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Jonathan Moreland

Inside the Markets

Why insiders are wheeling and dealing in the REIT stuff.

May 19, 2008
by Jonathan Moreland

DISCLOSURE: Readers should assume that all stocks mentioned in this column are owned by the author and/or his firm unless otherwise noted.

While economic headlines continue to paint a distressing picture, CPA Insider™ readers may not know that proxies for non-mortgage REITs (Real Estate Investment Trusts), such as VNQ (Vanguard REIT) and RWR (DJ Wilshire REIT), have traded surprisingly well this year. Individually, shares of Glimcher Realty Trust (NYSE: GRT) also appear to have overcome their first technical hurdle as they attempt to rebound after halving in price over the past year.

Considering that Glimcher’s shopping mall properties rely on U.S. consumers maintaining their profligate ways, that’s not so intuitive. You would think the ability of Joe and Jane Sixpack and their 2.4 children to continue purchasing stuff is supposed to be imminently affected by their inability to tap an equity line of credit anymore. Add to that the record high price of gas, which should be a disincentive for them to travel to these retail oases to spend the money they don’t have.

So it seemed odd to me that Glimcher’s chairman, Michael Glimcher, was publicly talking up his business in early March at an industry conference, while also buying into his own optimism. His obvious bullishness appeared misplaced indeed.

Yet he wasn’t alone. He was one of five executives at Glimcher who purchased 77,700 shares of GRT at prices ranging from $10.88 to $12.11. Of the bunch, Glimcher was both the biggest buyer, and the best proxy of near-term value given his active history of trading. He was both an active and smart seller of his firm’s shares from 2002 through 2006.

Also bullish is that institutional investors including Barclays, Cohen & Steers, Vanguard, and Standard Life all showed faith in this REIT as its shares fell last year. Schedule 13G filings as of end-December 2007 showed that all of these institutions bought into GRT’s decline.

“Here we sit more than two-thirds of the way through the first quarter, and this year doesn't seem markedly different than the last two years,” explained Glimcher on his bullishness at a March industry conference. “If there's a catastrophe out there that everyone's looking for, we haven't seen it yet,” he added.

That was a surprising observation from an executive on the front line of where the recession is supposed to attack the economy. Of course, GE missing its Q1 numbers shows that a chairman’s guidance can be overwhelmed by subsequent realities on the ground. So I still had some trepidation as Glimcher’s Q1 was released.

But there were no nasty surprises. Glimcher suffered a mere two percent year-over-year decline in funds from operations (FFO) on a 7.5 percent year-over-year increase in revenues, to $78.1 million. This was in line with management’s previous guidance, giving them credibility in future forecasts. Average rents increased 3.3 percent over last year, and re-leasing spreads in Q1 increased 13 percent. Occupancy actually ticked up one-tenth over last year, to 92.8 percent.

For all of 2008, management now expects FFO to come in between $2.02 and $2.10. This is actually a slight up-tick from previous expectations, and would certainly make GRT’s luscious 10.2 percent indicated yield a reality.

In the end, however, the real attraction of GRT is not that its operations are impervious to any pressure from the recession we are already in. That is not realistic, and trouble at Sears, a major anchor tenant, could still upset full-year forecasts. The real attraction is that those understandable concerns have likely been priced into its shares already.

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Jonathan Morelandis the Director of Research at New York-based Insider Insights.com. Click here for a FREE trial issue of the firm's weekly newsletter Insider Insights.