SYTE - Enterprise Diversified

[InelegantInvestor]

I get your point - but it does appear that they are working as hard as possible to get the SEC filings correct and out and then have an annual meeting to drastically increase disclosure.  I am willing to give them the benefit of the doubt as they took on a total mess of a company.  It honestly couldn't be any worse than previous management

 

If they are focused on getting the 10-K out, fine. But, instead, they have chosen to change strategy entirely and have devoted $2MM(from where?) to a new "HVAC fund". Is it proper for a major strategic change like this to be implemented by a management with no mandate from shareholders?

 

Proper order of operations:

1) Figure out where company stands

2) Tell the owners

3) Decide what to do

4) Do it

 

Kiel & Moore order of operations

1) Figure out where company stands, kinda

2) Decide what to do

3) Do it

..

..

7) Tell the owners

 

[oddballstocks]

We'll see how this works out.

 

But I've seen this pattern in other places and I can't say I like it. Activist "good guys" gain control of (usually small) company to fix it/redirect it/improve it. Then there's silence. Then they go into some weirdo tangent deals without explanation or with "hey this is the best thing since sliced bread" sales pitch that doesn't seem very convincing. Then ... Then ... I'd like to say "profit"... but so far I'm not so sure.

 

I'll do Buffett "criticize in general" this time and won't name any names. Get back in 3-5 years. ;)

Jurgis hits the nail on the head, except I will name names. Now that they are management, Jeff and Steven have begun behaving in exactly the ways they previously railed against. This is a public company, with public shareholders. The lack of disclosure is incredibly troublesome. I would love to hear from other shareholders who agree with me. Please message me here, or leave a feedback at inelegantinvestor.com, where I hope to have posted a more detailed set of concerns in the next few days.

 

Have you called or emailed Jeff or Steve?

 

Having a full audit plus compiling a 10-K is a lot of work, especially for a small company.  I've spoken to auditors about these things in the past, the delay isn't surprising.  I'm sure the costs will be outrageous.

 

Regarding the HVAC fund, it's weird.  But then again as a shareholder you've entrusted management to make decisions on your behalf.  Steve and Jeff are value guys who are accessible, but this isn't a democratic company either.  I've never heard of other companies saying "we're thinking about how to allocated capital, can the shareholders vote on it?"  Usually an exec acts when an opportunity exists.

 

My guess is based on the situation that shareholders will never be happy or satisfied no matter what the new management does.  Maybe this does well, maybe the HVAC stuff goes bonkers.  Or maybe it idles along like most think it will.  Or maybe it all blows up, who knows.

 

If I had to make guesses it'd be that those houses the company owned aren't all that great once management came into power.

 

I guess the alternate reality here is these guys could start to act like a pump and dump company releasing every thought management has.  "Sitestar has decided to investigate investing in houses." "Sitestar has decided to focus on other investments." "Sitestar is close to making a major investment with an unnamed company."  But at $400/pop I'm not sure shareholders want that, or maybe they do?

 

This name intrigues me, but I'll only invest once the dust settles.

[InelegantInvestor]

We'll see how this works out.

 

But I've seen this pattern in other places and I can't say I like it. Activist "good guys" gain control of (usually small) company to fix it/redirect it/improve it. Then there's silence. Then they go into some weirdo tangent deals without explanation or with "hey this is the best thing since sliced bread" sales pitch that doesn't seem very convincing. Then ... Then ... I'd like to say "profit"... but so far I'm not so sure.

 

I'll do Buffett "criticize in general" this time and won't name any names. Get back in 3-5 years. ;)

Jurgis hits the nail on the head, except I will name names. Now that they are management, Jeff and Steven have begun behaving in exactly the ways they previously railed against. This is a public company, with public shareholders. The lack of disclosure is incredibly troublesome. I would love to hear from other shareholders who agree with me. Please message me here, or leave a feedback at inelegantinvestor.com, where I hope to have posted a more detailed set of concerns in the next few days.

 

Have you called or emailed Jeff or Steve?

 

Having a full audit plus compiling a 10-K is a lot of work, especially for a small company.  I've spoken to auditors about these things in the past, the delay isn't surprising.  I'm sure the costs will be outrageous.

