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Local REITs charge ahead of pack in bull market

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Indiana’s real estate investment trusts are hitting new highs during the stock market’s bull run.

Shares of Duke Realty Corp. hit a 52-week high in March. Simon Property Group shares are trading near an all-time high of $164. And Kite Realty Group Inc. is on a tear, with shares rising nearly 20 percent since Jan. 1, including a 52-week high in March.

Overall, the S&P Developed REIT Index, which measures the performance of more than 200 real estate investment trusts, has risen 15 percent during the past 52 weeks, compared with a 11.9 percent gain for the S&P 500. Year-to-date, the REIT index is up 6.8 percent, trailing the S&P 500’s performance of 9.65 percent.

The three largest REITs based in Indianapolis—Simon, Duke and Kite—are more than holding their own against the competition.

An Indianapolis financial planner said local REITs are benefiting from certain moves made by the Federal Reserve to keep the economy afloat, such as keeping interest rates low, but which could lead to increased inflation.

“They’re investing in physical land, the physical building and future cash flows,” said Todd Guthrie of Guthrie Financial Group. “If inflation is turning higher, the view is that the land and buildings are valued higher, demanding higher rent.”

A real estate investment trust is a company that owns and often operates income producing real estate, such as office buildings or shopping malls, that produces lease revenue from tenants. Advantages to investors include high dividends and the potential for stable, long-term increases in asset value.

Duke Realty specializes in developing and leasing office and industrial properties. Shares of Duke Realty are up 22 percent since the first of the year, hitting a 52-week high of $17.02 on March 15 after bottoming out at $12.71 in November. A few days before the developer hit its high, analysts at Milwaukee-based Robert W. Baird & Co. Inc. raised their price target on Duke Realty’s shares from $16 to $18.

Duke last announced quarterly results in January, reporting earnings per share of 27 cents for its last quarter and meeting analysts’ estimates. The company had revenue of $220.9 million for the quarter, beating the consensus of $210.8 million.  

“Moreover, Duke Realty’s recent move of strengthening its fundamentals through a public offering of senior unsecured notes worth $250 million acted as a major growth driver [for its stock price],” Chicago-based Zacks Equity Research said in a report.

Zacks also reaffirmed its “outperform” rating on Simon’s stock and set a target price of $190 per share, far higher than its closing price of $159.33 on Tuesday and its 52-week low of $141.56 set in April 2012.

Simon’s stock is up just 0.8 percent year-to-date, but it has climbed 10.9 percent within the past 52 weeks. In the midst of the recession and stock market slump four years ago, shares were trading in the low $30s. Since then, shares have catapulted nearly 400 percent.

“Simon Property reported strong fourth quarter 2012 results with [earnings] per share substantially surpassing the Zacks consensus estimate due to an increase in rental revenue and occupancy,” Zacks wrote. “The noteworthy acquisitions and addition of premium development and redevelopment projects during the quarter further added to the bliss.”

Simon, the nation's biggest owner of regional malls and outlet centers, raised its quarterly dividend to $1.15 a share from $1.10 in February amid rising funds from operations, which gauges a real estate company’s ability to generate cash.

Kite Realty, whose portfolio of retail properties is much smaller than Simon’s, is also performing well.

Its stock closed at $6.74 Tuesday, up 20.6 percent year-to-date and 28.9 percent over the past 52 weeks.

Kite reported a loss for the fourth quarter of $6.5 million, or 9 cents per share, on revenue of $26.7 million. That compares to a profit of $3.1 million, or 5 cents per share, on revenue of $24.6 million during the fourth quarter of 2011.

Kite blamed the loss primarily on its buyout, at a discount, of a partner in a shopping center development in North Carolina.


 

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