Two Harbors Investment, a real estate investment trust, filed its latest 10-KA filings for 2018 on 4/4/2019. Below is a quick recap on things we felt essential to review.
MD&A Recap
- TWO Harbor's management team highlighted their expectations in more graduate home price increases, albeit at a slower rate, better than expected market conditions, and Fed ceases raising rates.
- Key highlights include completion of the acquisition of CYS, which help increased its market cap and improved its liquidity.
- Shift in strategic allocation, moving capital from Agency RMBS into MRS and non-Agency securities. Agency Residential mortgage-backed security is considered less risky. This move tells us that TWO is seeing better investment opportunities and perhaps inefficiency in mortgage-related securities offered via non-agency.
- Note the increases in float income was directly related to increases in the size of MSR and higher earning rates.
- Due to the acquisition of CYS, the management agreement was amended to (i) reduce management fee (ii) $17.5 million to CYS for a one-time downward adjustment of Pine River's management fees
Risk Factors Recap
- CYS may not qualify as a REIT for U.S. federal income tax purposes and could cause adverse tax consequences.
- Dodd-Frank Act has rolled back critical provisions in 2018, easing mortgage regulations on the small and medium size.
- Added verbiage on FED and its further reduction in reinvestment or outright sales of its securities portfolio and its actions' effects such as causing agency RMBS price to decline further and increase market volatility.
- Added verbiage on the nature of MRS and its illiquid nature in economic downturn and dependence on the external valuation of the MSR collateral.
Submitted April 05, 2019 at 08:54AM by liangchen1992b http://bit.ly/2uPWT3I
