Credit Suisse Initiates On Retail Properties Of America At Outperform, Sees a Mispriced Portfolio

• Shares of Retail Properties of America Inc RPAI have declined 16.59 percent over the past one year, dropping almost to their 52 week low on September 4.
• George Auerbach of Credit Suisse has initiated coverage of the company with an Outperform rating and price target of $17.50.
• Auerbach believes that the company has a “mispriced” portfolio with little development or balance sheet risk.

Analyst George Auerbach names Retail Properties as Credit Suisse’s top pick in the shopping center segment, with 25 percent implied potential total return, as compared to the peer average of 15 percent.

Among the key catalysts for the stock in 2016 is “the sale of a soon to be vacant non-core office building,” which might not entail al large value but was a “distraction to the core story and a meaningful drag on earnings growth.”

Auerbach also expects the stock to benefit from the sale of Retail Properties’ non-core multi-tenant assets at cap rates that would be either at or below the level at which the company trades, which would demonstrate management’s execution ability and lead to a higher justified asset value.

In addition, “closing ~180bp leased to occupied spread, with many repositioned junior anchor boxes taking occupancy in 4Q'15/1H'16,” as well as “better disclosure on developments helps the Street think about future NAV/earnings growth,” are expected to drive the stock in 2016, according to the Credit Suisse report.