Financial Analysis - Two Harbors Investment Corporation is a re…

04.03.2013

Ticker: Two Harbors Investment Corp Benchmark:

Currency: New York: TWO, Currency: USD S&P 500 INDEX (SPX)

Sector: Financials Industry: Real Estate Investment Trusts Year:

Telephone 1-612-238-3300 Revenue (M) Business Segments in USD Sales (M) Geographic Segments in USD Sales (M)

Website www.twoharborsinvestment.com No of Employees REIT - Mortgage 578 United States 578

Address 601 Carlson Parkway Suite 330 Minnetonka, MN 55305 United States

Share Price Performance in USD

Price 12.81 1M Return 3.0%

52 Week High 12.87 6M Return 18.9%

52 Week Low 8.70 52 Wk Return 44.3%

52 Wk Beta 0.53 YTD Return 15.6%

Credit Ratings

Bloomberg IG6

S&P - Date - Outlook -

Moody's - Date - Outlook -

Fitch - Date - Outlook -

Valuation Ratios

12/09 12/10 12/11 12/12 12/13E 12/14E 12/15E

P/E 140.0x 6.1x 6.9x 9.4x 9.8x 9.9x 10.2x

EV/EBIT 1'014.7x 40.9x 39.7x 33.3x - - -

EV/EBITDA 806.5x 36.3x 35.5x - - - -

P/S 63.1x 4.7x 3.8x 4.6x 8.4x 8.3x 8.6x

P/B 1.1x 1.0x 1.0x 1.0x 1.1x 1.2x 1.2x

Div Yield 2.7% 15.1% 17.3% 15.4% 10.3% 10.8% 9.6%

Profitability Ratios %

12/09 12/10 12/11 12/12 12/13E 12/14E 12/15E

Gross Margin - - - - - - -

EBITDA Margin 18.0 83.6 89.9 - - - -

Operating Margin 14.8 81.9 88.9 89.9 86.4 88.2 83.4

Profit Margin -245.2 77.3 53.5 50.5 86.6 86.6 83.4

Return on Assets -2.2 3.1 2.6 2.3 2.2 2.4 -

Return on Equity -5.7 14.2 15.4 12.4 11.5 11.3 -

Leverage and Coverage Ratios

12/09 12/10 12/11 12/12

Current Ratio - - - - Current Capitalization in USD

Quick Ratio - - - - Common Shares Outstanding (M) 298.8

EBIT/Interest - - - - Market Capitalization (M) 3828.3

Tot Debt/Capital 0.8 0.8 0.8 0.8 Cash and ST Investments (M) 821.1

Tot Debt/Equity 3.4 3.1 5.2 3.7 Total Debt (M) 12624.5

Eff Tax Rate % - - - - Preferred Equity (M) 0.0

LT Investments in Affiliate Companies (M) 0.0

Investments (M) 0.0

Enterprise Value (M) 15631.7

Two Harbors Investment Corporation is a real estate investment trust (REIT). The

Company focuses on investing in, financing and managing residential mortgage-backed

securities, or RMBS, and related investments.

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Company Analysis - Overview

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Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: [email protected] |

www.twoharborsinvestment.com

Two Harbors Investment Corp

Target price in USD

Date Buy Hold Sell Date Price Target Price Broker Analyst Recommendation Target Date

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Company Analysis - Analysts Ratings

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04.03.2013


Ownership Statistics Geographic Ownership Distribution

Shares Outstanding (M) 298.8 United States 93.40%

Float 98.6% Canada 3.44%

Short Interest (M) 10.0 Switzerland 1.37%

Short Interest as % of Float 3.39% Unknown Country 0.54%

Days to Cover Shorts 1.80 Britain 0.48%

Institutional Ownership 71.33% Germany 0.28%

Retail Ownership 28.28% Luxembourg 0.18%

Insider Ownership 0.39% Others 0.30%

Institutional Ownership Distribution

Investment Advisor 81.92%

Hedge Fund Manager 15.73%

Insurance Company 0.83%

Individual 0.54%

Pricing data is in USD Others 0.98%

Top 20 Owners:

Holder Name Position Position Change Market Value % of Ownership Report Date Source Country

