ARMOUR Residential REIT, Inc. (NYSE: ARR, ARR PrA, and ARR PrB)
("ARMOUR" or the "Company") today announced financial results for
the quarter ended September 30, 2015.
Q3 2015 Highlights and Financial
Information
- Previously reported one-for-eight reverse stock split (the
"Reverse Stock Split") of ARMOUR's outstanding shares of Common
stock was effective July 31, 2015
- Q3 2015 key results:
- $52.4 million ($1.11 per Common share) Core Income including
drop income (as defined below)
- 13.22% Core Income return on stockholders' equity at the
beginning of the quarter
- $0.98 per share Common dividends for Q3
- $38.0 million ($0.78 per Common share) estimated taxable Real
Estate Investment Trust ("REIT") income
- $(221.6) million [$(5.18) per Common share] net loss under
Generally Accepted Accounting Principles ("GAAP") reflecting
$(266.1) million net unrealized loss primarily on interest rate
hedges driven by declines in swap yields
- 2.56% average yield on assets and 1.44% average net interest
margin
- 9.23% annualized average principal repayment rate (CPR)
- 1,755,618 Common shares repurchased, net
- 43,561,000 approximately weighted average diluted Common shares
- At September 30, 2015:
- $1.42 billion ($29.05 per Common share) stockholders' equity,
including accretive effect of $0.37 per Common share from Q3 share
repurchases
- 8.87 to 1 "leverage" (debt to stockholders' equity)
- $682.9 million (48.11% of stockholders' equity) liquidity in
cash and unpledged securities
- Stock outstanding:
- 42,028,278 shares Common Stock
- 2,180,572 shares Series A Cumulative Redeemable Preferred
Stock
- 5,650,000 shares Series B Cumulative Redeemable Preferred Stock
- 2,190,000 approximately additional Common shares repurchased
net in October 2015, leaving repurchase authorization of 5,041,067
Common shares at November 5, 2015
- 39,838,120 Common shares outstanding at November 5,
2015
- $0.33 monthly dividend per Common share maintained for Q4, as
previously announced
- On July 7, 2015, ARMOUR's wholly-owned insurance subsidiary,
SABRE Business Insurance LLC, became a member of the Federal Home
Loan Bank of Des Moines, as previously reported
- Additional updated information on the Company's investment,
financing and hedge positions can be found in ARMOUR Residential
REIT, Inc.'s most recent "Company Update." ARMOUR posts unaudited
and unreviewed Company Updates each month on
http://www.armourreit.com
Q3 2015 Results
Core Income, Including Drop Income
Core Income, including drop income, for the quarter
ended September 30, 2015, was approximately $52.4
million. "Core Income" represents a non-GAAP measure and is defined
as net income excluding impairment losses, gains or losses on sales
of securities and early termination of derivatives, unrealized
gains or losses on derivatives and U.S. Treasury Securities and
certain non-recurring expenses, inclusive of dollar roll
income. Core Income may differ from GAAP net income,
which includes the unrealized gains or losses of the Company's
derivative instruments and the gains or losses on Agency Securities
and U.S. Treasury Securities.
The Company entered into to-be-announced ("TBA") dollar roll
transactions that generate "drop income." Drop income is defined as
the difference in price between two TBA contracts with the same
terms but different settlement dates. Drop income is the economic
equivalent of the assumed net interest spread (yield less financing
costs) and is calculated as the difference between the spot price
for regular settlement and the forward settlement price on trade
date.
Estimated Taxable REIT Income
Estimated taxable REIT income for the quarter ended
September 30, 2015, was approximately $38.0 million, or
$0.78 per Common share. The Company's annual dividend requirement
to maintain its REIT tax status is based on ordinary taxable
income, rather than on net income calculated in accordance with
GAAP. Realized capital losses do not affect the amount of the
Company's ordinary taxable income, but will generally be available
to offset capital gains realized primarily through 2018. Taxable
REIT income and GAAP net income will generally differ primarily
because of the non-taxable unrealized changes in the value
of the Company's derivatives, which the Company uses as
economic hedges, and any other than temporary impairment of Agency
Securities to be sold in later periods. These gains/losses on
derivatives are included in GAAP net income, whereas valuation
changes are not included in taxable income.
GAAP Net Income (Loss)
For the purposes of computing GAAP net income (loss), the change
in fair value of the Company's derivatives is reflected in current
period net income, while the change in fair value of its Agency
Securities is reflected in its statement of comprehensive income
(loss). GAAP net loss for Q3 2015 was approximately $(221.6)
million, including unrealized and realized losses on derivatives of
$(266.1) million and $(17.4) million, respectively.
