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Credit Suisse On Shopping Centers: 2 Downgrades & 2 Top REIT Picks

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Credit Suisse On Shopping Centers: 2 Downgrades & 2 Top REIT Picks
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On May 26, Credit Suisse updated the REIT sector, including the malls and strip centers within its coverage universe.

Two REITs were downgraded by Credit Suisse from Neutral to Underperform:

  • Macerich Company (NYSE: MAC) - $12.9 billion cap, 3.2 percent yield.
  • Macerich is the third largest Class-A regional mall operator, with significant West Coast assets. Earlier in the year, MAC management rejected a takeover offer which valued MAC shares at $95.50.
  • Regency Centers (NYSE: REG) - $6 billion cap, 3 percent yield.
  • Regency has been a top performer among community and neighborhood shopping centers during the past yea; with center development historically being one of its strong suits.

Tale Of The Tape - Past Year

Credit Suisse does not see significant upside catalysts for shares of either of these retail landlords.

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In both cases, Credit Suisse has a Top 5 Pick as a sector alternative, rated Outperform.

Credit Suisse - Community/Neighborhood Centers

DDR Corp. (NYSE: DDR) - $6.2 billion cap, 4 percent yield. Power center focused DDR is the #5 pick overall in the Credit Suisse coverage universe, and top pick among community/neighborhood retail REIT category, with an expected ~23 percent return.

cs_-_strip_ctr_ex_8_may_26_ddr_vs_reg.jpg

Credit Suisse has an overall positive outlook on the shopping center REITs under coverage.

Credit Suisse - Regional Malls

Simon Property Group (NYSE: SPG) - $56.7 billion cap, 3.3 percent yield. Mall REIT Simon is the #1 pick in the entire Credit Suisse coverage universe, with an impressive ~32 percent expected total return over the next 12 months.

cs_-_top_5_reit_ex_may_26.jpg

The second largest Class-A regional mall operator, General Growth Properties (NYSE: GGP), is rated at Neutral (#18 overall ranking by Credit Suisse). GGP has a $25 billion market cap, with an expected 12 month total return of 15 percent, including its 2.4 percent dividend yield.

Related Link: Credit Suisse Upgrades Macerich After Simon Offer Is Rebuffed

Credit Suisse - Macerich: Downgraded To Underperform; $77 PT, Unchanged

The Credit Suisse price target of $77 represents a potential ~6.7 percent downside from MAC's previous close of $82.56 per share.

  • Credit Suisse is "skeptical" of Macerich management's stated plans to reach a $100 per share valuation range; "not about management's ability, but that there exists enough opportunities in the portfolio to generate 30% value creation through either development, price realization, or margin improvement."
  • Based upon Credit Suisse estimates, "the MAC portfolio of mall assets is currently valued at a 4.6% implied cap rate and their peers at a blended 5.3%..."
  • Again, the lower cap rates imply that higher valuations are already baked into the MAC stock price.

Credit Suisse - Regency Centers: Downgraded To Underperform; $67 PT, Unchanged

The Credit Suisse $67 price target represents a potential 2.2 percent upside from REG's previous close of $64.80 per share.

  • Credit Suisse noted that Regency has been the strongest shopping center REIT in its coverage universe YTD.
  • While Credit Suisse acknowledged that REG Q1 results were strong, this was expected; the downgrade was a valuation call, "coupled with a lack of identifiable catalysts."
  • While noting that the Regency team are great developers, Credit Suisse doesn't foresee "REG either ramping up their development pipeline going forward nor do we see them driving outsized earnings / NAV growth in the existing pipeline."

Credit Suisse - REIT Big Picture 2H 2015

Credit Suisse is overall positive regarding REIT performance moving forward, with a 17 percent total return, including a 3 percent yield, being the expected average return for the 34 REITs that Credit Suisse covers.

Related Link: Credit Suisse Bullish On Hotel REITs: 4 Outperform Picks In '20% Club'

One of the major drivers for the overall strong REIT forecast is the Credit Suisse belief that 10-Yr Treasury interest rates will remain at ~2.85 percent at year-end 2015.

Latest Ratings for MAC

DateFirmActionFromTo
Sep 2017JP MorganUpgradesNeutralOverweight
Sep 2017BMO CapitalInitiates Coverage OnMarket Perform
Aug 2017Boenning & ScattergoodUpgradesNeutralOutperform

View More Analyst Ratings for MAC
View the Latest Analyst Ratings

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