ARMOUR Residential REIT, Inc. (NYSE: ARR, ARR PrA, and ARR PrB)
(“ARMOUR” or the “Company”) today announced financial results for
the quarter ended December 31, 2016.
Q4 2016 Highlights and Financial
Information
- Q4 2016 key results:
- $94.1 million ($2.46 per Common share) net income under
Generally Accepted Accounting Principles (“GAAP”)
- $30.0 million ($0.71 per Common share) Core Income including
“drop income” (as defined below), which represents an annualized
return of 9.8% based on stockholders’ equity at the beginning of
the quarter
- $0.66 per share Common dividends for Q4 at the rate of $0.22
per month
- 2.72% average yield on assets and 1.40% average net interest
margin
- 11.15% annualized average principal repayment rate (“CPR”)
- 36,745,000 (approximately) weighted average diluted Common
shares outstanding
- At December 31, 2016:
- $1.09 billion stockholders’ equity
- $24.39 stockholders’ equity per Common share
- $21.69 NYSE closing price per Common share; represents total
shareholder return of 15.2% for 2016 including reinvested
dividends
- $7.6 billion portfolio of mortgage securities, including $1.1
billion of Non-Agency Securities
- $2.9 billion notional amount of (“to-be-announced”) TBA Agency
Securities
- $4.2 billion notional amount of interest rate swaps
- 6.24 to 1 “leverage” (debt to stockholders’ equity)
- 8.92 to 1 “implied leverage,” reflecting TBA Agency Securities
purchased forward and excluding debt related to forward settling
sales
- $517.8 million of liquidity in cash and unpledged securities
(47.41% of stockholders’ equity)
- Stock outstanding:
- 36,723,579 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 - $0.19 paid on January 30, 2017,
and $0.19 declared by the Company’s board of directors for
February, as discussed below
- Book value at January 31, 2017, was estimated to be $24.59 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 on www.armourreit.com.
GAAP Net IncomeFor 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 Q4 2016 was approximately $94.1 million, including
mark-to-market gains on derivatives and Non-Agency Securities of
$203.3 million and $5 million, respectively, and $(113.6) million
of realized losses on derivatives.
Core Income, Including Drop
IncomeCore Income, including drop income, for the quarter
ended December 31, 2016, was approximately $30.0 million,
exceeding total dividends paid in the quarter. “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 $0.22 per Common share of record for each month in Q4
2016. Payments to Common stockholders for Q4 2016 were
approximately $24.3 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 Q4 2016.
Common dividends in the amount of $0.19 per
Common share were paid on January 30, 2017, to holders of record on
January 17, 2017. Common dividends in the amount of $0.19 per
Common share have been declared for holders of record on February
15, 2017 (payable February 27, 2017). The board of directors
determines the Common share dividend rate based upon the 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 December 31, 2016,
reflect, to the extent dilutive, the effects of 0.03 million
unvested stock awards.
PortfolioAs
of December 31, 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 $6.5 billion on a trade date basis.
The Company’s Non-Agency Securities portfolio was valued at $1.1
billion and the Company’s Interest-Only Securities portfolio was
valued at $33.6 million at quarter end. During Q4 2016, the
annualized yield on average assets was 2.72%, and the
annualized cost of funds on average liabilities (including realized
cost of hedges) was 1.32%, resulting in a net interest spread of
1.40% for Q4 2016.
Portfolio Financing, Leverage and
Interest Rate HedgesAs of December 31, 2016, the
Company financed its mortgage backed securities portfolio with
approximately $6.8 billion of borrowings under repurchase
agreements. The Company’s leverage ratio as of December 31,
2016, was 6.24 to 1 (8.92 to 1, including TBA Agency Securities
purchased forward and excluding debt related to forward settling
sales). As of December 31, 2016, the Company’s liquidity
totaled approximately $517.8 million, consisting of approximately
$271.8 million of cash and equivalents, plus approximately $246.0
million of unpledged securities (including securities received as
collateral). As of December 31, 2016, the Company’s repurchase
agreements had a weighted-average maturity of approximately 22
days, an average rate of 1.07% and a haircut of 7.45%.
The Company had a notional amount of various
maturities of interest rate swap contracts of approximately $4.2
billion with a weighted average swap rate of 1.79%.
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 tables reconcile the Company’s
results from operations to Core Income and Core Income per Common
share for the quarter ended December 31, 2016 (dollar amounts
in millions, except per share amounts):
|
|
Core Income |
|
|
(in millions) |
GAAP net income |
|
$ |
94.1 |
|
Book to tax
differences: |
|
|
Non-Agency Securities |
|
(6.1 |
) |
Interest-only Securities |
|
(9.5 |
) |
Other
than temporary impairment of Agency Securities |
|
6.5 |
|
Changes
in interest rate contracts |
|
(103.3 |
) |
Loss on
sale of Securities |
|
37.1 |
|
TBA drop
income |
|
11.2 |
|
Core Income |
|
$ |
30.0 |
|
Core Income |
|
$ |
30.0 |
|
Dividends on Preferred
Stock |
|
(3.9 |
) |
Core Income available
to common stockholders |
|
$ |
26.1 |
|
Weighted average diluted Common shares outstanding |
|
$ |
36.7 |
|
Core Income Per Common
Share |
|
$ |
0.71 |
|
Common StockAs of
December 31, 2016, there were 36,723,579 Common shares
outstanding.
The following table shows the changes in
stockholders’ equity per Common share during the quarter ended
December 31, 2016:
Stockholders’ equity
per Common share - September 30, 2016 |
|
$ |
27.87 |
|
Core
Income |
|
0.71 |
|
Investment net loss |
|
(3.53 |
) |
Common
stock dividends |
|
(0.66 |
) |
Stockholders’ equity
per Common share - December 31, 2016 |
|
$ |
24.39 |
|
As of February 14, 2017, we had 36,723,579
Common shares outstanding and 1,874,366 remaining authorized under
our Repurchase Program. Book value at January 31, 2017, was
estimated to be $24.59 per Common share.
Preferred StockAs of
December 31, 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 Q4 2016 operating
results on Thursday, February 16, 2017, at 4:30 p.m. (Eastern
Time). The live broadcast will be available online and can be
accessed at https://www.webcaster4.com/Webcast/Page/896/19578. 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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