BLACKROCK 22'409'034 0 287'059'726 7.50% 31.12.2012 ULT-AGG UNITED STATES

VANGUARD GROUP INC 12'334'061 811'937 157'999'321 4.13% 31.12.2012 13F UNITED STATES

PERKINS INVESTMENT M 10'350'511 3'291'106 132'590'046 3.46% 31.12.2012 13F UNITED STATES

ALGER MANAGEMENT INC 9'231'032 527'997 118'249'520 3.09% 31.12.2012 13F UNITED STATES

SAB CAPITAL MANAGEME 8'131'158 -1'789'740 104'160'134 2.72% 31.12.2012 13F UNITED STATES

EAGLE ASSET MANAGEME 7'366'795 376'229 94'368'644 2.46% 31.12.2012 13F UNITED STATES

MORGAN STANLEY 7'355'405 -825'960 94'222'738 2.46% 31.12.2012 ULT-AGG UNITED STATES

STATE STREET 6'513'051 493'748 83'432'183 2.18% 31.12.2012 ULT-AGG UNITED STATES

FMR LLC 5'926'206 -1'775'001 75'914'699 1.98% 31.12.2012 ULT-AGG UNITED STATES

TORONTO DOMINION BAN 5'326'900 2'581'600 68'237'589 1.78% 31.12.2012 13F CANADA

NORTHERN TRUST CORPO 4'802'186 578'415 61'516'003 1.61% 31.12.2012 13F UNITED STATES

GOLDMAN SACHS GROUP 4'367'793 -812'578 55'951'428 1.46% 31.12.2012 13F UNITED STATES

SAC CAPITAL ADVISORS 4'037'108 4'037'108 51'715'353 1.35% 31.12.2012 13F UNITED STATES

WHITEBOX ADVISORS LL 3'988'108 317'721 51'087'663 1.33% 31.12.2012 13F UNITED STATES

THORNBURG INVESTMENT 3'069'300 196'630 39'317'733 1.03% 31.12.2012 13F UNITED STATES

PINE RIVER CAPITAL M 2'906'918 0 37'237'620 0.97% 31.12.2011 13G UNITED STATES

JP MORGAN 2'776'178 519'696 35'562'840 0.93% 31.12.2012 ULT-AGG

ROBECO INVESTMENT MG 2'687'982 533'293 34'433'049 0.90% 31.12.2012 13F UNITED STATES

BANK OF AMERICA CORP 2'527'784 -900'898 32'380'913 0.85% 31.12.2012 13F UNITED STATES

GEM REALTY CAPITAL I 2'464'900 15'900 31'575'369 0.82% 31.12.2012 13F UNITED STATES

Top 5 Insiders:

Holder Name Position Position Change Market Value % of Ownership Report Date Source

SIERING THOMAS 312'573 8'200 4'004'060 0.11% 19.02.2013 Form 4

JOHNSON WILLIAM W 246'391 10'000 3'156'269 0.08% 21.11.2012 Form 4

KUHN STEVE 185'000 20'000 2'369'850 0.06% 16.11.2012 Form 4

TAYLOR BRIAN C 100'000 10'000 1'281'000 0.03% 16.11.2012 Form 4

ROTH WILLIAM 81'300 3'000 1'041'453 0.03% 21.02.2013 Form 4

Company Analysis - Ownership

Ownership Type

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TOP 20 ALL



Financial information is in USD (M)

Periodicity: 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13E 12/14E 12/15E

Income Statement

Revenue 4 4 46 238 578 453 462 446

- Cost of Goods Sold

Gross Income

- Selling, General & Admin Expenses 1 3 8 24 51

(Research & Dev Costs)

Operating Income 3 1 34 191 455 392 407 372

- Interest Expense

- Foreign Exchange Losses (Gains)

- Net Non-Operating Losses (Gains) 0 10 -1 65 209

Pretax Income 3 -9 35 126 245 392 402 372

- Income Tax Expense 1 -0 -1 -1 -42

Income Before XO Items 2 -9 36 127 287

- Extraordinary Loss Net of Tax 0 0 0 0 -4

- Minority Interests 0 0 0 0 0

Diluted EPS Before XO Items 0.08 (0.39) 1.60 1.29 1.18

Net Income Adjusted* 29 154 311 393 400 372

EPS Adjusted 1.30 1.55 1.28 1.30 1.29 1.25

Dividends Per Share 0.00 0.26 1.48 1.60 1.71 1.32 1.38 1.23

Payout Ratio % 0.0 95.3 129.9 144.0 1.01 1.07 0.98

Total Shares Outstanding 33 13 41 141 299

Diluted Shares Outstanding 25 23 22 99 242

EBITDA 3 1 39 214

*Net income excludes extraordinary gains and losses and one-time charges.