 

Regarding the HVAC fund, it's weird.  But then again as a shareholder you've entrusted management to make decisions on your behalf.  Steve and Jeff are value guys who are accessible, but this isn't a democratic company either.  I've never heard of other companies saying "we're thinking about how to allocated capital, can the shareholders vote on it?"  Usually an exec acts when an opportunity exists.

 

My guess is based on the situation that shareholders will never be happy or satisfied no matter what the new management does.  Maybe this does well, maybe the HVAC stuff goes bonkers.  Or maybe it idles along like most think it will.  Or maybe it all blows up, who knows.

 

If I had to make guesses it'd be that those houses the company owned aren't all that great once management came into power.

 

I guess the alternate reality here is these guys could start to act like a pump and dump company releasing every thought management has.  "Sitestar has decided to investigate investing in houses." "Sitestar has decided to focus on other investments." "Sitestar is close to making a major investment with an unnamed company."  But at $400/pop I'm not sure shareholders want that, or maybe they do?

 

This name intrigues me, but I'll only invest once the dust settles.

 

I have emailed both Jeff & Steve on multiple occasions. I can assure that if their responses(when they bothered to respond) were any less than totally dismissive, I would not be speaking about this on a public forum. You say they are accessible- it is just flat untrue. Steve made clear in his first communication as CEO that they had no interest in speaking to shareholders outside the meeting(which he promised would happen in the first half of the year).

 

As a shareholder, I never was given the opportunity to "entrust management to make decisions on my behalf". Steve, Jeff & Jeremy were elected by "written consent", the majority of their votes coming from the previous CEO who they terminated for cause.

 

I wouldn't expect shareholders to vote on every deal, but they should be sure they have the confidence of shareholders before they take a huge % of the company's capital and invest it in an unproven business. At the very least they should have sought input from shareholders on whether a liquidation or continued operation was preferable.

 

Again, not asking for one million press releases, but isn't a decision to liquidate the real estate portfolio worthy of being shared with owners?  When you announce that you are investing $2MM in an HVAC fund, shouldn't you say something about the source of funds, when the company previously had nothing remotely like $2MM in cash?

 

I really wanted to trust this management. But they frankly don't give a crap about their shareholders.

[oddballstocks]

We'll see how this works out.

 

But I've seen this pattern in other places and I can't say I like it. Activist "good guys" gain control of (usually small) company to fix it/redirect it/improve it. Then there's silence. Then they go into some weirdo tangent deals without explanation or with "hey this is the best thing since sliced bread" sales pitch that doesn't seem very convincing. Then ... Then ... I'd like to say "profit"... but so far I'm not so sure.

 

I'll do Buffett "criticize in general" this time and won't name any names. Get back in 3-5 years. ;)

Jurgis hits the nail on the head, except I will name names. Now that they are management, Jeff and Steven have begun behaving in exactly the ways they previously railed against. This is a public company, with public shareholders. The lack of disclosure is incredibly troublesome. I would love to hear from other shareholders who agree with me. Please message me here, or leave a feedback at inelegantinvestor.com, where I hope to have posted a more detailed set of concerns in the next few days.

 

Have you called or emailed Jeff or Steve?

 

Having a full audit plus compiling a 10-K is a lot of work, especially for a small company.  I've spoken to auditors about these things in the past, the delay isn't surprising.  I'm sure the costs will be outrageous.

 

Regarding the HVAC fund, it's weird.  But then again as a shareholder you've entrusted management to make decisions on your behalf.  Steve and Jeff are value guys who are accessible, but this isn't a democratic company either.  I've never heard of other companies saying "we're thinking about how to allocated capital, can the shareholders vote on it?"  Usually an exec acts when an opportunity exists.

 

My guess is based on the situation that shareholders will never be happy or satisfied no matter what the new management does.  Maybe this does well, maybe the HVAC stuff goes bonkers.  Or maybe it idles along like most think it will.  Or maybe it all blows up, who knows.

 

If I had to make guesses it'd be that those houses the company owned aren't all that great once management came into power.

