SITC - Valens Credit Report - 2022 05 10
Cash bond markets are understating credit risk, with a cash bond YTW of 4.669%, relative to an Intrinsic YTW of 6.079%, while CDS markets are materially understating credit risk, with a CDS of 144bps relative to an Intrinsic CDS of 307bps. Meanwhile, Moody's is also materially understating the firm's fundamental credit risk, with its Baa3 credit rating five notches higher than Valens' HY2 (B2) credit rating.Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. That said, management members' high change-in-control compensation indicate they may be willing to accept a buyout or pursue a sale of the company, increasing event risk for creditors.
Earnings Call Forensics™ of the firm's Q1 2022 earnings call highlights that management may lack confidence in their ability to drive sustainable growth, improve occupancy rates, and sustain increased property value guidance due to strong retention rates. Moreover, management may have concerns about the sustainability of retailer demand, particularly from high income customers. Finally, they may have concerns about the repercussions of selling the SAU portfolio, their leverage position, and their preferred debt obligations maturing in June.
SITE Centers is a self-administered and self-managed real estate investment trust (REIT), engaged in the business of acquiring, owning, developing, redeveloping, expanding, leasing, financing and managing shopping centers. The company's portfolio consisted of shopping centers (including shopping centers owned through joint ventures). These centers are principally in the Southeast and Midwest, with significant concentrations in Georgia, Florida, North Carolina and Ohio.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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