ARMOUR Residential REIT, Inc. (NYSE: ARR and ARR PRC) (“ARMOUR” or
the “Company”) today announced the Company's Q1 results and March
31, 2023 financial position.
ARMOUR's Q1
2023 Results
- Comprehensive
loss related to common stockholders of $(22.8) million or $(0.12)
per common share.
- Net interest
income of $12.0 million and net interest margin of 1.97%.
- Distributable
Earnings available to common stockholders of $49.3 million, which
represents $0.27 per common share (see explanation of this non-GAAP
measure on page 3).
- Paid common
stock dividends per share of $0.10 for January, $0.10 for February
and $0.08 for March.
- Raised $181.2
million of capital by issuing 29,862,647 shares of common stock,
which represents $6.07 net proceeds per share, after fees and
expenses, through an at the market offering program.
- Repurchased
842,927 shares of common stock, which represents an average cost of
$5.11 per share, pursuant to existing authorization.
ARMOUR's March 31,
2023 Financial Position
- Book value per
common share of $5.44 resulting from:
Book Value, December 31,
2022 |
|
$ |
5.78 |
|
Comprehensive loss per common share |
|
|
(0.12 |
) |
Less: Common dividends per common share |
|
|
(0.28 |
) |
Equity Capital Activities, net |
|
|
0.06 |
|
Book Value,
March 31, 2023 |
|
$ |
5.44 |
|
-
Liquidity, including cash and unencumbered agency and U.S.
government securities, of $550.2 million.
- Portfolio
composition was 100% Agency mortgage-backed securities
("MBS").
- Debt to equity
ratio of 8.7 to 1 (based on repurchase agreements divided by total
stockholders’ equity).
- Interest Rate swap contracts
totaled $8.0 billion of notional amount, representing 76% of total
repurchase agreement liabilities.
- Increased affiliate BUCKLER
Securities LLC ("BUCKLER") capital to $203 million (see page
6).
Book value per common share consisted of:
|
|
March 31, 2023 |
|
|
(in millions except per share) |
Common stock, at par value - 192,002,877 shares outstanding |
|
$ |
0.2 |
|
Additional paid-in
capital |
|
|
4,052.2 |
|
Cumulative distributions to
stockholders |
|
|
(2,047.4 |
) |
Accumulated net loss |
|
|
(789.9 |
) |
Total Stockholders'
Equity |
|
$ |
1,215.1 |
|
Less: liquidation preference - 7.00% Cumulative Redeemable
Preferred C Stock - 6,846,978 shares outstanding |
|
|
(171.2 |
) |
Equity Attributable to Common
Stockholders |
|
$ |
1,043.9 |
|
Book value per common share |
|
$ |
5.44 |
|
The major drivers of the change in the Company's
financial position during Q1 were:
|
|
Q1 2023 |
|
|
(in millions) |
Total Stockholders' Equity – Beginning |
|
$ |
1,112.3 |
|
Comprehensive
Loss |
|
|
Investment in securities: (1) |
|
|
Gain on MBS |
|
$ |
118.8 |
|
Loss on U.S. Treasury Securities |
|
|
(11.9 |
) |
Gain on TBA Securities |
|
|
2.8 |
|
Amortization of prior unrealized losses |
|
|
5.5 |
|
Interest rate swaps: |
|
|
Net interest income |
|
|
47.6 |
|
Losses |
|
|
(113.9 |
) |
Amortization of prior unrealized gains |
|
|
(60.0 |
) |
Futures contracts (1) |
|
|
(10.8 |
) |
Net Interest Income |
|
|
12.0 |
|
Total Expenses after fees waived (2) |
|
|
(9.9 |
) |
Total Comprehensive
Loss |
|
$ |
(19.8 |
) |
|
|
|
Capital
Activities |
|
|
Issuance of common stock |
|
|
181.9 |
|
Common stock repurchases |
|
|
(4.3 |
) |
Dividends |
|
|
(55.0 |
) |
Total Stockholders'
Equity – Ending |
|
$ |
1,215.1 |
|
(1) Includes both realized and unrealized gains
and losses.
(2) The Company’s external manager has waived a
portion of its contractual management fee at the rate of $1,650 for
Q1 2023.