Dividends
The Company paid reverse split adjusted dividends of $0.32 per
Common share of record for July 2015 and $0.33 per Common share of
record for both August and September 2015, resulting in payments to
Common stockholders of approximately $42.9 million. The Company
also paid monthly dividends in Q3 2015 of $0.171875 per outstanding
share of 8.250% Series A Cumulative Redeemable Preferred Stock and
$0.1640625 per outstanding share of 7.875% Series B Cumulative
Redeemable Preferred Stock, resulting in payments to preferred
stockholders of an aggregate of approximately $3.9
million. Our board of directors determines our Common share
dividend rate based upon our REIT requirements and other relevant
considerations. Dividends in excess of taxable REIT income for the
year (including any amounts carried forward from prior years) will
generally be treated as non-taxable return of capital to Common
stockholders.
Per Share Amounts
Per Common share amounts reflect the one-for-eight reverse stock
split and are net of applicable Preferred Stock dividends and
liquidation preferences. The denominators used to calculate per
Common share amounts for the quarter ended September 30, 2015,
reflect, to the extent dilutive, the effects of 0.1 million
unvested stock awards.
Portfolio
As of September 30, 2015, the Company's portfolio consisted
of Fannie Mae, Freddie Mac and Ginnie Mae mortgage securities,
substantially all of which are fixed rate securities, and was
valued at $13.6 billion on a trade date basis. The Company also had
$1.6 billion of TBA dollar roll transactions open at
September 30, 2015. During Q3 2015, the annualized yield
on average assets was 2.56%, and the annualized cost of
funds on average liabilities (including realized cost of hedges)
was 1.12%, resulting in a net interest spread of 1.44% for Q3 2015.
During Q3 2015, the Company sold approximately $0.3 billion of
Agency Securities, resulting in losses of approximately $0.1
million.
Portfolio Financing, Leverage and Interest Rate
Hedges
As of September 30, 2015, the Company financed its
portfolio with approximately $12.6 billion of borrowings under
repurchase agreements. The Company's leverage ratio as of
September 30, 2015, was 8.87 to 1 (10.04 to 1 including
TBA Agency Securities purchased forward and excluding debt related
to forward settling sales). As of September 30, 2015, the
Company's liquidity totaled approximately $682.9 million,
consisting of approximately $276.5 million of cash and equivalents,
plus approximately $406.4 million of unpledged Agency Securities
(including Agency Securities received as collateral).
As of September 30, 2015, the Company's repurchase
agreements had a weighted-average maturity of approximately 46
days. The Company had a notional amount of approximately $12.3
billion (of which $6.4 billion become effective within 9 months) of
various maturities of interest rate swap contracts with a weighted
average swap rate of 1.76%.
Regulation G Reconciliation
Taxable REIT income is calculated according to the requirements
of the Internal Revenue Code ("the Code") rather than GAAP.
The Company plans to timely distribute at least 90% of its taxable
REIT income in order to maintain its tax qualification as a
REIT under the Code. The Company believes that taxable REIT income
is useful to investors because taxable REIT income is directly
related to the amount of dividends the Company is required to
distribute in order to maintain its REIT tax qualification status.
Core Income also excludes gains and losses on security sales.
However, because taxable REIT income and Core Income are incomplete
measures of the Company's financial performance and involve
differences from net income computed in accordance with GAAP,
taxable REIT income and Core income should be considered as
supplementary to, and not as a substitute for, the Company's net
income computed in accordance with GAAP as a measure of the
Company's financial performance.
The following table reconciles the Company's results from
operations to Core Income and estimated taxable REIT income for the
quarter ended September 30, 2015:
|
|
|
|
Core Income |
Estimated Taxable REIT
Income |
|
(in
millions) |
GAAP net income |
$ (221.6) |
$ (221.6) |
Book to tax differences: |
|
|
Changes in interest rate
contracts |
261.4 |
261.4 |
TBA drop income |
12.6 |
— |
Amortization of deferred
hedging costs |
— |
(1.8) |
Total |
$ 52.4 |
$ 38.0 |
|
|
|
Reverse Stock Split
As previously reported, the Reverse Stock Split took effect at
approximately 5:00 p.m. Eastern Time on July 31, 2015 (the
"Effective Time"). At the Effective Time, every eight issued and
outstanding shares of Common stock was converted into one share of
Common stock, and as a result, the number of outstanding shares of
Common stock was reduced from approximately 350,000 to
approximately 43,750. At the Effective Time, the number of
authorized shares of Common stock was also reduced, on a
one-for-eight basis, from 1,000,000 to 125,000. The par value of
each share of Common stock remained unchanged. No fractional shares
were issued in connection with the Reverse Stock Split. The Reverse
Stock Split did not affect ARMOUR's Series A Preferred Stock or
Series B Preferred Stock. All per share amounts and Common shares
outstanding amounts in this press release reflect the effect of the
Reverse Stock Split.
