SYTE - Enterprise Diversified

[fishwithwings]

I know people mentioned the sum of the parts being close to the  current price at close to 2x BV. I don't see it...  In its current form, with this structure and overhead, the comoany would earn nowhere near what it would earn if it's segments were private. I'm guessing a lot of the premium is due to current management. I struggle to see how the share price moves up meaningfully in 2-3 years.

[gfp]

Arquitos letter may be interesting to some here -

 

https://seekingalpha.com/article/4233904-arquitos-q4-18-commentary-long-enterprise-diversified-mma-capital-westaim

 

Congratulations Bonhoeffer / Keith / Packer for reaching $14m AUM and rising

[Guest roark33]

"I believe the company is worth far more than book value. Book value is understated for a variety of reasons, chief among them

is that it does not take into account our relationships with a number of talented money managers."

 

He goes on to give an example of the potential of Keith and Bonhoeffer Fund.  No offense to Keith, but it seems like in a 2018 letter, the better example would be the negative value of the relationship with the Jeff and the failed real estate fund.  It isn't a fait accompli that the Bonhoeffer Fund will even exist in a few years give the track record so far.  If everything works out well, Keith will do great, in the same way that if everything worked out well, Jeff and his real estate fund would still be operating as a part of Enterprise Diversified, but that is no longer the case.   

 

 

[stahleyp]

I like Keith Smith and respect him a lot but I don't know how much I buy this argument.

 

"It is not unreasonable to assume that by 2022 Bonhoeffer gets its assets under management up to $50 million."

 

So, in 3 years, it's going to go from $14 million to $50 million? Doesn't Arquitos have less than $20 million now (with pretty great performance, by the way) over 6.5 years?

 

Running your personal money and a fund is a lot different. I'm not saying Keith won't achieve 30% a year and $50 million in aum by 2022 but it's not a bet I'd make. Growing aum is hard especially when the fund starts off on a negative.

[Spekulatius]

I don’t think it’s a good idea that the funds owned by SYTE also hold a large concentration of their assets in SYTE stock, but that has been stated before, I believe.

 

i do think that SYTE has suffered permanent impairment with their HVC, real estate and probably even with their asset business. For me, the overhead is the killer for these small operations. If I had the make a guess, the Alluvial part is the most likely to grind out consistent Alpha and grow assets, also it might be limited on how much it can grow without abandoning the microcap focus.

[Tim Eriksen]

I don’t think it’s a good idea that the funds owned by SYTE also hold a large concentration of their assets in SYTE stock, but that has been stated before, I believe.

 

i do think that SYTE has suffered permanent impairment with their HVC, real estate and probably even with their asset business. For me, the overhead is the killer for these small operations. If I had the make a guess, the Alluvial part is the most likely to grind out consistent Alpha and grow assets, also it might be limited on how much it can grow without abandoning the microcap focus.

 

Am I missing something?  I have never seen anything that stated that either Alluvial, Bonhoeffer, or Willow Oak Select owned any shares of SYTE, let alone a large concentration.  SYTE does not have any ownership of Arquitos, just a revenue interest in exchange for administrative costs. 

[Spekulatius]

I don’t think it’s a good idea that the funds owned by SYTE also hold a large concentration of their assets in SYTE stock, but that has been stated before, I believe.

 

i do think that SYTE has suffered permanent impairment with their HVC, real estate and probably even with their asset business. For me, the overhead is the killer for these small operations. If I had the make a guess, the Alluvial part is the most likely to grind out consistent Alpha and grow assets, also it might be limited on how much it can grow without abandoning the microcap focus.

 

Am I missing something?  I have never seen anything that stated that either Alluvial, Bonhoeffer, or Willow Oak Select owned any shares of SYTE, let alone a large concentration.  SYTE does not have any ownership of Arquitos, just a revenue interest in exchange for administrative costs.

 

It’s me who is missing something. ::) The revenue interest would be just like owning an IDR interest like a GP and is not an “ownership” in a common sense.

[Deepdive]

I like Keith Smith and respect him a lot but I don't know how much I buy this argument.

 

"It is not unreasonable to assume that by 2022 Bonhoeffer gets its assets under management up to $50 million."

 

So, in 3 years, it's going to go from $14 million to $50 million? Doesn't Arquitos have less than $20 million now (with pretty great performance, by the way) over 6.5 years?

 

Running your personal money and a fund is a lot different. I'm not saying Keith won't achieve 30% a year and $50 million in aum by 2022 but it's not a bet I'd make. Growing aum is hard especially when the fund starts off on a negative.

 

The first $10 million is the hardest to raise.  Bonhoeffer allocates to 20 positions while Arquitos tend to hold 4-5 positions that drive all the returns.  A 15% CAGR from Bonhoeffer is much more indicative of skill in stock picking.  I think $50 million is doable for Keith.   

[stahleyp]

I like Keith Smith and respect him a lot but I don't know how much I buy this argument.