Condensed balance
sheet information: |
|
March 31, 2023 |
|
|
(in millions) |
Assets: |
|
|
Cash |
|
$ |
135.4 |
|
Cash collateral posted to counterparties |
|
|
123.9 |
|
Investments in securities, at fair value: |
|
|
Agency Securities, at fair value |
|
|
12,084.7 |
|
Derivatives, at fair value |
|
|
848.6 |
|
Accrued interest receivable |
|
|
49.7 |
|
Prepaid and other |
|
|
7.0 |
|
Total Assets |
|
$ |
13,249.3 |
|
|
|
|
Liabilities: |
|
|
Repurchase agreements, net |
|
$ |
10,554.5 |
|
Obligations to return securities received as collateral, at fair
value |
|
|
509.1 |
|
Cash collateral posted by counterparties |
|
|
853.5 |
|
Derivatives, at fair value |
|
|
61.3 |
|
Accrued interest payable- repurchase agreements |
|
|
38.8 |
|
Accrued interest payable- U.S. Treasury Securities sold short |
|
|
8.7 |
|
Accounts payable and other accrued expenses |
|
|
8.3 |
|
Total Liabilities |
|
|
12,034.2 |
|
|
|
|
Stockholders’ Equity: |
|
|
7.00% Cumulative Redeemable
Preferred C Stock ($0.001 par value per share, $25.00 per share
liquidation preference) - 6,846,978 shares outstanding |
|
$ |
— |
|
Common stock ($0.001 par value
per share) - 192,002,877 shares outstanding: |
|
|
0.2 |
|
Additional paid-in
capital |
|
|
4,052.2 |
|
Cumulative distributions to
stockholders |
|
|
(2,047.4 |
) |
Accumulated net loss |
|
|
(789.9 |
) |
Total Stockholders’
Equity |
|
|
1,215.1 |
|
Total Liabilities and
Stockholders’ Equity |
|
$ |
13,249.3 |
|
Distributable Earnings
Distributable Earnings is a non-GAAP measure
defined as net interest income plus TBA Drop Income adjusted for
the net coupon effect of interest rate swaps minus net operating
expenses. Distributable Earnings is based on the historical cost
basis of our Agency Securities and interest rate swaps.
Distributable Earnings differs, potentially significantly, from net
interest income and from total comprehensive loss (which includes
realized gains and losses and market value adjustments). The net
coupon effect of interest rate swaps is the primary driver of
market value adjustments on these positions that were recognized in
total comprehensive loss and total stockholders’ equity in prior
periods.
For a portion of its Agency Securities the
Company may enter into TBA forward contracts for the purchase or
sale of Agency Securities at a predetermined price, face amount,
issuer, coupon and stated maturity on an agreed-upon future date,
but the particular Agency Securities to be delivered are not
identified until shortly before the TBA settlement date. The
Company accounts for TBA Agency Securities as derivative
instruments if it is reasonably possible that it will not take or
make physical delivery of the Agency Securities upon settlement of
the contract. The Company may choose, prior to settlement, to move
the settlement of these securities out to a later date by entering
into an offsetting short or long position (referred to as a “pair
off”), net settling the paired off positions for cash, and
simultaneously purchasing or selling a similar TBA Agency Security
for a later settlement date. This transaction is commonly referred
to as a “dollar roll.” The Company accounts for TBA dollar roll
transactions as a series of derivative transactions.
Forward settling TBA contracts typically trade
at a discount, or “Drop,” to the regular settled TBA contract to
reflect the expected interest income on the underlying deliverable
Agency Securities, net of an implied financing cost, which would
have been earned by the buyer if the contract settled on the next
regular settlement date. When the Company enters into TBA contracts
to buy Agency Securities for forward settlement, it earns this “TBA
Drop Income,” because the TBA contract is essentially equivalent to
a leveraged investment in the underlying Agency Securities. The
amount of TBA Drop Income is calculated as the difference between
the spot price of similar TBA contracts for regular settlement and
the forward settlement price on the trade date. The Company
generally accounts for TBA contracts as derivatives and TBA Drop
Income is included as part of the periodic changes in fair value of
the TBA contracts that the Company recognizes currently in the
Other Income (Loss) section of its Consolidated Statement of
Operations.
Regulation G Reconciliation
The Company believes that Distributable Earnings
and Distributable Earnings per common share may be useful to
investors because our Board of Directors considers Distributable
Earnings and Distributable Earnings per common share as part of its
deliberations when determining the level of dividends on our common
stock. Distributable Earnings and Distributable Earnings per common
share tend to be more stable over time and this practice is
designed to increase the stability of our common stock dividend
from month to month. However, because Distributable Earnings is an
incomplete measure of the Company’s financial performance and
involves significant differences from net interest income and total
comprehensive income (loss) computed in accordance with GAAP,
Distributable Earnings should be considered as supplementary to,
and not as a substitute for, the Company’s net interest income and
total comprehensive income (loss) computed in accordance with GAAP
as a measure of the Company’s financial performance.The elements of
ARMOUR’s Distributable Earnings and Distributable Earnings per
common share and a reconciliation of those amounts to the Company’s
Net Interest Income, Total Comprehensive Loss and Comprehensive
Loss per common share appear below:
|
|
Q1
2023(unaudited) |
|
|
(in millions) |
Net Interest Income |
|
$ |
12.0 |
|
TBA Drop Income |
|
|
2.6 |
|
Net interest income on interest rate swaps |
|
|
47.6 |
|
Total Expenses after fees waived |
|
|
(9.9 |
) |
Distributable
Earnings |
|
$ |
52.3 |
|
Dividends on Preferred Stock |
|
|
(3.0 |
) |
Distributable Earnings
available to common stockholders |
|
$ |
49.3 |
|
Distributable Earnings
per common share |
|
$ |
0.27 |
|
|
|
|
Total Comprehensive
Loss |
|
$ |
(19.8 |
) |
Items Excluded from
Distributable Earnings: |
|
|
Gain on MBS |
|
|
(118.8 |
) |
Loss on U.S. Treasury Securities |
|
|
11.9 |
|
Gain on TBA Securities, less TBA Drop Income |
|
|
(0.2 |
) |
Amortization of prior unrealized net gains/losses |
|
|
54.5 |
|
Unrealized loss on interest rate swaps |
|
|
113.9 |
|
Loss on futures contracts |
|
|
10.8 |
|
Add net |
|
$ |
72.1 |
|
Distributable
Earnings |
|
$ |
52.3 |
|
Dividends on Preferred Stock |
|
|
(3.0 |
) |
Distributable Earnings
available to common stockholders |
|
$ |
49.3 |
|
Distributable Earnings
per common share |
|
$ |
0.27 |
|
|
|
|
Total Comprehensive
Loss |
|
$ |
(19.8 |
) |
Dividends on Preferred Stock |
|
|
(3.0 |
) |
Comprehensive Loss
related to common stockholders |
|
$ |
(22.8 |
) |
Comprehensive Loss per
common share |
|
$ |
(0.12 |
) |
Weighted average common shares
outstanding - 184,586,682 |
|
|
Company Update
At the close of business on April 24, 2023:
- Common stock
outstanding of 195,512,577 shares.
