Two Harbors Investment Corp. (TWO) – a real estate investment trust (REIT) that primarily invests in residential mortgage-backed securities (RMBS), has recently modified its share repurchase program to enhance shareholder value. Under the new share repurchase program, the company has increased the tally by 15 million shares to enable a repurchase of 25 million shares over a period of time. The shares could be repurchased through a slew of privately negotiated transactions or through open market transactions.
Two Harbors has also historically promulgated a dividend reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of the company by reinvesting some or all of the cash dividends received on the common shares.
The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to focus on the relative value of the various sectors within the mortgage market.
Two Harbors primarily acquires, owns and manages a portfolio of Agency and non-Agency RMBS and related investments. Agency RMBS are those who’s principal and interest payments are guaranteed by the U.S. government or government-owned entities, such as Fannie Mae, Freddie Mac and Ginnie Mae. On the other hand, non-Agency RMBS are neither issued nor guaranteed by the government-affiliated agencies.
The residential mortgage market in the U.S. has experienced defaults, credit losses and liquidity concerns in the recent past. These factors have impacted investor perception of the risks associated with real estate related assets, including agency securities and other high-quality RMBS assets.
As a result, values for RMBS assets, including some agency securities and other AAA-rated RMBS assets, have experienced a certain amount of volatility. Increased volatility and deterioration in the broader residential mortgage and RMBS markets may adversely affect the performance of Two Harbors in the future.
The company is externally managed and advised by PRCM Advisers, LLC, a wholly owned subsidiary of Pine River Capital Management L.P. We presently have an Underperform recommendation on Two Harbors, which currently has a Zacks #5 Rank that indicates a short-term Strong Sell rating. However, we have a Neutral recommendation and a Zacks #3 Rank (short-term Hold rating) for Redwood Trust Inc. (RWT), one of the competitors of Two Harbors.