REIT stock prices climb on rebounding economy

Wall Street has been kind lately to Indianapolis’ three publicly traded real estate investment trusts.

Shares of Duke Realty Corp., Kite Realty Group and Simon Property Group Inc. all have hit 52-week highs since the start of the year, with Simon reaching a particularly impressive milestone. Its stock surpassed the $200 mark for the first time since the company went public in 1993, closing at $200.07 on Jan. 15.

Since bottoming out in 2009, commercial real estate continues to be an attractive draw for investors. Last week, the 166-stock national Bloomberg REIT Index closed 3.6 percent away from its record, set in February 2007.

Strong rents and occupancy rates especially are driving investments into office, retail and apartment projects, said Rich Hummel, director of research at the Kirr Marbach & Co. LLC investment firm in Columbus.

“You had a period of time where you didn’t have a lot of construction, [but] the economy has come back,” he said. “In real estate, the No. 1 goal is to get things occupied.”

Shares of Duke and Kite both hit new highs on Friday. Duke climbed to $22.01 a share after bottoming out at $14.53 last January, while Kite rose to $30.35 after a one-for-four reverse stock split in August nearly quadrupled the company’s stock price to $23.52.

Kite engineered the split in hopes of giving the stock an image makeover of sorts and to lure more big-pocketed institutional investors who typically don't buy stocks priced in the single digits. The company in July also completed its $1.2 billion acquisition of Illinois-based Inland Diversified Real Estate Trust Inc., swelling Kite’s roster of properties from 74 to more than 130.

Duke is set to report fourth-quarter earnings Jan. 29 and Simon on Jan. 30. Kite follows on Feb. 5.

In the third quarter, Duke saw its portfolio occupancy rate climb slightly to 93.5 percent from 93.4 percent in the year-ago period while occupancy in Simon malls climbed to 96.9 percent, up from 95.5 percent.

Occupancy in Kite’s portfolio, however, dipped slightly, to 94.9 percent, down from 95.2 percent in the third quarter of 2013.

Simon, the world’s largest mall owner, has seen its shares surge 41 percent since they closed at a 52-week low of $141.69 in late January 2014.

At the start of 2015, investment firm Stifel Nicholas & Co. Inc. raised its target price for Simon shares from $185 to $200, citing the company’s $2.2 billion pipeline of projects as a significant driver of future growth.

Simon has turned its attention to outlet centers, opening three last year—in Charlotte, North Carolina; Eagan, Minnesota; and Montreal. The company expects to open four more this year

Simon is making the investments amid growing popularity for online shopping. Still, Stifel remains bullish on the company.

“The retail landscape is highly competitive, and we do expect store closure activity to increase after staying well below historical levels the past few years,” Stifel said in a report. “However, there is a long list of domestic and international retailers looking for space in high productivity malls, and we think Simon will back-fill any closures relatively quickly.”

Stifel also increased its outlook on Duke, raising its target price from $21 to $23, and upgraded Kite stock from a “hold” to a “buy.”

Within the past year, shares of Duke have surged 51.5 percent, and Kite has risen 20.7 percent since the reverse split.

A couple of other factors contributing to the REIT revival: Investors are flocking to them in search of a better return than what the rest of the equity markets can offer, and borrowing costs are low, Hummel of Kirr Marbach said.

“Bond yields are so low that investors are searching for some sort of income, and REITs are offering those,” he said.