RBC Dominion Securities downgraded the ratings on Tuesday for two major U.S. regional mall operators on the back of a run-up in the prices of the real estate investment trusts (REITs).
The brokerage cut the rating on General Growth Properties Inc. to “underperform,” but bumped up its target by $1 (U.S.) a share to $19. It also reduced its rating on The Macerich Co. is now rated “sector perform.”
“Our view is that the strong organic fundamentals for the mall sector are priced into the group, which has pushed us to underweight the regional mall space within our coverage universe,” said Richard Moore, head of RBC’s U.S. real estate equity research. The best performing stocks in the sector will be those with strongest growth potential, he added in a report. “As such, we expect General Growth Properties to lag those of its peers for the remainder of 2013.”
General Growth Properties, which emerged from bankruptcy protection in 2010 and is the second-largest retail property REIT after Simon Property Group, has a portfolio of 126 regional malls in the United States and 18 in Brazil. “Management has spent a good deal of time post-recession converting temporary tenants to permanent tenants,” he said. “While such conversions are lucrative, they are also likely to have stabilized given the overall occupancy of 96.1 per cent.”
External growth will be modest this year with only $156-million of the $902-million redevelopment projects scheduled for completion this year, while the mall operator’s overall leverage “remains high,” he added.
RBC expects shares of Macerich to perform in line with its peers for the rest of this year, and is maintaining its target price at $61 a share. “We look for modest occupancy gains in the year,” Mr. Moore wrote. “Tenant interest is likely to remain very high though tenant sales growth will likely slow further over the coming year.”
Mainstreet Equity Corp.
Dundee Securities analyst Frederic Blondeau bumped up his target on Mainstreet Equity to reflect a higher estimated net asset value (NAV) for the apartment operator due to more acquisitions from internally generated funds. Its strategy to enter the U.S. apartment market could offer upside potential, he added.
Upside: The analyst, who maintains a “buy” rating, raised his target to $36.50 a share from $36.
Toromont Industries Ltd.
The Caterpillar dealership’s fourth-quarter results soundly beat analysts’ expectations with fully diluted earnings per share of 59 cents a share versus the consensus range of 41 to 48 cents.
Upside: M Partners analyst Tom Varesh, who maintains a “buy” rating, raised his target by $1 a share to $27.25.
Fiera Capital Corp.
Fiera, which has become Canada’s third-largest asset manager manager, has “proven to be a consolidator in the industry” by buying up names like Sceptre and Natcan, as well as investment businesses belonging to UBS and GMP Capital, said Canaccord Genuity analyst Scott Chan. Fiera trades at discount to its current peer group, he added.
Upside: He initiated coverage on Fiera with a “buy” rating, and target of $10.50 a share.
Kirkland Lake Gold Inc.
CIBC World Markets analyst Cosmos Chiu chopped his price target on the gold miner on expectations of lower grades and higher costs. The miner has maintained its 2013 production guidance of 90,000-110,000 ounces, but “we are looking for 85,000 ounces,” he said.
Downside: The analyst, who has a “sector performer” rating, cut his target by $1.50 a share to $7.50