TWO
Two Harbors Investment Corp.
$12.50
Real Estate Investment Trust
85%
P/FFO × Default REIT Multiple
Mild
·
Conviction
Fair Value
Trading 12.5% below fair value
You pay
$12.50
Bear
$11.77
Fair
$14.29
Bull
$16.82
Bear
$11.77
-5.8%
$0.85 FFO × 14x
Fair
$14.29
+14.3%
$0.85 FFO × 17x
Bull
$16.82
+34.5%
$0.85 FFO × 20x
Key Value Driver
FFO/share ($0.85) × default P/FFO multiple
Implied Market Multiple
14.8x
Summary
Our base-case estimate uses P/FFO × Default REIT Multiple. We then blend that result with the average analyst price target of $14.00 from 22 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $14.29 per share.
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 11.3% is unusually high — make sure the company generates enough cash to keep paying it.
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