- 7.00% Cumulative
Redeemable Preferred C Stock ("Series C Preferred Stock") with
liquidation preference totaling approximately $171.2 million.
- Estimated Book
value per common share was approximately $5.30.
- Liquidity,
including cash and unencumbered securities, exceeded $466
million.
- Securities
portfolio included approximately $12.0 billion of Agency MBS
(including TBA Securities).
- Debt to equity
ratio (based on repurchase agreements divided by total
stockholders' equity) was approximately 8.8 to 1. Leverage,
including TBA Securities was approximately 8.8 to 1. Implied
leverage, including TBA Securities and forward settling sales and
unsettled purchases was 8.8 to 1.
Through April 13, 2023, with BUCKLER as our
sales agent, we raised approximately, $18.3 million of capital by
issuing approximately 3,509,700 shares of common stock at $5.20 net
proceeds per share, after fees and expenses, through an at the
market offering program.
BUCKLER
Effective March 20, 2023, the Company has
committed to provide, on demand, a subordinated loan agreement to
BUCKLER in an amount up to $200 million. The commitment extends
through March 20, 2026 and is collateralized by mortgage backed
and/or U.S. Treasury Securities owned by the Company and pledged to
BUCKLER. The commitment is treated by BUCKLER currently as capital
for regulatory purposes and BUCKLER may pledge the securities to
secure its own borrowings. This arrangement replaced the prior
$105.0 million subordinated loan, which was repaid.
Dividends
ARMOUR paid monthly cash dividends of $0.10 per
share of the Company’s common stock for January and February and
$0.08 per share of the Company’s common stock for March 2023. On
April 27, 2023, a cash dividend of $0.08 per outstanding common
share will be paid to holders of record on April 17, 2023. We have
also declared a cash dividend of $0.08 per outstanding common share
payable May 30, 2023 to holders of record on May 15, 2023. ARMOUR’s
Board of Directors will determine future common dividend rates
based on an evaluation of the Company’s results, financial
position, real estate investment trust (“REIT”) tax requirements,
and overall market conditions as the quarter progresses. In order
to maintain ARMOUR’s tax status as a REIT, the Company is required
to timely distribute substantially all of its ordinary REIT taxable
income for the tax year.
ARMOUR paid monthly cash dividends of $0.14583
per share of the Company’s Series C Preferred Stock for each month
in Q1 2023. On April 27, 2023, a cash dividend of $0.14583 per
outstanding share of Series C Preferred Stock will be paid on April
27, 2023 to holders of record on April 15, 2023. We have also
declared cash dividends of $0.14583 per outstanding share of Series
C Preferred Stock payable May 30, 2023 to holders of record on May
15, 2023 and payable June 27, 2023 to holders of record on June 15,
2023.
The Company forecasts that Series C Preferred
Stock dividends for 2023 will likely be treated as fully taxable
ordinary income. Common stock dividends for 2023 will likely be
treated, at least partially, as taxable ordinary income.
Conference Call
As previously announced, the Company will
provide an online, real-time webcast of its conference call with
equity analysts covering Q1 2023 operating results on Thursday,
April 27, 2023, at 8:00 a.m. (Eastern Time). The live broadcast
will be available online and can be accessed at
https://event.choruscall.com/mediaframe/webcast.html?webcastid=6LtdNTG6.
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 or guaranteed by the Government
National Mortgage Association. 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, the impact of the COVID-19
pandemic on the Company's operational and financial performance 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 its
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 ARMOUR's most recent Company Update and additional
information regarding the Company at the SEC’s internet site at
www.sec.gov, or the Company website at 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.comJames R.
MountainChief Financial OfficerARMOUR Residential REIT, Inc. (772)
617-4340
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