A Smart Move: How Two Harbors Leverages Spin-off Silver Bay

Jan 15, 2013, 10:15 ET from National Traders Association

NEW YORK, January 15, 2013 /PRNewswire/ --

With the housing market bouncing back from the doldrums, investors are now looking to ride on to the market's newfound success.

After hitting rock bottom in October 2011, the US housing market has since risen 5.3 percent and will continue to rise through 2013. Home values are predicted to rise at an average of 3.1 percent this year. Minnetonka, MN-based Two Harbors Investment Corp. (NYSE: TWO) [Full Research Report][(1)] has benefitted from this trend, successfully launching Silver Bay Realty Trust Corp. (NYSE: SBY) [Free Research Report][(2)], a spin-off of its housing portfolio.

Deutsche Bank gave Two Harbors a "buy" rating recently, stating that the company will continue "generating attractive return of equity and earnings growth" this this year for benefitting from "less prepayment-sensitive agency assets, an increasing mix of non-agency assets, income from spinoff Silver Bay, and new investment in whole loans."

DB adds that Two Harbors' share price is set to reach $12.75 per share, from the $11.59 price at the time. As of this writing, the price closed at $12.12 today, already matching last year's one year high. Just before 2012 ended, Two Harbors also declared a quarterly cash dividend payment of $0.55 per share of common stock for the final quarter of last year. It represents a 52.78 percent increase from the previous quarter.

The largest contributor to Two Harbors' growth is attributed to Silver Bay, the company's single-family rental spinoff. It went public in December last year, with an IPO of $245 million. Analysts gave Silver Bay Realty a "buy" rating, as the new asset class is expected to have robust growth in 12-24 months.

The new real estate investment trust (REIT) company focuses exclusively to the purchasing of single-family homes that are converted to rentals. Such companies allow investors to buy foreclosed homes in bulk at a discount, get them refurbished and rent them out for a yield of 5% to 7%, great for a near-zero interest rate environment. With leverage and home price appreciation, returns could go as high as 20%.

While Silver Bay is only one of two such REITs, analysts won't be surprised if more of these companies go public within 2013. Two Harbors investors should also take a look into Silver Bay as it is poised to be a long-term winner because the assets were bought on the cheap.

Reference Links:

[(1)]   The Full Research Report on Two Harbors Investment Corp. - including full detailed breakdown, analyst ratings and price targets - is available to download free of charge at: [http://www.nationaltradersassociation.org/r/entire_report/6dfa_TWO]

[(2)]The Free Research Report on Silver Bay Realty Trust Corp. - including full detailed breakdown, analyst ratings and price targets - is available to download free of charge at: [http://www.nationaltradersassociation.org/r/entire_report/1f23_SBY]

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SOURCE National Traders Association