SITC - Valens Credit Report - 2022 08 09
Credit markets are understating credit risk with a cash bond YTW of 4.823% and a CDS of 191bps relative to an Intrinsic YTW of 5.793% and an Intrinsic CDS of 312bps. Furthermore, Moody's is 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 that SITC's management compensation framework is mostly positive for credit holders. That said, management members have high change-in-control compensation relative to their annual compensation, indicating that management may be incentivized to pursue a takeover or accept a sale of the company, increasing event risk for creditors.
Earnings Call Forensics™ of the firm's Q2 2022 earnings call highlights that management may be overstating the attractiveness of their anchor properties in Charlotte. Furthermore, management may lack confidence in their ability to source attractive acquisitions and they may be concerned about the lack of assets coming to market.
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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