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Chicago real estate stocks recover after rocky start to year

After getting off to a rough start this year, Chicago-area real estate stocks have climbed their way back into positive territory.

Five out of eight of Chicago-area real estate investment trusts (REIT) with listed shares delivered positive returns through April 21 and a local REIT index is up 1.4 percent after being down 11.1 percent in February, according to SNL Financial, a Charlottesville, Va.-based research firm.

REIT shares plunged in February amid broader concerns about the Chinese economy and oil prices. Jittery investors bailed out of stocks generally, worried that a weakening outlook for the U.S. economy would depress corporate profits. The downdraft hit REITs too, with some investors becoming less confident the current real estate boom would continue.

Yet many of those fears have abated over the past two months, lifting stocks.

“When the economy is growing and interest rates are moderate as they are today and likely to stay…REITs look pretty attractive because they offer high dividend yield,” said Jim Kammert, a portfolio manager at Harrison Street Securities, a Chicago-based money manager. “Dividends look well secured and they are growing in tandem with steadily rising rents and modest cash flow growth.”

Shares in Oak Brook-based Retail Properties of America, which owns shopping centers like Gurnee Town Center and the Oak Brook Promenade, delivered a 7.2 percent return through April 21, the highest among Chicago-area REITs. The company released a good earnings report in February, and a few analysts have raised their ratings on its shares since then.

On the flip side, shares in Care Capital Properties, a Chicago-based owner of skilled nursing homes, have lost 12.8 percent year-to-date, the worst performance among local REITs. The firm was a unit of Chicago-based health-care REIT Ventas until last August, when Ventas spun it off as a separate company.

“Generally the marketplace views (skilled-nursing REITs) as having lower growth profiles and higher operating risks attributes,” Kammert said. “Ventas did a shrewd transaction and made their business model a little easier to understand, which is probably more desirable in the eyes of the majority of their investors.”

Citing Care Capital's strong management team, Kammert thinks the firm's stock performance will improve over time.

“Maybe investors want to continue to watch and observe,” he said. “This a quality portfolio. I think Care Capital will figure this out.”

Kammert expects REITs to benefit from changes to the Foreign Investment in Real Property Tax Act that will encourage non-U.S. investors to put more money into U.S. REITs. A national REIT index rose 1.42 percent through April 21, after being down as much as 10.7 percent in February.

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