 

I guess the alternate reality here is these guys could start to act like a pump and dump company releasing every thought management has.  "Sitestar has decided to investigate investing in houses." "Sitestar has decided to focus on other investments." "Sitestar is close to making a major investment with an unnamed company."  But at $400/pop I'm not sure shareholders want that, or maybe they do?

 

This name intrigues me, but I'll only invest once the dust settles.

 

I have emailed both Jeff & Steve on multiple occasions. I can assure that if their responses(when they bothered to respond) were any less than totally dismissive, I would not be speaking about this on a public forum. You say they are accessible- it is just flat untrue. Steve made clear in his first communication as CEO that they had no interest in speaking to shareholders outside the meeting(which he promised would happen in the first half of the year).

 

As a shareholder, I never was given the opportunity to "entrust management to make decisions on my behalf". Steve, Jeff & Jeremy were elected by "written consent", the majority of their votes coming from the previous CEO who they terminated for cause.

 

I wouldn't expect shareholders to vote on every deal, but they should be sure they have the confidence of shareholders before they take a huge % of the company's capital and invest it in an unproven business. At the very least they should have sought input from shareholders on whether a liquidation or continued operation was preferable.

 

Again, not asking for one million press releases, but isn't a decision to liquidate the real estate portfolio worthy of being shared with owners?  When you announce that you are investing $2MM in an HVAC fund, shouldn't you say something about the source of funds, when the company previously had nothing remotely like $2MM in cash?

 

I really wanted to trust this management. But they frankly don't give a crap about their shareholders.

 

I guess you have two choices:

a) sell your shares

b) mount a proxy battle and try to get on the Board so you have some influence

[premfan]

We'll see how this works out.

 

But I've seen this pattern in other places and I can't say I like it. Activist "good guys" gain control of (usually small) company to fix it/redirect it/improve it. Then there's silence. Then they go into some weirdo tangent deals without explanation or with "hey this is the best thing since sliced bread" sales pitch that doesn't seem very convincing. Then ... Then ... I'd like to say "profit"... but so far I'm not so sure.

 

I'll do Buffett "criticize in general" this time and won't name any names. Get back in 3-5 years. ;)

Jurgis hits the nail on the head, except I will name names. Now that they are management, Jeff and Steven have begun behaving in exactly the ways they previously railed against. This is a public company, with public shareholders. The lack of disclosure is incredibly troublesome. I would love to hear from other shareholders who agree with me. Please message me here, or leave a feedback at inelegantinvestor.com, where I hope to have posted a more detailed set of concerns in the next few days.

 

Have you called or emailed Jeff or Steve?

 

Having a full audit plus compiling a 10-K is a lot of work, especially for a small company.  I've spoken to auditors about these things in the past, the delay isn't surprising.  I'm sure the costs will be outrageous.

 

Regarding the HVAC fund, it's weird.  But then again as a shareholder you've entrusted management to make decisions on your behalf.  Steve and Jeff are value guys who are accessible, but this isn't a democratic company either.  I've never heard of other companies saying "we're thinking about how to allocated capital, can the shareholders vote on it?"  Usually an exec acts when an opportunity exists.

 

My guess is based on the situation that shareholders will never be happy or satisfied no matter what the new management does.  Maybe this does well, maybe the HVAC stuff goes bonkers.  Or maybe it idles along like most think it will.  Or maybe it all blows up, who knows.

 

If I had to make guesses it'd be that those houses the company owned aren't all that great once management came into power.

 

I guess the alternate reality here is these guys could start to act like a pump and dump company releasing every thought management has.  "Sitestar has decided to investigate investing in houses." "Sitestar has decided to focus on other investments." "Sitestar is close to making a major investment with an unnamed company."  But at $400/pop I'm not sure shareholders want that, or maybe they do?

 

This name intrigues me, but I'll only invest once the dust settles.

 

I have emailed both Jeff & Steve on multiple occasions. I can assure that if their responses(when they bothered to respond) were any less than totally dismissive, I would not be speaking about this on a public forum. You say they are accessible- it is just flat untrue. Steve made clear in his first communication as CEO that they had no interest in speaking to shareholders outside the meeting(which he promised would happen in the first half of the year).

 

As a shareholder, I never was given the opportunity to "entrust management to make decisions on my behalf". Steve, Jeff & Jeremy were elected by "written consent", the majority of their votes coming from the previous CEO who they terminated for cause.