 

"It is not unreasonable to assume that by 2022 Bonhoeffer gets its assets under management up to $50 million."

 

So, in 3 years, it's going to go from $14 million to $50 million? Doesn't Arquitos have less than $20 million now (with pretty great performance, by the way) over 6.5 years?

 

Running your personal money and a fund is a lot different. I'm not saying Keith won't achieve 30% a year and $50 million in aum by 2022 but it's not a bet I'd make. Growing aum is hard especially when the fund starts off on a negative.

 

The first $10 million is the hardest to raise.  Bonhoeffer allocates to 20 positions while Arquitos tend to hold 4-5 positions that drive all the returns.  A 15% CAGR from Bonhoeffer is much more indicative of skill in stock picking.  I think $50 million is doable for Keith. 

 

I'm not so sure. With the initial set up, you're investing with a guy who's averaged 30% who's accepting money for the first time. Now, there's actually a performance record of the fund. With that said, I think he can certainly get to $50 million or more eventually but over the next 3 years seems a little far-fetched.

 

I'd like to see Packer do well though. He's a very solid person.

[JayGatsby]

Was reading the letters on Mt. Melrose. Easy to sit here and be a backseat driver, but shouldn't the company just be a private asset management firm?

 

The budget that we put together in the summer literally had over 65,000 input cells.

 

Wasn't the strategy for Mt. Melrose to let Jeff do what he does without micromanaging him? The capital allocation issues of putting money into cash yields versus slow appreciation properties is a foreseeable board discussion, and one on which it seems like they could have come to agreement. So it seems like the bigger issue was probably the level of corporateness. There's tons of competition for good operators to sell to, and at this point I don't see why a good operator would want to partner with and sell to SYTE? The public company stuff alone would deter most people.

[gfp]

In case anyone is interested - Willow Oak published a roundtable discussion (featuring some CoBF folks) -

 

https://gallery.mailchimp.com/2511717cdf1bae9a0638c942a/files/2638fbd6-6008-4352-b88b-c438063564b5/Willow_Oak_Roundtable_February_2019_Final.pdf

[Jurgis]

In case anyone is interested - Willow Oak published a roundtable discussion (featuring some CoBF folks) -

 

https://gallery.mailchimp.com/2511717cdf1bae9a0638c942a/files/2638fbd6-6008-4352-b88b-c438063564b5/Willow_Oak_Roundtable_February_2019_Final.pdf

 

Can this be posted either as attachment or on some other site? Accessing mailchimp is a pain (can't access it repeatedly). Thanks

[John Hjorth]

Good idea, Jurgis, & done.

Willow_Oak_Roundtable_February_2019_Final_-_20190226.pdf

[Jurgis]

Thank you.

[ratiman]

https://www.sec.gov/Archives/edgar/data/1096934/000114420419010133/tv514749_sc13da.htm

 

Moore is now selling.

 

You've got to give Moore credit for this, he sure made his fleet of half-empty crapshacks sound like the greatest investment ever.

[Drokos]

Wow, what an absolute scam. You're right though, not sure if you should be upset with Moore or give him credit for convincing the rest of the board that his "crapshacks" were some gold-mine, one of a kind business opportunity.

 

At this point, can anyone honestly say with a straight face that current management is better than the old management? The self-dealing and value destruction has continued, the only difference is now management calls themselves value investors and tries to write folksy annual letters.

 

 

[Spekulatius]

https://www.sec.gov/Archives/edgar/data/1096934/000114420419010133/tv514749_sc13da.htm

 

Moore is now selling.

 

You've got to give Moore credit for this, he sure made his fleet of half-empty crapshacks sound like the greatest investment ever.

 

He still owns 280k shares, so that would be 100 days worth of trading volume. Could be hard sell without totally trashing the share price.  I smell an exchange of the Melrose properties for his shares in the near term future.

 

If he sells this in the open market, we might get a net-net.

[John Hjorth]

Wow, what an absolute scam  ...

https://www.sec.gov/Archives/edgar/data/1096934/000114420419010133/tv514749_sc13da.htm

 

Moore is now selling.

 

You've got to give Moore credit for this, he sure made his fleet of half-empty crapshacks sound like the greatest investment ever.

 

I do not recall - after about now six years - ever - even considering also reading major parts of CoBF before my own personal entry - here on CoBF - to have read anything as snide as this about a fellow CoBF member.

 

Shame on you.

 

[Gregmal]

IdK but anyone investing in something like this gets what they deserve. They are visible as POS’s (at best) from a mile away. At worst it’s wishful gambling on a needle in a haystack endeavor. I’ve been pretty critical of all of these “projects” that are present on websites like this, and frankly, cant see why anyone would invest in something like this. Did anyone really think they’d hit a moonshot buying HVAC businesses? I mean come on...

 

There’s so many easy places to make money and yet it seems so many intelligent yet capable folks on places like this spend so much time debating arbitrary nonsense like estimating BRKs intrinsic value to the nearest ten thousandth of a decimal, to on the other end, weaving together overly optimistic pictures of nonexistent dots, trying to justify a crap investment.

