The Real Deal New York

Big REITs buy up competitors’ cheap stock

American Capital Agency bought $400 million worth of one rival's shares in last two months

February 12, 2014 06:45PM

Larger mortgage real estate investment trusts are scooping up the discounted stock of fellow REITs because their prices have dropped so low. For instance, the second-largest U.S. mortgage REIT, American Capital Agency, bought $400 million worth of competitors’ shares in the last two months, according to reports.

Buying equities of competitors is “a good move” because the share prices are so low — as much as 20 percent below the book value of their assets, according to the Wall Street Journal. Mortgage REITs saw money head to the booming stock market in the last six months.

Buying in its own sector is also a good strategy for the trusts — as long as interest rates stay stable or rise on a moderate basis, the Journal reported. But analysts point out that investing with their competitors can leave companies like American Capital at the mercy of other firms’ management.

The company’s chief investment officer, Gary Kain, said its worth the risk.

“You have to check your ego at the door, and say, ‘Honestly, this is so cheap,’” he told the Journal, though he declined to detail which companies American Capital had invested with. [WSJ] Angela Hunt

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