 

I wouldn't expect shareholders to vote on every deal, but they should be sure they have the confidence of shareholders before they take a huge % of the company's capital and invest it in an unproven business. At the very least they should have sought input from shareholders on whether a liquidation or continued operation was preferable.

 

Again, not asking for one million press releases, but isn't a decision to liquidate the real estate portfolio worthy of being shared with owners?  When you announce that you are investing $2MM in an HVAC fund, shouldn't you say something about the source of funds, when the company previously had nothing remotely like $2MM in cash?

 

I really wanted to trust this management. But they frankly don't give a crap about their shareholders.

 

Inelegant,

 

As a seed investor to a startup company you should let the entrepreneur create value. Any ranting will not create value. Either the entrepreneur's will create value or not.  90ish percent of idea companies fail or get your money back. Then the 5 percent of idea companies show nonlinear growth. This follows the power law formula that vc's use.  Investors in such early stage idea companies are essentially public market seed (angel) investors. Either the idea company shows traction or fails or gets your money back. Truth is self revealing and in 2-4 years we will know if these guys are real entrepreneur's or living in poserville.

 

Now maybe when you made the investment you thought this was a "value" investment. Then i would understand rant.  The seed investing game requires much more patience then usually required.  In the private world its 5-8 year process. Knowing what category your investments fall into helps putting the situation in context.

 

 

 

 

[InelegantInvestor]

 

 

I guess you have two choices:

a) sell your shares

b) mount a proxy battle and try to get on the Board so you have some influence

Yes, those are the two most likely options.

[InelegantInvestor]

Inelegant,

 

As a seed investor to a startup company you should let the entrepreneur create value. Any ranting will not create value. Either the entrepreneur's will create value or not.  90ish percent of idea companies fail or get your money back. Then the 5 percent of idea companies show nonlinear growth. This follows the power law formula that vc's use.  Investors in such early stage idea companies are essentially public market seed (angel) investors. Either the idea company shows traction or fails or gets your money back. Truth is self revealing and in 2-4 years we will know if these guys are real entrepreneur's or living in poserville.

 

Now maybe when you made the investment you thought this was a "value" investment. Then i would understand rant.  The seed investing game requires much more patience then usually required.  In the private world its 5-8 year process. Knowing what category your investments fall into helps putting the situation in context.

 

I'm not a seed investor in a startup company here and this management are not entrepreneurs. I have spent time in that space and I understand they dynamics. This was, for all involved, a value investment. That is, most of the major holders that I know, current management included, purchased because we saw assets whose value exceeded the business's market cap by a significant margin of safety.  My very complaint is that they have now decided to morph it into a seed investment without shareholder input.

[valuedontlie]

I rather like the "HVAC Fund" idea having looked at purchasing a few local/regional HVAC companies myself... Had a similar idea to "roll-up" a specific area by purchasing a few smaller companies and cobbling together back-office/management (which they already have)... Prices are very attractive at the transaction size they are talking about... This could be pretty meaningful to SYTE... It is not unreasonable to acquire private HVAC companies at 2-4x EBITDA/CF...

[matts]

Inelegant,

 

As a seed investor to a startup company you should let the entrepreneur create value. Any ranting will not create value. Either the entrepreneur's will create value or not.  90ish percent of idea companies fail or get your money back. Then the 5 percent of idea companies show nonlinear growth. This follows the power law formula that vc's use.  Investors in such early stage idea companies are essentially public market seed (angel) investors. Either the idea company shows traction or fails or gets your money back. Truth is self revealing and in 2-4 years we will know if these guys are real entrepreneur's or living in poserville.

 

Now maybe when you made the investment you thought this was a "value" investment. Then i would understand rant.  The seed investing game requires much more patience then usually required.  In the private world its 5-8 year process. Knowing what category your investments fall into helps putting the situation in context.

 

I'm not a seed investor in a startup company here and this management are not entrepreneurs. I have spent time in that space and I understand they dynamics. This was, for all involved, a value investment. That is, most of the major holders that I know, current management included, purchased because we saw assets whose value exceeded the business's market cap by a significant margin of safety.  My very complaint is that they have now decided to morph it into a seed investment without shareholder input.

