Insiders Give a Big Thumbs Up to Real Estate Plays

By Michael Brush
Exclusively for InvestorIdeas.com
May 17, 2007

As investors, we’re not supposed to like real estate right now. Besides the sub-prime mortgage melt-down scare, residential housing is in the tank. And with gasoline prices so high and retail sales surprisingly weak for April, at least the retail portion of commercial real estate might be in for trouble, say the gloomy types.

Insiders, however, see things differently. While other investors panic and sell off real estate investment trusts (REITs), insiders have been snapping up shares – often in a huge way.

Insiders at over a half dozen REITs bought tens of millions of dollars worth of their own stock in the past week or so. Some of these REITs are also buying back their own shares – a powerful signal in combination with insider buying.

Many of these companies are paying healthy yields in the 6% to 10% range. So even if these REIT shares sputter, you’ll be rewarded for owning them – while you wait for the stocks to turn around.

Besides, I think the REIT insiders have it right in their call that the outlook is not so bleak for the U.S. economy. Employment and wage gains in the U.S. are still strong, and money is still cheap. Plus economies around the globe are chugging along at a healthy clip – which will help the U.S. economy if slows down a bit. Foreign economies are now so big they can pull the U.S. economy out of weakness – instead of catching a cold because the U.S. sneezes.

Here’s a look at the bullish real estate buyers.

Centerline Holding (CHC)

Shares of Centerline Holding, a real estate finance and investing company, have fallen nearly 20% to $18 from highs in January. Down here, insiders snapped up $9.3 million worth of stock -- in the $17.50 to $17.90 range on May 11-15. The company also upped its share repurchase plan in mid-April by 1.5 million shares, or nearly 3% of the float. That’s a compelling combination – strong insider buying and company share buybacks. At a recent price of $18.25 a share, Centerline Holding offers a healthy 9.4% dividend yield, and it trades for 1.2 times book value.

The company invests in tax-exempt mortgage bonds issued by state and local governments. It also invests in low-income housing properties and originates multifamily mortgage loans.

Centerline Holding shares have been weak in part because it’s been accused of being in sub-prime lending -- which isn’t the case. It also recently took a charge on bad debts. But managers say the company won’t have to cut dividends. And a strong pipeline of business in commercial real estate and affordable housing will help drive growth this year. Insiders are backing up those calls with big buying, so the projections have some credibility.

General Growth Properties (GGP)

Since mid-March investors have knocked shares of the second largest U.S. mall owner down over 12%, to $59. But General Growth Properties says demand for retail space remains strong, occupancy is higher than it was a year ago, and revenue growth will increase in the year ahead. Insiders, including finance chief Bernard Freibaum, back that forecast up with a cool $32.3 million worth of buying since May 4. General Growth Properties pays a dividend yield of 2.9%.

Colonial Properties Trust (CLP)

Colonial Properties Trust owns and manages a portfolio of 147 multifamily, office, and retail properties in twelve states. Shares have actually been strong, but insiders are buying anyway – in huge amounts. Since April 27 they have purchased $15.8 million worth of stock in the $49-$50 range. Here’s a big part of what is attracting insiders: The company is working some financial engineering that should result in a one-time mega-dividend of $10.75 per share.

To do this, Colonial Properties is putting over three dozen office and retail properties into two joint venture partnerships. It will keep a stake, but distribute much of the value to its own shareholders. The stock offers a 5.5% dividend yield. That will fall slightly after the mega-dividend, which still needs board approval.

Resource Capital (RSO)

Resource Capital, which invests in commercial real estate debt, reported a 23% increase in net income for the first quarter on May 7. It went up to 31 cents a share. Despite this performance, the stock is down 13% from nearly $19 in February. Down here at $16.25 a director bought $1.8 million worth of stock on May 14. The same director bought over $1 million at similar levels last fall. Resource Capital offers a 9.6% dividend yield and trades for about 1.3 times book value.

Two hotel investment companies

Ashford Hospitality Trust (AHT) has fallen 11% to $12, since last December. Down here, the chairman of the board just bought $1.4 million worth of stock. The company, which invests in brand name hotels like Marriott, Hilton, Hyatt, and Starwood, reported a first quarter increase of 54% in funds from operations (which strips out accounting adjustments to better reflect the tone of business), or $26.3 million. Ashford Hospitality carries a dividend yield of 6.8%.

Shares of another hotel investment company, Morgans Hotel Group (MHGC) have doubled since last September. But an insider is still buying. Chief executive Edward Scheetz bought $290,000 worth of stock at $23.72 on May 10. He also picked up $650,000 worth last November in the $14 range – so he’s got a good track record.

Two residential home builders

We even see some brave insiders picking up stock in two home builders. Insiders at California Coastal Communities (CALC) have purchased $430,000 since April 12 in the $17.50 to $18.50 range. The stock is down from $32 last September and trading at 52-week lows. A director at Orleans Homebuilders (OHB) bought $164,000 worth of stock at $8.06 on May 15.

The bottom line : Whenever you see insiders go up against conventional wisdom, they usually win. So while it feels tough to put money into real estate related stocks these days given all the scary headlines, that’s exactly what you should be doing.

Disclaimer
At the time of publication, Michael Brush owned shares of Morgans Hotel Group. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.

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