Two Harbors Investment Corp. Announces 2013 Dividend Tax Information

Business Wire

NEW YORK--(BUSINESS WIRE)--

Two Harbors Investment Corp. (TWO) today announced the tax treatment of common stock dividends declared in 2013. This information is provided to assist stockholders with tax reporting requirements related to dividend distribution of taxable income by Two Harbors Investment Corp. Stockholders should review the 2013 tax statements received from their brokerage firms or other institutions to ensure that the statements agree with the information provided below.

Stockholders who held a share of Two Harbors common stock for the entire 2013 calendar year will report a nondividend distribution of $0.951268 per share, which is roughly equivalent to the value of the Silver Bay common stock distribution of $0.94720 per share. The entire $0.951268 per share nondividend distribution should be treated as a return of capital for those stockholders who held a share of Two Harbors common stock for the entire 2013 calendar year and who have a tax basis in such share of $0.951268 or greater.

As each stockholder’s tax situation may be different, stockholders are encouraged to consult with their own professional tax advisor with respect to their individual tax consequences.

Tax Treatment of the Distributions

The Federal income tax classification of the 2013 distributions, as expected to be reported on Form 1099-DIV, is set forth in the following table. No portion of the company’s 2013 dividend distributions is expected to consist of unrelated business taxable income (UBTI), which is subject to special tax reporting for certain tax exempt investors.

 
2013 FORM 1099     Box 1a Total     Box 1b Total     Box 3 Total

Declaration
Date

   

Record
Date

   

Payable
Date

   

2013 Total
Distribution
Per Share

2013
Ordinary
Dividends

2013 Qualified
Dividends

2013
Nondividend
Distributions

3/18/2013 4/2/2013 4/24/2013 $0.32000 $0.176222 $0.020701 $0.143778
3/18/2013 4/2/2013 4/24/2013 $0.94720 ** $0.521617 $0.061276 $0.425581
6/13/2013 6/28/2013 7/23/2013 $0.31000 $0.170715 $0.020055 $0.139285
9/11/2013 9/26/2013 10/23/2013 $0.28000 $0.154195 $0.018114 $0.125805
12/17/2013 12/27/2013 12/31/2013 $0.26000 $0.143181 $0.016820 $0.116819
Totals $2.11720 $1.165930 $0.136966 $0.951268
** Reflects the Silver Bay common stock distribution
 

Silver Bay Stock Distribution

On March 18, 2013, the company’s board of directors declared a special dividend pursuant to which the company distributed, on a pro rata basis, 17,824,647 shares of common stock it owned of Silver Bay Realty Trust Corp. (SBY) to the Two Harbors stockholders of record at the close of business on April 2, 2013.

Two Harbors stockholders received approximately 0.049 shares of Silver Bay common stock for each share of Two Harbors common stock they owned of record on April 2, 2013, subject to the liquidation of fractional shares for which stockholders received cash in lieu of such fractional shares (the “Stock Dividend”). The Stock Dividend was payable on or about April 24, 2013.

On April 29, 2013, Two Harbors stated its intent to report the Stock Dividend as a dividend distribution for U.S. federal income tax purposes. As a result, stockholders will be treated as receiving a dividend distribution equal to the fair market value of the Silver Bay common stock (and cash in lieu of fractional shares of such common stock) received in the distribution and will take an adjusted basis, for federal income tax purposes, in such shares equal to the “fair market value” of such shares based on the market price on the date of the distribution (April 24, 2013). For federal income tax purposes, the fair market value of the Silver Bay common stock is the closing price on April 24, 2013, which was $19.40 per share.

The company further stated its intent to distribute cash in 2013 equal to its current and accumulated earnings and profits through December 31, 2013 (which includes the company’s annual 2013 taxable income), in addition to the Stock Dividend. The company expects that the cumulative quarterly 2013 distributions of cash and Silver Bay common stock that are in excess of the current and accumulated earnings and profit will be treated as a “nondividend distribution” for U.S. federal income tax purposes, which will have the effect of reducing the basis of a stockholder’s shares of Two Harbors common stock. If a stockholder has fully recovered his, her or its basis in their Two Harbors common stock, a nondividend distribution may be treated as a capital gain.

Lastly, the company stated that each quarterly distribution during 2013 would be characterized for tax purposes as having the same percentage allocation that is designated as ordinary, capital gain, and nondividend distribution. The percentage allocation is based on the total cash and the fair market value of property distributed relative to the annual 2013 taxable income. Therefore, the nondividend distribution component will be allocated on a Form 1099 for federal income tax purposes to each dividend paid during 2013.

Return of Capital Affecting Basis in Two Harbors Common Stock

The Federal income tax classification of the 2013 nondividend distribution is reported on Form 1099-DIV in Box 3. The nondividend distribution has the effect of reducing the basis of a stockholder’s shares of Two Harbors common stock, which is referred to as a “return of capital.” If a stockholder has fully recovered his, her or its basis in their Two Harbors common stock, a nondividend distribution may be treated as a capital gain.

Issuers of corporate securities are required to complete Internal Revenue Service Form 8937 to report organizational actions, including nontaxable distributions that affect the basis of the securities involved in the organizational action. Shareholders may view the 2013 IRS Form 8937 under the “Investors” section of the Two Harbors website.

Consult Your Tax Advisor

The tax laws require stockholders to retain records with respect to the distribution, including information regarding the amount, basis and fair market value relating to the Silver Bay common stock received by the stockholder in the Stock Dividend. Stockholders may have additional reporting obligations to the Internal Revenue Service and/or other tax authorities.

The U.S. federal income tax treatment of holding Two Harbors common stock to any particular stockholder will depend on the stockholder’s particular tax circumstances. You are urged to consult your tax advisor regarding the U.S. federal, state, local and foreign income and other tax consequences to you, in light of your particular investment or tax circumstances, of acquiring, holding and disposing of Two Harbors common stock.

Two Harbors does not provide tax, accounting or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S., federal, state or local tax penalties. Please consult your advisor as to any tax, accounting or legal statements made herein.

Two Harbors Investment Corp.

Two Harbors Investment Corp., a Maryland corporation, is a real estate investment trust that invests in residential mortgage-backed securities, residential mortgage loans, mortgage servicing rights and other financial assets. Two Harbors is headquartered in New York, New York, and is externally managed and advised by PRCM Advisers LLC, a wholly owned subsidiary of Pine River Capital Management L.P. Additional information is available at www.twoharborsinvestment.com.

Additional Information

Stockholders of Two Harbors and other interested persons may find additional information regarding the company at the Securities and Exchange Commission’s Internet site at www.sec.gov or by directing requests to: Two Harbors Investment Corp., 590 Madison Avenue, 36th floor, New York, NY 10022, telephone 612-629-2500.

Contact:
Investors:
Two Harbors Investment Corp.
July Hugen, 612-629-2514
Investor Relations
july.hugen@twoharborsinvestment.com

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