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With retail REIT portfolios, quality trumps value, analyst says

The retail REIT sector kicked off 2016 with a "formidable"stock performance, rising 6.3% thus far, Mizuho Securities USA Inc.'s Haendel St.Juste said in an April 13 note.

Expecting that the sector will see 10% upside in the next 12months, St. Juste initiated coverage of 10 retail REITs with a positive outlook.Citing a bias toward "higher productivity platforms," the analyst identifiedAmerican Assets Trust Inc.,General Growth Properties Inc.,Simon Property Group Inc.and Taubman Centers Inc.as his top picks, assigning them initial "buy" ratings. Meanwhile, hisinitial ratings on Brixmor PropertyGroup Inc., CBL & AssociatesProperties Inc., DDR Corp.,Federal Realty Investment Trust,Kimco Realty Corp. andMacerich Co. are "neutral."

Thanks to "historically-low" new supply and strongdemand driving pricing power, mall and shopping center REITs continue to see "favorable"fundamentals and are likely to again achieve above-trend growth in NOI in 2016,St. Juste said. Given their pricing power, higher-productivity retail REITs willcontinue to take the lead in terms of NOI growth, he said.

St. Juste posited that his bias toward "quality" A-mallREITs is based on their "stickier" cap rates, "superior" balancesheets, better e-commerce insulation and the wider CMBS spreads creating a headwindfor lower-tier asset values or transactions, among other factors.

The analyst set stock price targets for American Assets, GeneralGrowth, Simon and Taubman at $46.00, $33.00, $233.00 and $86.00, respectively. Hisrespective stock price targets for Brixmor, CBL & Associates, DDR, Federal Realty,Kimco and Macerich are $23.00, $13.00, $19.00, $158.00, $28.50 and $88.00.