Commercial real estate is improving slowly, much like the domestic economy. I think these trends should continue and commercial real estate trusts could be fertile ground for income investors looking for solid yield with the promise of growing distribution payouts.
Kite Realty Group Trust (KRG) - "Kite Realty Group Trust is a publicly owned real estate investment trust. The firm invests in real estate markets of the United States. It engages in ownership, operation, management, leasing, acquisition, construction, expansion, and development and redevelopment of operating retail properties, retail properties under development, operating commercial properties, parking garage, commercial property under development, parcels of land, shopping, dining, and entertainment properties". (Business Description from Yahoo Finance)
5 reasons KRG is a good long term bargain for dividend investors at $5 a share:
- The stock yields just under 5%. The company has not increased its dividend since it cut it in response to the financial crisis. However, its operating cash flow has increased 60% from FY2009 to FY2011, I would look for the dividend payout to again begin increasing distributions in the next year. The company paid out 70% more before the crisis.
- Insiders have been net buyers of the stock this year including one $500,000 purchase in March by a director.
- The stock sells for less than 11 times forward earnings and just 92% of book value. Leasing activity has shown slow consistent improvement going from 90% leased (1Q2010) to 93.3% (4Q2010).
- S&P has a "Buy" rating and $6 price target on KRG. The median analysts' price target of the five analysts that cover the stock is also $6 a share.
- Its retail base is very stable. Its top four lessees are Publix, Bed Bath & Beyond (BBBY), Petsmart (PETM) and Ross Stores (ROST). It also has a new $93mm facility that is due to open in late 2012 in Delray Beach, FL. The complex is already 72% pre-leased.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KRG over the next 72 hours.