ARMOUR Residential REIT, Inc. (NYSE: ARR, ARR PrA, and ARR PrB)
(“ARMOUR” or the “Company”) today announced financial results for
the quarter ended June 30, 2016.
Q2 2016 Highlights and Financial
Information
- Q2 2016 key results:
- $21.2 million ($0.47 per Common share) net income under
Generally Accepted Accounting Principles (“GAAP”)
- $27.1 million ($0.63 per Common share) Core Income including
drop income (as defined below), which represents an annualized
return of 9.9% based on stockholders’ equity at the beginning of
the quarter
- 4.86% increase in book value per common share
- $0.71 per share Common dividends for Q2 at the rate of $0.27
for April and $0.22 per month for May and June.
- 2.68% average yield on assets and 1.35% average net interest
margin
- 9.85% annualized average principal repayment rate (“CPR”)
- 36,748,000 (approximately) weighted average diluted Common
shares outstanding
- At June 30, 2016:
- $1.14 billion ($25.67 per Common share) stockholders’
equity
- $8.7 billion portfolio of mortgage securities
- $2.3 billion notional amount of (“to-be-announced”) TBA Agency
Securities
- $5.4 billion notional amount of interest rate swaps
- 7.00 to 1 “leverage” (debt to stockholders’ equity)
- 8.95 to 1 “implied leverage,” reflecting TBA Agency Securities
purchased forward and excluding debt related to forward settling
sales
- $507.2 million of liquidity in cash and unpledged securities
(44.51% of stockholders’ equity)
- Stock outstanding:
- 36,703,275 shares of Common Stock
- 2,180,572 shares of Series A Cumulative Redeemable
Preferred
- 5,650,000 shares of Series B Cumulative Redeemable
Preferred
Updated Information
- Common dividends per share - $0.22 paid on July 27, 2016, and
$0.22 declared by the Company’s board of directors for August and
September
- Book value at July 29, 2016, was estimated to be $26.94 per
Common share
- 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
www.armourreit.com.
ARMOUR Completed $85.2 Million Acquisition of JAVELIN
Mortgage Investment Corp.On April 6, 2016, the Company
completed the acquisition of JAVELIN for an aggregate of
approximately $85.2 million in cash. For the quarter ended
June 30, 2016, the condensed consolidated financial statements
reflect interest income of $4.9 million, net income of $3.2 million
and total identifiable net assets of $98.5 million, and a
non-taxable gain of $6.5 million as a result of the
acquisition.
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 income for Q2 2016 was approximately $21.2
million, including unrealized gains and realized losses on
derivatives of $66.1 million and $(112.5) million,
respectively.
Core Income, Including Drop
IncomeCore Income, including drop income, for the quarter
ended June 30, 2016, was approximately $27.1 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 certain non-recurring expenses, plus
drop income, as defined below. 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, Non-Agency and Interest-only Securities.
The Company may enter 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 the trade date.
DividendsThe Company paid
dividends of $0.27 per Common share of record for April and $0.22
per Common share of record per each month for May and June.
Payments to Common stockholders for Q2 2016, were approximately
$26.1 million. The Company also paid monthly dividends 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
aggregate payments to preferred stockholders of approximately $3.9
million in Q2 2016.
Common dividends in the amount of $0.22 per
Common share were paid on July 27, 2016, to holders of record on
July 15, 2016. Common dividends in the amount of $0.22 per Common
share have been declared for holders of record on August 15, 2016
(payable August 29, 2016), and on September 15, 2016 (payable
September 27, 2016). The board of directors determines the Common
share dividend rate based upon 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 AmountsPer Common
share amounts are net of applicable Preferred Stock dividends and
liquidation preferences. The denominators used to calculate per
Common share amounts for the quarter ended June 30, 2016,
reflect, to the extent dilutive, the effects of 0.1 million
unvested stock awards.
PortfolioAs
of June 30, 2016, the Company’s Agency Securities
portfolio consisted of Fannie Mae, Freddie Mac and Ginnie Mae
mortgage securities, substantially all of which are fixed rate
securities, and was valued at $7.7 billion on a trade date basis.
The Company’s Non-Agency Securities portfolio was valued at $916.6
million at quarter end. During Q2 2016, the annualized yield
on average assets was 2.68%, and the annualized cost of
funds on average liabilities (including realized cost of hedges)
was 1.33%, resulting in a net interest spread of 1.35% for Q2 2016.
