REIT Insiders Use Loans
To Purchase Safe Stocks

Technology-shy investors haven't been the only people buying shares in real-estate investment trusts.

Corporate executives and other insiders at three big REITs -- Post Properties Inc., United Dominion Realty Trust Inc., and CarrAmerica Realty Corp. -- purchased their own stock in June, joining a broader move to REITs in the past 18 months as a safe bet in a weak economy. REITs are "the ultimate in terms of a stable and predictable investment," said Mike Kirby of Green Street Advisors, a Newport Beach, Calif., real-estate securities-research firm.

REITs are corporations or trusts that use the pooled capital of many investors to purchase and manage income property or mortgage loans.

The current low interest-rate environment is good for REITs. This is because they tend to be big users of capital to leverage their own buildings, and low rates mean they can refinance debt, said Mr. Kirby. In addition, low rates make the dividend yield that many REIT stocks pay more attractive to investors.

The biggest threat, experts say, is further weakening of the economy, which affects occupancy rates. "We're all feeling the effects of the softening of the economy," said R. Gregory Fox, chief financial officer at Post Properties of Atlanta, an apartment REIT. But, he adds, public REITs have been much more restrained in their building than they have been historically. As a result, there hasn't been "as severe a financial impact on real-estate companies in this downturn so far," said Mr. Fox.

Obscuring the signal from insiders, however, is that the executives at Post Properties and United Dominion financed their purchases with loans. While it isn't unusual for REIT insiders to receive loans for stock purchases, it is a less positive signal than seeing an executive buy "on their own initiative," said Paul Elliott, an analyst at Thomson Financial/First Call, which tracks insider transactions. "We're more skeptical" of buying funded by loans from, or negotiated by, a company, he said, in part because insiders don't always have to repay them.

While REIT stocks had been inexpensive early last year -- trading at a discount to the real estate they own -- it isn't obvious why insiders would be buying now, said Mr. Kirby. Now trading close to parity with the underlying real estate, "the stocks are not flashing an ultracheap signal," he said. On the flip side, "they still pay a good yield and have decent growth prospects," he said, with REIT investors able to expect a 10% to 12% total return over the next 12 months.

Post Properties' Mr. Fox was among three of the REIT's executives who bought a combined 67,560 shares in June, valued at $2.6 million, or $37.50 to $38 a share. Also buying shares were David Stockert, who joined the company as president and chief operating officer in January, and Thomas Wilkes, president of the management division. The company extended each individual a 10-year loan at 6.3% interest, said Mr. Fox, and some, or all, of the loans will be forgiven over five years. For example, $1 million, or half, of Mr. Stockert's loan will be forgiven based on his continuing employment, and all of Mr. Fox's $100,000 loan will be forgiven.

"We believe the stock is a good investment right now," said Mr. Fox, adding that the stock is "trading at a discount to our net asset value." 

At United Dominion Realty Trust, another apartment owner and operator, four executives -- including Christopher Genry, the CFO, and Ella Neyland, treasurer -- purchased 213,168 shares for $2.8 million, or $12.80 to $13.24 a share. Each of the individuals joined the Richmond, Va., company in April, and the purchases were financed with loans from an outside bank, said Ms. Neyland. The loans were extended at market rates and aren't forgivable.

The new executives bought shares as "an expression of confidence in the company and to show an alignment in interest with our shareholders," said Ms. Neyland. 

Oliver Carr, a director and founder of CarrAmerica Realty, an office REIT based in Washington, bought 45,096 CarrAmerica shares both directly and indirectly at $28.84 each, or $1.3 million total. After the transaction, he owned 121,165 shares directly, and about 400,000 shares indirectly. Mr. Carr couldn't be reached for comment.

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