Should We Follow the Recent CEO Purchase of Thomas Properties?
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Recently, The Chairman and CEO of Thomas Properties Group (NYSE: TPGI) has purchased around 43,400 shares in the company, with the total transaction value of nearly $230,000. Over the past 4 years, he kept adding to his personal portfolio. Could it be considered a bullish sign about the company’s future potential?
Premier Real Estate With High Occupancy Rate
Thomas Properties is considered a real estate company that grows via acquisition of premier properties in the US. It has generated cash flow mainly from property operations including rental operations, leasing, property management, etc. It currently has interests in nearly 20 operating properties, totaling 11 million square feet. It also provides property management services for five additional operating properties with 2.7 million square feet. Its Class A Office Portfolio comprise office properties in several regions including Los Angeles, Northern Virginia, Philadelphia, Houston, and Austin; with a high occupancy rate of 85%. In 2011, PricewaterhouseCoopers LLP and Macquarie US accounted for 12.62% and 14.61% of its total leased square feet, with 40 and 99 months on average remaining lease term, respectively. The majority of Thomas Properties revenue was generated from three main sources: rental, tenant reimbursements, and services. Rent was the highest revenue contributor, with nearly $29.7 million in revenue in fiscal 2011. The second highest revenue source was tenant reimbursements, with $22.44 million in revenue. The third belonged to services; $17.86 million in sales.
High Insider Ownership
Although some other executives have sold their positions, James Thomas, the Chairman and CEO has kept buying since 2008. His most recent transaction was the purchase of 43,400 shares at $5.276 per share, a the total purchase value of nearly $230,000. Thomas owns more than 3.1 million shares in the company. According to its recent proxy, he owned 100% of limited voting stock and 9% of the total common stock as of April 2012.
Highest Leasing Spreads
In the real estate operating business the lease spread is the common term that refers to the difference between the lease payments and the mortgage payments. Compared to other full service real estate businesses such as Brookfield Office Properties (NYSE: BPO) and Hudson Pacific Properties (NYSE: HPP), the GAAP leasing spreads of Thomas Properties are significantly higher. In the first quarter 2012, Thomas Properties’ leasing spread was 41.6%, whereas the leasing spreads of Brookfield and Hudson Pacific were 27.1% and 23.9% respectively. In a cash basis, the leasing spread of Thomas Properties was 15.2%, a little higher than 13.2% of Brookfield and 12.5% of Hudson Pacific.
But Also Highest Debt and Lowest Dividend
As of September 2012, the total stockholders’ equity was $190 million, the cash on hand was $58 million, and long-term debt was $285 million. Thus, the D/E ratio is 1.5x, higher than 1x D/E of Brookfield. Hudson Pacific had no long-term debt, it only had short-term borrowing of $359 million, accounting for 42.2% of the total equity. Thomas Properties has the lowest dividend yield among the three, of only 1.2%, whereas Brookfield offers investors 3.3% yield and Hudson Pacific’s dividend yield is 2.4%.
In terms of valuation, Thomas Properties seems to the cheapest among the three. With the trading price of $5.38 per share, the market capitalization is nearly $250 million. The market is valuing Thomas Properties at 13.46x EV/EBITDA, whereas BPO is valued at 14.51x EV/EBITDA. The most expensive is Hudson Pacific, with as high as 28.32x EV multiples.
Foolish Bottom Line
Thomas Properties seems decent with the lowest valuation and recent CEO purchases. However, the dividend yield is also the lowest among the three. Investors need to look deeper in the property portfolio of the three companies to determine their relative attractiveness. For me, I prefer Brookfield due to its highest dividend yield and not-so-high EV multiples.
hoangquocanh has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!