Insider Purchases & Buybacks: GGP

Insider purchases are a sign that those who work in a company see value in its shares. But you must always weigh this information against the current uncertain environment. General Growth Properties (GGP - commentary - Cramer's Take) has just seen some aggressive insider purchases. (On Stockpickr, you can see the rest of the insider trades and buybacks.)

Recently, CEO John Bucksbaum bought more than 137,000 shares of the company between $36.17 and $36.47. CFO Bernard Freibaum purchased 30,200 shares between $36.15 and $36.36.

The retail real-estate investment trust missed Wall Street expectations when it reported that its funds from operations (FFO) plunged nearly 37% in the fourth quarter. The company's FFO was down to $190.4 million, or 64 cents a share. Net income declined to $58.7 million, or 24 cents a share, from $70.2 million, or 29 cents a share, in the year-ago quarter. GGP cited a significant slowdown in the pace of sales as the reason for its dismal performance, adding that the trend would continue "well into 2008."

The housing market is still in a battered state, and there are growing concerns over the future of the U.S. economy. Last month, Citigroup downgraded 4 REITs, including reducing its rating on GGP from "buy" to "hold."

While the company faces a tough housing and retail market, which is likely to continue, it has significant debt. More than two-thirds of its debt is payable by 2011 and, given the state of the credit market, the company will struggle to refinance its debt liabilities.

Recently, there has been speculation that GGP could file for bankruptcy, given that the company's debt relative to its assets and capitalization is higher than most of its peers. Moreover, the majority of GGP's debt is in the form of mortgages and construction loans. In this market, I would shy away from companies with high leverage.

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At the time of publication, Raznick had no positions in the stocks mentioned, although positions may change at any time.

Jason Raznick is president of Easy Stock Alerts and has been involved with the capital markets for several years. He has worked for Merrill Lynch, Dynamis and Tricap Holdings, a joint venture with Fortress Investment Group. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Raznick appreciates your feedback; click here to send him an email.