It’s often said that a company’s prospects can be predicted by stock purchases made by company insiders. Insiders may sell stock for any number of reasons, but purchases are only made because the insider expects to make a profit on shares down the road.
Studies have shown that when the company insider is high up in the organization, such as the CEO or chief financial officer, a purchase of company stock is even more significant for future price performance than when a purchase is made by a director or lower-level executive.
Investors often perk their ears when hearing about high-level executives making large acquisitions of company stock.
Take a look at one real estate investment trust (REIT) that recently had a large number of shares purchased by its CEO.
American Assets Trust Inc. AAT is a San Diego-based diversified REIT that owns and manages office, retail, hotel and multifamily residential properties throughout the U.S. Its properties are primarily in California, Oregon, Washington and Hawaii.
American Assets Inc. was a private company founded in 1967. In January 2011, it went public and changed its name to American Assets Trust. Today it owns 4.1 million square feet of rentable office space, 3.1 million square feet of retail space, a 369-room hotel and 2,110 multifamily units. Its chairman and CEO is Ernest Rady.
On May 1, in a Form 4 filed with the Securities and Exchange Commission (SEC), Rady purchased 320,000 shares at an average price of $17.78, for approximately $5.69 million.
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But Rady wasn’t done.
Less than a week later, he purchased 180,000 shares at an average price of $18.76, totaling about $3.38 million.
Rady has purchased shares of American Assets Trust before and at higher prices. For example, in November 2022, he bought 50,000 shares at an average price of $27.60, for approximately $1.4 million. He owns just under 12.3 million shares of company stock with a value of $218 million.
Obviously, Rady believes in his company. Should investors be as optimistic? Right now, it seems he has good reasons to be bullish on American Assets Trust. Here’s why:
On April 25, American Assets announced its first-quarter 2023 operating results. Funds from operations (FFO) of $0.66 beat the Street’s view of $0.56 by 17.8% and was 15.7% better than FFO of $0.57 in the first quarter of 2022. Revenue of $107.75 million beat the estimate of $103.39 million and was 6.19% better than $101.47 million in the first quarter of 2022.
In addition, American Assets raised its full-year 2023 guidance from $2.16-$2.30 to $2.23-$2.33 per share. This was also good news for shareholders.
Analysts have not covered American Assets much lately. In February, Mizuho maintained a Neutral rating on American Assets, with a $30 price target. From its most recent closing price of $18.85, this is a potential upside of 59%.
American Assets Trust pays a quarterly dividend of $0.33 per share. The annual dividend of $1.32 yields 6.98%. Over the past five years, the dividend is up 22.2%. The quarterly dividend was cut from $0.30 to $0.20 in June 2020 because of the pandemic but was raised in increments until reaching $0.30 again in September 2021. The ex-dividend for the next dividend is June 7, and the pay date is June 22.
Investors are advised to do their due diligence on any potential stock purchases, regardless of whether it has insider buying, and insider buying should never be the sole reason for buying shares.
Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.
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