 

I think you need to come to grips with the fact that the decision has been made (right or wrong). This is now a growth vehicle, not an asset-based value play. Whatever they decide to do now with the real estate or any other assets, they are not giving it back to the shareholders. More disclosure would be nice but you won't change their mind. So again, realize the thesis underlying your position has changed and decide whether you want to be involved with the new company and new investment style. The old company is gone.

 

 

[InelegantInvestor]

I rather like the "HVAC Fund" idea having looked at purchasing a few local/regional HVAC companies myself... Had a similar idea to "roll-up" a specific area by purchasing a few smaller companies and cobbling together back-office/management (which they already have)... Prices are very attractive at the transaction size they are talking about... This could be pretty meaningful to SYTE... It is not unreasonable to acquire private HVAC companies at 2-4x EBITDA/CF...

I don't dislike the idea. I really have no information on it. My point is not that it's a bad idea, just that management is overstepping and is not treating shareholders as partners.

[InelegantInvestor]

I think you need to come to grips with the fact that the decision has been made (right or wrong). This is now a growth vehicle, not an asset-based value play. Whatever they decide to do now with the real estate or any other assets, they are not giving it back to the shareholders. More disclosure would be nice but you won't change their mind. So again, realize the thesis underlying your position has changed and decide whether you want to be involved with the new company and new investment style. The old company is gone.

It is still an asset-based value play. The assets, I believe are still worth more than the market cap. It is hard to say, of course, since the company has not released financials. If that's the case, why should their small stake enable them to force me to sell below value?

 

Shareholders are the owners of a company. Shares of stock are not pieces of paper, they are are shares in a business. Management is our steward, not our tyrant.

[premfan]

 

 

I guess you have two choices:

a) sell your shares

b) mount a proxy battle and try to get on the Board so you have some influence

Yes, those are the two most likely options.

 

Inelegant,

 

If you choose option B some recent craziness has been happening in the activist game. Swenson launched a proxy against biglari with only 0.1 percent of shares. Currently paragon technologies is launching a proxy against rubicon with 0.1 percent of shares. It would only cost 4,450 dollars + legal + marketing fees to launch something if you want influence. Do the math see if it works.

[InelegantInvestor]

Very familiar with Swenson as well as Biglari's ongoing retaliation against him. Also familiar with Gad and his Rubicon proxy(though I'd point out that SED ended pretty damn poorly for him).  Also, I own more than .1%, and I'm confident that I'm not alone among shareholders in my feelings. It's funny how people start contacting you when you take a position...

 

Inelegant,

 

If you choose option B some recent craziness has been happening in the activist game. Swenson launched a proxy against biglari with only 0.1 percent of shares. Currently paragon technologies is launching a proxy against rubicon with 0.1 percent of shares. It would only cost 4,450 dollars + legal + marketing fees to launch something if you want influence. Do the math see if it works.

[Ballinvarosig Investors]

Sitestar 10k is out - https://www.sec.gov/Archives/edgar/data/1096934/000072174816001455/site07141610k.htm

 

Some crazy stuff has gone on at this company!

 

As of December 31, 2015, the Company leased its corporate headquarters located at 7109 Timberlake Road, Lynchburg, Virginia from Frank Erhartic, Jr., a stockholder of the Company and the Company’s former CEO. The terms of the lease directed the company to pay Mr. Erhartic $48,000 per year. The Company now believes that Mr. Erhartic was not the legal owner of the property.

 

Litigation

 

