Insider Selling Of REITs Picking Up: Is It Significant?
Insider transactions often influence stock prices, with insider buys moving shares higher and insider sales pushing prices lower. But in reality, many insider transactions mean very little about the prospects of a company.
In general, insider purchases are more significant than insider sales because purchases are almost always made when the insider feels the stock will go higher based on their knowledge of better earnings, new contracts in discussion or new products or services.
In contrast, an insider may sell stock for any number of reasons that have nothing to do with the company's fortunes. The insider may need funds to pay for a family wedding or college tuition. Perhaps they're getting divorced or want to take an expensive trip.
When more than one insider is buying or selling, that is often more significant than if just one insider initiates a transaction. It's important to note the small print at the bottom of the Securities And Exchange Commission (SEC) Form 4, which is the form used for all insider stock transactions. The small print often denotes the real reason behind the transaction.
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Take a look at some recent insider sales at some well-known real estate investment trusts (REITs) and see why they're probably insignificant to the company's present or future performance.
Iron Mountain Inc. (NYSE:IRM) is a Portsmouth, New Hampshire-based specialty REIT with a focus on information management and storage, data center infrastructure and asset lifecycle management. Iron Mountain was founded in 1951 and has more than 225,000 customers worldwide. In recent years, it has shifted its focus from paper storage to data storage.
On Jan. 4, a national newswire article with the headline, "Iron Mountain Insider Sold Shares Worth $795,182, According To a Recent SEC Filing" stated that "Mark Kidd, Executive Vice President & General Manager, Data Centers & Asset Lifecycle Management, on January 02, 2024, sold 11,376 shares in Iron Mountain (IRM) for $795,182."
But what the article doesn't note is the small print at the bottom of Form 4, which states, "This stock option was granted on February 13, 2014. This stock option has fully vested and has been fully exercised as of January 2, 2024." That's important information for Investors.
Camden Property Trust (NYSE:CPT) is a Houston-based residential REIT that owns and manages apartment complexes. As of June 30, it held 172 properties with 58,961 units of apartment complexes in major cities across the U.S. Its strategy is to focus on high-growth markets with a diverse portfolio of assets. Some of its apartment complexes also contain ground-floor retail space, offices or mixed-use space. Camden Property Trust is a member of the S&P 500. Its third-quarter occupancy rate was 95.6%.
On Jan. 4, Executive Vice President of Real Estate Investments William W. Sengelmann disposed of 6,493 shares of Camden Property stock for $98.208 per share. The sale was reported by a newswire with the headline, "Camden Property Trust Insider Sold Shares Worth $962,733, According to a Recent SEC Filing."
What the article failed to report was the small print at the bottom of Form 4, which stated, "The reporting person's shares are held by the issuer's executive deferred compensation plan for the benefit of the reporting person who, in prior years, made an irrevocable election to receive payment in 2024, pursuant to Internal Revenue Code Section 409A."
In other words, this was a planned sale from prior years, not some recent decision based on how Camden Property Trust is or will be performing in 2024.
Mid-America Apartment Communities Inc. (NYSE:MAA) is a self-administered residential REIT that specializes in purchasing and leasing apartment complexes. It owns just under 102,000 units in 300 communities across 16 states and Washington, D.C. Most of Mid-America Apartment Communities' properties are in the Southeast, Southwest and Mid-Atlantic states.
Mid-America Apartment Communities is a member of the S&P 500 and has been a public company for 28 years. The Atlanta and Dallas areas comprise over 22% of its same-store net operating income.
On Jan. 4, President and CEO H. Eric Bolton, Jr. disposed of 1,367 shares of his company’s common stock for $132.16 per share. But the fine print at the bottom of Form 4 revealed that "Disposals are being withheld to cover taxes related to vesting pursuant to shares earned and issued under a prior year restricted stock plan."
On the same day, Executive Vice President and Chief Financial Officer Albert M. Campbell III disposed of 518 shares at the same $132.16 price per share. But the fine print revealed it was done for the same reasons as Bolton.
Executive Vice President Robert J. DelPriore disposed of 511 shares at the same $132.16 share price and another 7,211 shares at $131.33. Again, the reason for the disposals was to cover taxes related to a prior year’s stock plan. Several company executives are on the same stock plan.
Again, headlines reported, "Mid America Apartment Communities Insider Sold Shares Worth $947,021, According to a Recent SEC Filing." And while the headline was true, nowhere in the brief article did it explain DelPriore's reason for the sale.
As it turns out, not one of the insider sales shown above was the act of a terrified executive, bailing out before the company stock plunges. The headlines may not say so, but the inference is often there when it's a large transaction.
If an investor reads the SEC Form 4, they will see boxes with codes in them next to the transactions. Here is a list of the various codes found on the form and their meanings:
Image source: Securities and Exchange Commission (SEC) website
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The lesson for investors is to look beyond the headlines and read Form 4, which is available to the public through the SEC's EDGAR database at www.sec.gov/edgar or may be available in the company's news section on various brokerage websites.
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