Two Harbors Investment Corp. (TWO - Snapshot Report) – a real estate investment trust (REIT) that primarily invests in residential mortgage-backed securities (RMBS), has recently completed the secondary offering of 39.1 million shares, including 5.1 million shares sold to the underwriters to cover the full execution of the over-allotment options.
Credit Suisse Securities (USA) LLC – the investment banking division of Credit Suisse Group (CS - Snapshot Report) acted as the lead book-running manager for the secondary offering. After deducting the underwriting discounts and other related expenses, the company raised net proceeds of $354.5 million from the equity offer. Two Harbors expects to utilize the proceeds to purchase additional RMBS, residential mortgage loans, and other related real estate assets to fuel its growth engine.
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 a ‘Neutral’ recommendation on Two Harbors, which currently has a Zacks #3 Rank that indicates a short-term ‘Hold’ rating.