seeders.  They cannot do a bunch of Alluvial deals due to the 40 Act, but can do a bunch of Bonhoeffer deals.  I would like to see them acquire some closed end funds and grow AUM. 

 

I agree the market reaction is due to reputation.  That happens.

 

These are good points, but your response is buried in a multi-quote (and so looks like I said it). I'm not offended, but I bet a lot of people breezed over this because it doesn't appear to be a new post. I noticed it was new, because I would have remembered typing it.