On April 12, 2016, Sitestar filed a civil action complaint against Frank Erhartic, Jr. (the “Former CEO”), the Company’s former CEO and director and currently an owner of record or beneficially of more than five percent of the Company’s Common Stock, alleging, among other things, that the Former CEO engaged in, and caused the Company to engage in to its detriment, a series of unauthorized and wrongful related party transactions, including causing the Company to borrow certain amounts from the Former CEO’s mother unnecessarily and at a commercially unreasonable rate of interest, converting certain funds of the Company for personal rent payments to the Former CEO, commingling in land trusts certain real properties owned by the Company and real properties owned by the Former CEO, causing the Company to pay certain amounts to the Former CEO for lease payments under an unauthorized lease as to a storage facility owned by the Former CEO, causing the Company to pay rent on its corporate headquarters owned by the Former CEO’s ex-wife in amounts commercially unreasonable and excessive and to make real estate tax payments thereon for the personal benefit of the Former CEO, converting to the Former CEO and/or [absconding with] five motor vehicles owned by the Company, causing the Company to pay real property and personal property taxes on numerous properties owned personally by the Former CEO, causing the Company to pay personal credit card debt of the Former CEO, causing the Company to significantly overpay the Former CEO’s health and dental insurance for the benefit of the Former CEO, and causing the Company to pay the Former CEO’s personal automobile insurance. The Company is seeking, among other relief available, monetary damages in excess of $350,000. This litigation matter is currently pending in the Circuit Court for the City of Lynchburg (Lynchburg, Virginia).

They sacked the CFO and tried to remove him as director, but he has refused to go!

At the Board of Directors meeting on December 14, 2015 the Company’s former CFO, Dan Judd, was placed on probation in light of the circumstances that had led to the termination of the former CEO. New management engaged an outside financial consultant to review the Company’s accounting practices and to assist Mr. Judd in carrying out his duties. As previously reported in our Current Report of Form 8-K filed with the SEC on March 7, 2016, Mr. Judd subsequently was terminated on March 3, 2016. The Board has requested that he resign as a Director, but Mr. Judd has not responded favorably to that request and has not participated in Board meetings since his dismissal as CFO.

Most of the properties have been sold off now, as a whole sold for above the carrying value.

Subsequent to December 31, 2015, and as of July 18, 2016, we have sold 21 residential properties including four properties that are pending closing. Of the 17 properties that have closed, the net proceeds total $1,399,121. This compares to their carrying value as of the year ended December 31, 2015 of $1,338,495.

Steve Kiel has wrote a shareholder letter.

 

http://sitestar.com/letters/2015ltr.pdf

[Ballinvarosig Investors]

It really does sounds like the current management team are going to make this their own investment vehicle. I have to wonder why would they bother? Surely the ex-CEO who still has 32% of the stock, if he wants to cause trouble, he has a large enough block of stock to do so.

[brendanb22]

Looks like the margin of safety is no longer there -- company is trading above NAV with restated values and the real estate portfolio is no longer able to generate a return per Steven Kiel's letter. I trust that they will generate shareholder value going forward, but I am not sure the valuation is as compelling as it once seemed

[AccentricInv]

Does anyone know if they ended up with a decent return on the real estate?  I remember reading about it on Ragnar's site a few years ago. But it seems the value they thought was there was either fake or eroded by all the other issues?

 

The story seems to be a lesson in the perils of deep value nanocap investing.

[oddballstocks]

Does anyone know if they ended up with a decent return on the real estate?  I remember reading about it on Ragnar's site a few years ago. But it seems the value they thought was there was either fake or eroded by all the other issues?

 

The story seems to be a lesson in the perils of deep value nanocap investing.

 

The perils but also possibilities.  Mismanagement at GE? Good luck getting on the Board.  Mismanagement at Sitestar, Jeff and Steve took the thing over!

 

 

[NeverLoseMoney]

It really does sounds like the current management team are going to make this their own investment vehicle. I have to wonder why would they bother? Surely the ex-CEO who still has 32% of the stock, if he wants to cause trouble, he has a large enough block of stock to do so.

It's an awkward situation with Mr. Erhartic owning such a large stake. Best option now is probably to try to reach a settlement on the lawsuit that Sitestar filed against Mr. Erhartic. The company drops the lawsuit and in return Erhartic sells his shares back to the company at a reasonable price. Try to find a solution where all the disputes with the former management are settled and everyone can go their separate ways.

 

After all the things that took place here, I don't think I'd be happy working hard and running this company while making Erhartic rich if the company succeeds.

[AccentricInv]

Does anyone know if they ended up with a decent return on the real estate?  I remember reading about it on Ragnar's site a few years ago. But it seems the value they thought was there was either fake or eroded by all the other issues?

 

The story seems to be a lesson in the perils of deep value nanocap investing.