Equivalent Estimates

Company Analysis - Financials I/IV

Fiscal Year


Periodicity: 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13E 12/14E 12/15E

Balance Sheet

Total Current Assets

+ Cash & Near Cash Items 3 26 164 360 821

+ Short Term Investments 259 503 1'576 7'425 15'366

+ Accounts & Notes Receivable 0 3 5 23 43

+ Inventories

+ Other Current Assets

Total Long-Term Assets

+ Long Term Investments 0 0 0 0

Gross Fixed Assets

Accumulated Depreciation

+ Net Fixed Assets 0 0 0 0

+ Other Long Term Assets 0 6 52 292 585

Total Current Liabilities

+ Accounts Payable

+ Short Term Borrowings 0 412 1'170 6'660 12'625

+ Other Short Term Liabilities 0 5 245 170 739

Total Long Term Liabilities 78 0 0 0 0

+ Long Term Borrowings 0 0 0 0 0

+ Other Long Term Borrowings 78 0 0 0 0

Total Liabilities 78 417 1'415 6'830 13'363

+ Long Preferred Equity 0 0 0 0 0

+ Minority Interest 0 0 0 0 0

+ Share Capital & APIC 181 132 367 1'375 2'951

+ Retained Earnings & Other Equity 3 -10 15 -104 499

Total Shareholders Equity 184 122 382 1'270 3'451

Total Liabilities & Equity 262 538 1'797 8'100 16'814

Book Value Per Share 5.61 9.10 9.44 9.03 11.55 11.24 10.94 10.34

Tangible Book Value Per Share 5.61 9.10 9.44 9.03 11.55

Company Analysis - Financials II/IV


Periodicity: 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13E 12/14E 12/15E

Cash Flows

Net Income 2 -9 36 127 398 406

+ Depreciation & Amortization 0 0 0 0

+ Other Non-Cash Adjustments 0 -0 -1 26

+ Changes in Non-Cash Capital -1 -2 -1 -2

Cash From Operating Activities 2 -11 33 152

+ Disposal of Fixed Assets 0 0 0 0

+ Capital Expenditures 0 0 0 0

+ Increase in Investments 0 -503 -1'621 -8'341

+ Decrease in Investments 0 2 474 2'270

+ Other Investing Activities 1 250 286 -261

Cash From Investing Activities 1 -250 -861 -6'333

+ Dividends Paid 0 0 -27 -120

+ Change in Short Term Borrowings 0 0 0 0

+ Increase in Long Term Borrowings 0 412 4'893 29'793

+ Decrease in Long Term Borrowings 0 0 -4'136 -24'302

+ Increase in Capital Stocks 0 0 235 1'007

+ Decrease in Capital Stocks 0 -127 0 0

+ Other Financing Activities -0 0 0 0

Cash From Financing Activities -0 285 966 6'377

Net Changes in Cash 2 23 138 196

Free Cash Flow (CFO-CAPEX) 2 -11 33 152

Free Cash Flow To Firm

Free Cash Flow To Equity 401 791 5'642

Free Cash Flow per Share 0.07 -0.50 1.48 1.53

Company Analysis - Financials III/IV


Periodicity: 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13E 12/14E 12/15E

Ratio Analysis

Valuation Ratios

Price Earnings 140.0x 6.1x 6.9x 9.4x 9.8x 9.9x 10.2x

EV to EBIT 1'014.7x 40.9x 39.7x 33.3x

EV to EBITDA 806.5x 36.3x 35.5x

Price to Sales 63.1x 4.7x 3.8x 4.6x 8.4x 8.3x 8.6x

Price to Book 1.1x 1.0x 1.0x 1.0x 1.1x 1.2x 1.2x

Dividend Yield 2.7% 15.1% 17.3% 15.4% 10.3% 10.8% 9.6%

Profitability Ratios

Gross Margin

EBITDA Margin 76.1% 18.0% 83.6% 89.9% - - -

Operating Margin 76.1% 14.8% 81.9% 88.9% 89.9% 86.4% 88.2% 83.4%

Profit Margin 51.7% -245.2% 77.3% 53.5% 50.5% 86.6% 86.6% 83.4%

Return on Assets -2.2% 3.1% 2.6% 2.3% 2.2% 2.4%

Return on Equity -5.7% 14.2% 15.4% 12.4% 11.5% 11.3%

Leverage & Coverage Ratios

Current Ratio

Quick Ratio

Interest Coverage Ratio (EBIT/I)