During Q2 2016, the Company sold approximately $3.2 billion of
Agency Securities, resulting in gains of approximately $14.6
million.
Portfolio Financing, Leverage and
Interest Rate HedgesAs of June 30, 2016, the
Company financed its mortgage backed securities portfolio with
approximately $8.0 billion of borrowings under repurchase
agreements. The Company’s leverage ratio as of June 30, 2016,
was 7.00 to 1 (8.95 to 1, including TBA Agency Securities purchased
forward and excluding debt related to forward settling sales). As
of June 30, 2016, the Company’s liquidity totaled
approximately $507.2 million, consisting of approximately $389.4
million of cash and equivalents, plus approximately $117.9 million
of unpledged securities (including securities received as
collateral). As of June 30, 2016, the Company’s repurchase
agreements had a weighted-average maturity of approximately 28
days.
The Company had a notional amount of various
maturities of interest rate swap contracts of approximately $5.4
billion with a weighted average swap rate of 1.65%.
Regulation G ReconciliationCore
Income excludes impairment losses, gains or losses on sales of
securities and early termination of derivatives, unrealized gains
or losses on derivatives and certain non-recurring expenses, plus
drop income. The Company believes that Core Income is useful to
investors because it is related to the amount of dividends the
Company may distribute. However, because Core Income is an
incomplete measure of the Company’s financial performance and
involves differences from net income computed in accordance with
GAAP, 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 for the quarter ended
June 30, 2016:
|
|
|
Core
Income |
|
|
|
(in
millions) |
GAAP net income |
|
|
$ |
21.2 |
|
Book to tax differences: |
|
|
|
Non-Agency Securities |
|
|
(10.4 |
) |
Interest-only Securities |
|
|
1.2 |
|
Changes in interest rate
contracts |
|
|
29.0 |
|
Gain on sale of Securities |
|
|
(14.6 |
) |
Bargain purchase price on
acquisition of JAVELIN |
|
|
(6.5 |
) |
TBA drop income |
|
|
7.2 |
|
Core Income |
|
|
$ |
27.1 |
|
|
|
|
|
|
|
Common StockAs of June 30,
2016, there were 36,703,275 Common shares outstanding.
The following table shows the changes in
stockholders’ equity per Common share during the quarter ended
June 30, 2016:
Stockholders’ equity
per Common share - March 31, 2016 |
|
|
$ |
24.48 |
|
Core Income |
|
|
0.63 |
|
Investment net gain |
|
|
1.09 |
|
Bargain purchase price on
acquisition of JAVELIN |
|
|
0.18 |
|
Common stock dividends |
|
|
(0.71 |
) |
Stockholders’ equity
per Common share - June 30, 2016 |
|
|
$ |
25.67 |
|
|
|
|
|
|
|
As of August 1, 2016, we had 36,703,275
Common shares outstanding and 1,874,366 remaining authorized under
our Repurchase Program. Book value at July 29, 2016, was estimated
to be $26.94 per Common Share.
Preferred StockAs of
June 30, 2016, 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.
Conference CallAs previously
announced, the Company will provide an online, real-time webcast of
its conference call with equity analysts covering Q2 2016 operating
results on Wednesday, August 3, 2016, at 8:00 a.m. (Eastern Time).
The live broadcast will be available online and can be accessed at
https://www.webcaster4.com/Webcast/Page/896/16523. 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 www.armourreit.com/ and continue for one year.
ARMOUR Residential REIT,
Inc.ARMOUR invests primarily in fixed rate residential,
adjustable rate and hybrid adjustable rate residential
mortgage-backed securities issued or guaranteed by U.S.
Government-sponsored enterprises (“GSEs”), or guaranteed by the
Government National Mortgage Association. In addition, ARMOUR
invests in other securities backed by residential mortgages for
which the payment of principal and interest is not guaranteed by a
GSE or government agency. ARMOUR is externally managed and advised
by ARMOUR Capital Management LP, an investment advisor registered
with the Securities and Exchange Commission (“SEC”).
Safe HarborThis 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
ItInvestors, 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
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@armourreit.com
James R. Mountain
Chief Financial Officer
ARMOUR Residential REIT, Inc.
(772) 617-4340
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