[slkiel]

Thanks John.

 

Spekulatius- While Jeff is no longer associated with SYTE, he has consistently publicly said that he wants to remain a significant shareholder.

 

Ratiman- I recommend you read the rule 144 filing and Form 4 filing. Jeff already sold those shares three weeks ago. He would need to do another rule 144 filing prior to selling any other shares that he purchased through the private placement a few years ago or that were issued to him.

 

I have seen the criticisms about Jeff here and think they are off base. I am the one who convinced him to do the deal. It did not work out as planned. Because it did not work out, Jeff is no longer associated with SYTE, he lost his baby with the private company, and I am no longer SYTE’s CEO. I don’t see how Jeff or the company or I came out ahead.

 

Jeff has described this publicly as personally devastating. Yes, he was paid for the properties, but that value remains in SYTE. The problems came from the losses after the acquisition as he built overhead far above its needs.

 

Even with the swings and misses with Mt Melrose and HVAC, we still have a heckuva company and have created a lot of value over the last 3+ years. And, the idea of first, do no harm, is firmly imprinted in the minds of the directors.

 

 

[Read the Footnotes]

Thanks John.

 

Spekulatius- While Jeff is no longer associated with SYTE, he has consistently publicly said that he wants to remain a significant shareholder.

 

Ratiman- I recommend you read the rule 144 filing and Form 4 filing. Jeff already sold those shares three weeks ago. He would need to do another rule 144 filing prior to selling any other shares that he purchased through the private placement a few years ago or that were issued to him.

 

I have seen the criticisms about Jeff here and think they are off base. I am the one who convinced him to do the deal. It did not work out as planned. Because it did not work out, Jeff is no longer associated with SYTE, he lost his baby with the private company, and I am no longer SYTE’s CEO. I don’t see how Jeff or the company or I came out ahead.

 

Jeff has described this publicly as personally devastating. Yes, he was paid for the properties, but that value remains in SYTE. The problems came from the losses after the acquisition as he built overhead far above its needs.

 

Even with the swings and misses with Mt Melrose and HVAC, we still have a heckuva company and have created a lot of value over the last 3+ years. And, the idea of first, do no harm, is firmly imprinted in the minds of the directors.

 

Steve Kiel just promptly and publicly posted on the board to a) take responsibility for a decision, and b) admit that it did not work out as planned.

 

That is about as close as I have ever heard to a public company CEO saying "I made a mistake". If you can think of better examples of a CEO publicly taking responsibility, please let me know. I would probably like to keep those managers on a list of people I would like to track and potentially invest with. Better yet, start a new thread of CEO's or investment managers who have publicly taken responsibility for mistakes, so that we can all track them.

 

Whether or not SYTE was a good investment at some point in time is a different question, but I have a suggestion regarding the integrity of management. I would suggest that anyone who still questions the integrity of current management or Steve Kiel or Jeff Moore after seeing Steve's post should consider one of the following:

1) only pursue investments where you think the integrity of management management will make zero difference in most all possible scenarios, or

2) allocate capital to other managers to make investment decisions for you

 

What Steve did here is rare and commendable.

[writser]

That is about the closest I have ever heard to a public company CEO saying "I made a mistake". If you can think of better examples of a CEO publicly taking responsibility, please let me know. I would probably like to keep those managers on a list of people I would like to track and potentially invest with. Better yet, start a new thread of CEO's or investment managers who have publicly taken responsibility for mistakes, so that we can all track them.

 

I heard about this guy who bought a textile manufacturing company a couple of decades ago. Just doesn't shut up about what a bad investment that was.

[ratiman]

There is a reason why residential real estate has typically not been owned by public companies. There are few scale advantages in residential real estate and public companies incur significant corporate expenses and corporate taxes that eat into the already low returns. And yet, in none of the public statements did I see any argument for why these assets were suitable for a public company.

 

You can read the announcement from Chairman Moore here. He says, "Mt Melrose will invest in things where we won’t know what our payback will be or when it will come." OK, so then why invest shareholder funds? Surely management should have some idea of what returns will be before investing?

 

http://sitestarcorp.com/wp-content/uploads/2017/12/Sitestar-Shareholder-Letter-from-Chairman-Jeffrey-Moore.pdf

 

What's even more curious is that SYTE already had residential investments on the books that it was trying to get rid of. This was SYTE's second foray into slumlording. 

 

People make mistakes, it happens. But public company officers who do insider deals have opened themselves up to criticism. Jeffrey Moore is fair game.

[John Hjorth]

... Jeffrey Moore is fair game.

 

ratiman,

 

Based on ýour prior posts in this topic, and your last, - how should I interpret this from your perspective?

[ratiman]

That he dumped his crapshacks on shareholders when he was an insider and chairman and had massive conflicts of interest and therefore it is perfectly legitimate to criticize him?