Tot Debt/Capital 0.00 0.77 0.75 0.84 0.79

Tot Debt/Equity 0.00 3.38 3.06 5.24 3.66

Others

Asset Turnover 0.01 0.04 0.05 0.05

Accounts Receivable Turnover

Accounts Payable Turnover

Inventory Turnover

Effective Tax Rate 32.2%

Company Analysis - Financials IV/IV


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12/2012 12/2011 12/2012 12/2012 12/2010 12/2012 12/2012 12/2012 12/2012 12/2012 12/2011 12/2011 12/2009 12/2011 12/2012

12.87 7.69 21.41 17.75 3.14 21.94 36.77 11.38 14.59 10.75 9.24 3.94 - 26.41 7.98

01.03.2013 24.09.2012 04.03.2013 12.09.2012 12.02.2013 30.01.2013 17.09.2012 19.02.2013 24.09.2012 15.02.2013 01.02.2013 20.02.2013 - 04.03.2013 01.08.2012

9.85 5.51 11.06 13.72 1.81 16.28 28.08 5.73 10.81 5.37 7.01 2.21 - 19.09 5.70

15.11.2012 14.11.2012 14.03.2012 15.11.2012 27.07.2012 09.04.2012 15.11.2012 06.03.2012 15.11.2012 05.06.2012 10.04.2012 13.06.2012 - 19.04.2012 15.11.2012

161'206 172'888 405'903 920'665 2'894'361 176'424 2'553'259 734'789 108'278 499'771 1'709'272 129'605 0 56'593 731'363

12.81 7.09 21.06 15.32 3.04 20.68 31.85 11.18 12.38 10.15 8.87 3.84 - 26.29 6.68

-0.5% -7.9% -1.6% -13.7% -3.0% -5.7% -13.4% -1.8% -15.2% -5.6% -4.0% -2.4% - -0.5% -16.4%

30.1% 28.6% 90.4% 11.7% 68.0% 27.0% 13.4% 95.1% 14.5% 89.0% 26.5% 73.8% - 37.7% 17.1%

298.8 13.9 81.7 974.7 1'027.0 116.2 338.9 105.2 96.2 83.8 356.1 51.1 - - 95.4

3'828.3 351.2 1'720.5 14'511.9 3'122.9 2'780.9 12'388.1 2'828.8 1'182.2 849.0 3'171.5 209.8 - 708.5 2'496.8

12'624.5 357.4 3'221.0 105'915.0 4'054.1 15'720.5 75'415.0 2'895.0 12'887.3 4'691.5 8'995.1 2'470.7 - - -

- - - 913.1 - 135.4 167.0 61.6 190.7 545.0 96.0 88.1 - - -

- 1.0 - - - 31.4 - - - 87.9 - 0.9 - - -

821.1 16.6 81.0 615.8 7.2 286.5 2'430.0 157.4 475.4 256.3 394.0 163.7 - - 252.4

15'631.7 4'985.3 4'860.5 120'724.1 9'268.3 18'381.6 85'540.1 4'762.3 13'784.9 5'372.1 13'008.5 2'411.1 - 4'632.5 1'769.5

LFY 577.5 22.5 278.0 3'765.3 748.1 613.9 1'952.0 310.5 256.6 400.5 498.3 211.2 - - 12.2

LTM 578.4 102.5 291.4 3'765.3 758.0 607.9 1'951.0 318.0 256.6 371.4 498.6 198.7 - - 184.1

CY+1 453.3 40.0 229.5 1'708.9 763.0 410.8 1'552.0 335.7 162.0 253.1 337.3 - - 75.0 375.5

CY+2 461.5 79.9 210.0 1'716.8 657.0 444.7 1'607.2 393.0 172.5 403.0 357.7 - - 96.0 388.0

LFY 26.2x 216.2x 16.3x 31.8x 12.0x 29.1x 42.5x - 53.4x 13.0x 25.8x 11.2x - - 134.6x

LTM 26.1x 47.6x 15.5x 31.8x 11.9x 29.4x 42.5x - 53.4x 14.0x 25.8x 11.9x - - 8.9x

CY+1 - - - - - - - 8.7x - - - - - - -

CY+2 - - - - - - - 7.4x - - - - - - -

LFY 214.2 12.1 171.2 3'576.9 701.2 438.9 1'061.3 262.1 241.2 167.8 467.1 156.3 - - 2.5

LTM 355.8 96.5 214.1 3'523.6 699.8 542.0 1'138.9 273.8 241.2 170.9 466.3 90.2 - - 163.1

CY+1 - - - - - - - 298.0 138.0 227.0 293.5 - - - -

CY+2 - - - - - - - 327.0 143.0 283.0 320.5 - - - -

LFY 70.6x 401.2x 26.4x 33.5x 12.8x 40.8x 78.2x - 56.8x 31.0x 27.6x 15.1x - - 665.0x