Common Stock
During Q3 2015, the Company repurchased 1,768,234 shares of
Common stock pursuant to its Common stock repurchase program at a
weighted average cost of $20.63 and also issued 12,616 shares of
Common stock under its stock incentive and dividend
reinvestment plans at a weighted average price of $20.18 per share.
As of September 30, 2015, there were 42,028,278 Common shares
outstanding.
The following table shows the changes in stockholders' equity
per Common share during the quarter ended September 30,
2015:
|
|
Stockholders' equity per Common share - June
30, 2015 |
$ 31.69 |
Core Income |
1.11 |
Investment net loss |
(3.14) |
Common stock dividends |
(0.98) |
Accretive effect of net share
repurchases |
0.37 |
Stockholders' equity per Common share -
September 30, 2015 |
$ 29.05 |
|
|
Commencing August 3, 2015, with the effectiveness of the Reverse
Stock Split, a total of 9 million Common shares are authorized for
repurchase under the Common stock repurchase program. During
October 2015, we repurchased approximately 2,190,000 net shares
under our Repurchase Program for an aggregate of $46.0 million. As
of November 5, 2015, we had 39,838,120 Common shares
outstanding and 5,041,067 remaining authorization under our
Repurchase Program.
Preferred Stock
As of September 30, 2015, there were 2,180,572 shares of
8.250% Series A Cumulative Redeemable Preferred Stock and 5,650,000
shares of 7.875% Series B Cumulative Redeemable Preferred Stock
outstanding.
Federal Home Loan Bank Membership
On July 7, 2015, ARMOUR's wholly-owned insurance subsidiary,
SABRE Business Insurance LLC, became a member of the Federal Home
Loan Bank of Des Moines, as previously announced.
Conference Call
As previously announced, the Company will provide an online,
real-time webcast of its conference call with equity analysts
covering Q3 2015 operating results on Monday, November 9, 2015, at
10:00 a.m. (Eastern Time). The live broadcast will be available
online and can be accessed at
https://www.webcaster4.com/Webcast/Page/896/11241. To monitor the
live webcast, please visit the website at least 15 minutes prior to
the start of the call to register, download, and install any
necessary audio software. An online replay of the event will
be available on the Company's website at
http://www.armourreit.com and continue for one year.
ARMOUR Residential REIT, Inc.
ARMOUR is a Maryland corporation that invests primarily in fixed
rate, hybrid adjustable rate and adjustable rate residential
mortgage backed securities. These securities are issued or
guaranteed by U.S. Government-sponsored entities and Ginnie Mae.
ARMOUR is externally managed and advised by ARMOUR Capital
Management LP, an investment advisor registered with the Securities
and Exchange Commission ("SEC"). ARMOUR Residential REIT, Inc.
intends to qualify and has elected to be taxed as a REIT under the
Code for U.S. federal income tax purposes.
Safe Harbor
This press release includes "forward-looking statements" within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. Actual results
may differ from expectations, estimates and projections and,
consequently, you should not rely on these forward-looking
statements as predictions of future events. Words such as "expect,"
"estimate," "project," "budget," "forecast," "anticipate,"
"intend," "plan," "may," "will," "could," "should," "believes,"
"predicts," "potential," "continue," and similar expressions are
intended to identify such forward-looking statements. These
forward-looking statements involve significant risks and
uncertainties that could cause the actual results to differ
materially from the expected results. Additional information
concerning these and other risk factors are contained in the
Company's most recent filings with the SEC. All subsequent
written and oral forward-looking statements concerning the Company
are expressly qualified in their entirety by the cautionary
statements above. The Company cautions readers not to place
undue reliance upon any forward-looking statements, which speak
only as of the date made. The Company does not undertake or accept
any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements to reflect any change
in their expectations or any change in events, conditions or
circumstances on which any such statement is based, except as
required by law.
Additional Information and Where to Find It
Investors, security holders and other interested persons may
find additional information regarding the Company at the SEC's
Internet site at http://www.sec.gov, or the Company website
http://www.armourreit.com or by directing requests to: ARMOUR
Residential REIT, Inc., 3001 Ocean Drive, Suite 201, Vero Beach,
Florida 32963, Attention: Investor Relations.
CONTACT: investors@javelinreit.com
James R. Mountain
Chief Financial Officer
ARMOUR Residential REIT, Inc.
(772) 617-4340
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