Mizuho Makes Big Retail REIT Call, Picks 10 Favorites

It's long been said that quality trumps quantity, but Mizuho has tweeked the saying for retail REITS.

"Quality ‘trumps' value," Mizuho analyst Haendel St. Juste said. "Retail REITs are off to a strong start in 2016 (+5 percent YTD for malls, +7 percent YTD for shopping centers). Looking ahead, we think there is more upside (+10 percent to PTs) and are initiating coverage with a positive outlook."

Initiations

Mizuho initiated 10 names, four of which are Buy rated, while the other six are Neutral.

Newly-Initiated Buy-Rated REITs:

• American Assets Trust, Inc (NYSE: AAT), $46.00 PT
• General Growth Properties Inc (NYSE: GGP), $33.00 PT
• Simon Property Group Inc (NYSE: SPG), $233.00 PT
• Taubman Centers, Inc. (NYSE: TCO), $86.00 PT

Newly-Initiated Neutral-Rated REITs:

• Brixmor Property Group Inc (NYSE: BRX), $23.00 PT
• CBL & Associates Properties, Inc. (NYSE: CBL), $13.00 PT
• DDR Corp (NYSE: DDR), $19.00 PT
• Federal Realty Investment Trust (NYSE: FRT), $158.00 PT
• Kimco Realty Corp (NYSE: KIM), $28.50 PT
• Macerich Company (NYSE: MAC), $88.00 PT

Related Link: Your REIT Recession Playbook

Justifying Initiations

St. Juste explained the various initiations by citing favorable fundamentals, tight supply and strong demand. "Our stock picks have a pronounced bias toward higher productivity platforms, a somewhat consensus view, but an appropriate one given the current environment and prevailing valuations."

Furthermore, St. Juste stated Mizuho prefers "A" Malls, and the firm has a "quality bias."

"Our fundamental and valuation analysis support our ‘A' Mall bias given better valuation, growth and risk profiles. Shopping Centers looks fairly valued given YTD gains, while notable headwinds (store closure risks, weakening demand/financing, eCommerce threat), and higher leverage suggest limited n/t upside for ‘B' Mall REITs, despite steep stock discounts," St. Juste elaborated.

"Our Buy-rated stocks (AAT, GGP, SPG, TCO) offer attractive valuation, as well as pricing power and multi-year themes, supporting compelling growth potential (upside to PTs)."

St. Juste concluded, "Despite potential headwinds (widening CMBS spreads, recession, eCommerce, cost-conscious consumer, slowing earnings growth), we see room for near-term optimism (favorable supply/demand, recently revised FIRPTA rules, upcoming GICS catalysts, '16 ssNOI upside, and attractive return potential). Today, we see the best risk-reward in higher productivity landlords like GGP, SPG, TCO in the Malls and ATT (and FRT longer-term) in the Shopping Centers subsector, trading in most cases at discounts to NAV, but also offer compelling earnings and dividend growth."