LTM 46.9x 50.5x 24.4x 34.0x 12.8x 31.7x 85.1x - 56.8x 30.5x 27.6x 26.2x - - 10.1x

CY+1 - - - - - - - 9.8x - - - - - - -

CY+2 - - - - - - - 8.9x - - - - - - -

LFY 1.18 0.60 1.03 1.74 0.67 2.89 4.17 1.14 1.50 -2.73 0.93 -0.06 - - 0.98

LTM 1.12 1.03 1.29 1.77 0.53 2.89 4.40 2.53 1.50 -2.72 0.80 -0.30 - 3.38 0.97

CY+1 1.30 1.15 1.71 1.45 0.51 2.63 4.10 1.22 1.29 (1.35) 0.83 - - 3.54 0.97

CY+2 1.29 1.06 2.05 1.45 0.45 2.63 4.09 1.41 1.31 (0.05) 0.82 - - 3.62 0.95

LFY 11.4x 6.9x 16.3x 8.7x 5.7x 7.2x 7.2x 4.4x 8.3x - 11.1x - - 7.8x 6.9x

LTM 11.4x 6.9x 16.3x 8.7x 5.7x 7.2x 7.2x 4.4x 8.3x - 11.1x - - 7.8x 6.9x

CY+1 9.8x 6.2x 12.3x 10.5x 5.9x 7.9x 7.8x 9.1x 9.6x - 10.7x - - 7.4x 6.9x

CY+2 9.9x 6.7x 10.3x 10.6x 6.8x 7.9x 7.8x 7.9x 9.4x - 10.9x - - 7.3x 7.0x

1 Year 142.5% 10.5% 28.0% (1.2%) 86.1% 30.9% 71.9% 6.2% 5.4% (7.5%) 26.9% 15.0% - - -

5 Year - 83.5% (13.1%) 4.5% - - - (13.6%) (5.0%) (24.5%) 8.3% (0.6%) - - -

1 Year - (7.4%) - - 88.4% - - - 6.7% (24.1%) 27.5% 6.3% - - -

5 Year - (28.4%) (27.2%) 24.1% - - - (12.5%) (4.2%) (32.7%) 20.0% (1.7%) - - -

LTM 87.6% 94.1% 79.0% 93.2% 92.3% 93.3% 89.9% 85.2% 94.0% 46.0% 93.5% 45.4% - - 88.6%

CY+1 - - - - - - - 88.8% 85.2% 89.7% 87.0% - - - -

CY+2 - - - - - - - 83.2% 82.9% 70.2% 89.6% - - - -

Total Debt / Equity % 365.9% 419.1% 282.5% 705.6% 110.1% 648.9% 703.0% 2218.3% 986.5% 378.7% 374.5% - - - 0.0%

Total Debt / Capital % 78.5% 80.6% 73.9% 86.9% 52.4% 85.9% 87.4% 93.8% 89.6% 78.0% 78.3% 121.7% - - 0.0%

Total Debt / EBITDA 39.442x 48.463x 19.108x 29.714x 8.795x 27.448x 76.853x - 53.427x 27.459x 21.854x 25.383x - - 0.000x

Net Debt / EBITDA 37.100x 48.038x 18.924x 29.071x 8.781x 27.096x 74.597x - 51.456x 25.958x 20.888x 23.441x - - -4.460x

EBITDA / Int. Expense - - - - - - - 1.899x 3.099x 0.473x 3.127x - - - -

S&P LT Credit Rating - - - - - - - - - B+ - - - - -

S&P LT Credit Rating Date - - - - - - - - - 18.03.2011 - - - - -

Moody's LT Credit Rating - - - - - - - - - B3 - - - - -

Moody's LT Credit Rating Date - - - - - - - - - 04.10.2012 - - - - -

52-Week High Date

52-Week Low

Latest Fiscal Year:

52-Week High

Total Debt

Market Capitalization

Daily Volume

52-Week Low % Change

Current Price (3/dd/yy)

52-Week High % Change

Cash and Equivalents

EBITDA

EV/EBITDA

Enterprise Value

Valuation

Preferred Stock

52-Week Low Date

Minority Interest

Total Common Shares (M)

P/E

Revenue Growth

Total Revenue

EV/Total Revenue

EPS

EBITDA Growth

EBITDA Margin

Credit Ratings

Leverage/Coverage Ratios

Company Analysis - Peers Comparision


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