 

The perils but also possibilities.  Mismanagement at GE? Good luck getting on the Board.  Mismanagement at Sitestar, Jeff and Steve took the thing over!

 

Yeah, but if they weren't able to extract the real estate value that they originally thought, isn't that an issue? 

 

Took 4 years and countless headaches just to take control of a company that ended up not being undervalued?  They could have started an investment holding company from scratch in 1/4th the time!

 

Again an interesting story to follow though, and impressed Jeff, Steve, & co were able to pull it off.

[oddballstocks]

Does anyone know if they ended up with a decent return on the real estate?  I remember reading about it on Ragnar's site a few years ago. But it seems the value they thought was there was either fake or eroded by all the other issues?

 

The story seems to be a lesson in the perils of deep value nanocap investing.

 

The perils but also possibilities.  Mismanagement at GE? Good luck getting on the Board.  Mismanagement at Sitestar, Jeff and Steve took the thing over!

 

Yeah, but if they weren't able to extract the real estate value that they originally thought, isn't that an issue? 

 

Took 4 years and countless headaches just to take control of a company that ended up not being undervalued?  They could have started an investment holding company from scratch in 1/4th the time!

 

Again an interesting story to follow though, and impressed Jeff, Steve, & co were able to pull it off.

 

This is a great point with a caveat.  If they started a holding company to invest they'd need to find capital.  Instead they were able to acquire capital, it took years, but they acquired capital that already existed at a very low cost to themselves.  That's the beauty of the capital markets.

[rkbabang]

Does anyone know if they ended up with a decent return on the real estate?  I remember reading about it on Ragnar's site a few years ago. But it seems the value they thought was there was either fake or eroded by all the other issues?

 

The story seems to be a lesson in the perils of deep value nanocap investing.

 

The perils but also possibilities.  Mismanagement at GE? Good luck getting on the Board.  Mismanagement at Sitestar, Jeff and Steve took the thing over!

 

Yeah, but if they weren't able to extract the real estate value that they originally thought, isn't that an issue? 

 

Took 4 years and countless headaches just to take control of a company that ended up not being undervalued?  They could have started an investment holding company from scratch in 1/4th the time!

 

Again an interesting story to follow though, and impressed Jeff, Steve, & co were able to pull it off.

 

It is impressive to take over a company even though the CEO owned >30%, even if it didn't go exactly as planned.

 

http://www.theredheadriter.com/wp-content/uploads/2015/01/your-plan-vs-reality-photo-755x532.png

 

[bskptkl]

Looks like the margin of safety is no longer there -- company is trading above NAV with restated values and the real estate portfolio is no longer able to generate a return per Steven Kiel's letter. I trust that they will generate shareholder value going forward, but I am not sure the valuation is as compelling as it once seemed

Agree - sold small position on opening, but will still have rooting interest. Good guys win!

[brendanb22]

Kiel already runs his own fund. Why invest on behalf of a company that has a CEO you just ousted that still owns approx 35%?

 

I'd find it hard to believe if he wasn't regretting this undertaking given the new findings around the RE portfolio. That time could have been higher ROI elsewhere

[willward1]

Would you rather own an average house flipping/landlording business or an average HVAC business?

 

Data Point 1:

If you google "HVAC quotes" you find links to dodgy looking leadgen sites that ask users to answer a bunch of questions and cough up their email address. By contrast, how do consumers get info about real estate listings online? They use zillow, redfin, etc which give away massive amounts of detail for free without even requiring a signup. This tells us something about the balance of consumer to business pricing power in the two markets.

 

Data Point 2:

Search HVAC on http://ragnarisapirate.blogspot.com and read about Jeff's experience as a property investor dealing with HVAC issues.  The CEO of HVAC Co is also a former real estate guy who decided that HVAC is the better business to be in.

 

Especially after seeing the numbers on the rental properties, to me this looks like a rational move of redeploying capital to a business with more upside. 

 

Finally, what is the best possible upside you can get from flipping an undervalued piece of real estate?  Maybe 100% - 150% on a phenomenal deal after a bunch of [probably HVAC] work? How does that compare with the upside of creating a trusted brand or a bigger company w/ economies of scale in the HVAC space?

 

Long as of this AM...