TWO-PA
Two Harbors Investment Corp.
$24.59
Real Estate Investment Trust
85%
P/FFO × Default REIT Multiple
Mild
·
Conviction
Overvalued
Trading 14.4% above fair value
You pay
$24.59
Bear
$18.01
Fair
$21.50
Bull
$24.99
Bear
$18.01
-26.8%
$0.85 FFO × 14x
Fair
$21.50
-12.6%
$0.85 FFO × 17x
Bull
$24.99
+1.6%
$0.85 FFO × 20x
Key Value Driver
FFO/share ($0.85) × default P/FFO multiple
Implied Market Multiple
28.9x
Summary
At $0.85 FFO/share with a 17x default REIT multiple, the base-case value is $21.50 per share. Dividend yield: 8.3%. DDM cross-check: $37.85.
Warnings
Standard profit figures are misleading for real estate companies — large non-cash accounting charges make profits look artificially low. Dividend yield and funds from operations are better measures.
Dividend yield of 8.3% is unusually high — make sure the company generates enough cash to keep paying it.
Dividend-based valuation: $37.85 (76% above our primary estimate). Large gaps suggest the dividend may not fully reflect the company's value.
Key Risks
- P/E and EV/EBITDA are structurally wrong for REITs — use P/FFO and NAV
- Interest rate sensitivity: REIT multiples compress when rates rise
- FFO approximation (NI + D&A) may include gains on property sales — verify