Insiders at REITs
Like What They See

Some investors have abandoned real-estate investment trusts lately, but REIT insiders have been rushing in.

REIT executives and directors spent close to $60 million on their companies' stocks in the second quarter, the largest amount in the past 26 quarters, according to research by Thomson Financial.

After performing strongly in recent years, REITs have come down sharply this year. The result is that REIT stocks are trading at a significant discount to the value of their underlying real-estate assets, said John Lutzius, chief executive of REIT research-and-trading firm Green Street Advisors.

"There is a big disconnect between prices on Wall Street -- REIT prices -- and prices on Main Street -- private market pricing -- and I think that to the extent that insiders are buying, that's probably what they're looking at," he said.

During the quarter ended June 30, REIT insiders spent $59.8 million to buy shares, more than twice as much as any other quarter since 2002, according to the Thomson report. The bulk of last quarter's purchases were made at five companies, with General Growth Properties Inc. leading the pack with $38.4 million of stock purchases. The other four are Colonial Properties Trust, Alesco Financial Inc., Ashford Hospitality Trust and Capital Trust Inc.

 Including dividends, the REIT sector provided returns of more than 34% last year, according to the National Association of Real Estate Investment Trusts. So far this year, REIT companies have returned a negative 4.97%, according to the association.

Mr. Lutzius said that some REIT investors, after considering the interest-rate and credit-spread environments, concluded that real-estate prices would decline.

Mr. Lutzius said that the value of real-estate assets in the private market hasn't come down, however. As a result, REIT stocks trade at a discount of about 10% to their net asset value -- the largest such discount in about seven years, Mr. Lutzius said. Net asset value is a common REIT measure representing the value of a company's real-estate portfolio less its debt.

"The guys that operate real-estate companies, they're dealing in the private market all day, and they have a good understanding -- I think -- of the value of their underlying real-estate portfolio," Mr. Lutzius said. "So, when they see that it's trading at a big discount, that's when you get to where we are today."

Colonial Properties corporate Treasurer Jerry A. Brewer said his company went through a complex strategy change over a period of more than a year recently, shifting from a diversified portfolio of residential, office and retail properties, to a portfolio focused primarily on multifamily residential properties.

"I cannot speak for each one of [the insiders], but we as a company feel like our stock is significantly discounted," Mr. Brewer said.

Mr. Brewer said company insiders were prevented from buying stock during Colonial Properties' recent transition. During the last quarter, insiders there bought $9.9 million of stock, according to Thomson.

An Alesco Financial representative said it is the company's policy not to comment on insider transactions, and a Capital Trust spokesman said he couldn't comment on insider transactions.

Officials at the other two companies with the largest second-quarter insider purchases didn't return calls seeking comment.

Mr. Lutzius said that either real-estate prices will come down or REIT stock prices will rise. At current valuations, buyouts in the REIT industry -- such as Blackstone Group LP's $23 billion acquisition of Equity Office Properties Trust in February -- will likely continue.

"We'll see a smaller and smaller REIT industry as people in the private market buy the public companies and take them private," Mr. Lutzius said.

Target CEO Sells a Block of Shares

Target Corp. Chairman and Chief Executive Robert J. Ulrich exercised one million stock options and sold the acquired shares for $70.4 million, according to a regulatory filing.

Mr. Ulrich's latest stock sale comes amid disclosure that investor William A. Ackman has accumulated a 9.6% stake in the Minneapolis retailer and indicated his intention to pressure management to increase the company's stock value.

Mr. Ulrich paid $19.94 a share to acquire the shares and sold them for an average of $70.40 each for proceeds of about $50.5 million, according to a filing with the Securities and Exchange Commission and data provider Washington Service. The options were set to expire in March.

After the recent transactions, Mr. Ulrich reported direct ownership of 211,799 shares and indirect ownership of 571,703 shares.

Last month, Mr. Ulrich reported exercising the same number of options and selling the acquired stock for $63.5 million.

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