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Two Harbors raises capital to further grow its MSR portfolio

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Two Harbors Investment Corp., which grew its servicing portfolio by 22% in the fourth quarter, priced a common stock offering to raise funds to buy more rights as well as mortgage-backed securities.

The real estate investment trust is expecting to raise $249.3 million in gross proceeds from the 18 million share offering.

Two Harbors’ MSR portfolio had an unpaid principal balance of $163.1 billion at the end of 2018. During the fourth quarter, it grew that portfolio by 22% after adding $36.1 billion through bulk acquisitions and monthly flow purchases as part of a plan to redeploy capital from the acquisition of CYS Investments.

Two Harbors closed at $14.26 per share on March 18, the day before the offering was priced and opened the following morning at $13.95 per share. The stock traded at a low of $12.63 per share on Dec. 14, 2018.

Credit Suisse, JPMorgan and JMP Securities are acting as joint book-running managers for the offering.

The underwriters have a 30-day option to purchase an additional 2.7 million share. This offering is expected to close on March 21.

In May 2017, Two Harbors announced a change in its business strategy by spinning out its commercial real estate lending business to a new REIT, Granite Point Mortgage Trust. That left Two Harbors owning a portfolio of agency and nonagency RMBS, MSRs and other mortgage credit assets.

At the end of July 2018, Two Harbors closed on the purchase of another REIT that invested in mortgage-backed securities, CYS Investments.

“The redeployment of capital from CYS unfolded according to our plan in the second half of 2018, as we allocated capital from agency RMBS into MSR and nonagency securities,” Bill Roth, chief investment officer at Two Harbors, said in the company’s year-end earnings press release. “The widening of spreads in the fourth quarter, while impactful to book value, provides attractive investment opportunities in 2019.”

For 2018, Two Harbors had a GAAP net loss of $109.7 million; its fourth-quarter GAAP net loss was $577.5 million.

The total value of its RMBS portfolio as of Dec. 31, 2018 was $27.6 billion.

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