ARMOUR Residential REIT, Inc. (NYSE: ARR and ARR PRC) (“ARMOUR” or
the “Company”) today announced the Company's December 31, 2021
financial position and Q4 results.
ARMOUR's December 31, 2021 Financial
Position
- Stockholders'
equity totaled $1,143.6 million, including:
- Common stock
outstanding of 94,153,188 shares, and
- 7.00% Cumulative
Redeemable Preferred C Stock ("Series C Preferred Stock") with
liquidation preference totaling approximately $171 million.
- Book value per
common share was $10.33 per share.
- Liquidity,
including cash and unencumbered agency and U.S. government
securities, was $848 million.
- Portfolio
composition was 98% Agency mortgage-backed securities ("MBS"),
including To Be Announced ("TBA") Securities and 2% U.S. Treasury
Securities.
- Debt to equity
ratio was 3.5 to 1 (based on repurchase agreements divided by
stockholders’ equity). Leverage, including TBA Securities, was 7.4
to 1.
- Interest Rate
swap contracts totaled $7.2 billion of notional amount,
representing 85.3% of total repurchase agreement and TBA Securities
liabilities.
ARMOUR's Q4 2021 Highlights
- Paid common
stock dividends of $0.10 per share per month.
- Comprehensive
loss of $(37.8) million, or $(0.44) per common share, which
represents an annualized return of (13)% based on stockholders'
equity at the beginning of the quarter.
- Net interest
income of $20.5 million.
- Distributable
Earnings (see explanation of non-GAAP measures on page 2) of $27.7
million which represents $0.27 per common share.
- Issued 6,386,724
shares of common stock through at the market offering programs,
raising $67.5 million of capital after fees and expenses.
- Net interest
margin increased to 1.75%, up 5 basis points from the prior
quarter.
The major drivers of the change in the Company's
financial position during Q4 were:
|
|
Q4 2021 |
|
|
(in millions) |
Stockholders' Equity – Beginning |
|
$ |
1,143.7 |
|
Comprehensive Loss |
|
|
Agency MBS including TBA Securities (1) |
|
|
Loss on MBS |
|
$ |
(48.7 |
) |
Loss on TBA Securities |
|
|
(7.1 |
) |
Interest rate swaps |
|
|
Net interest expense |
|
|
(6.6 |
) |
Unrealized gain |
|
|
13.4 |
|
Net Interest Income (2) |
|
|
20.5 |
|
Operating Expenses, net of Fee Waiver (3) |
|
|
(9.3 |
) |
Total Comprehensive Loss |
|
|
(37.8 |
) |
|
|
|
Capital Activities |
|
|
Issuance of common stock |
|
|
68.6 |
|
Dividends |
|
|
(30.9 |
) |
Stockholders' Equity – Ending |
|
$ |
1,143.6 |
|
(1) Includes
both realized and unrealized gains and losses.
(2) Includes MBS prepayments
received in Q4 2021 of $2.1 million.
(3) See discussion below.
Book Value, September 30, 2021 |
|
$ |
11.09 |
|
Comprehensive loss per common share |
|
|
(0.44 |
) |
Less: Common dividends per common share |
|
|
(0.30 |
) |
Capital Raising Activities |
|
|
(0.02 |
) |
Book Value, December 31, 2021 |
|
$ |
10.33 |
|
As previously reported, for Q4 2021, the
Company’s external manager waived $2.0 million of its management
fee to offset operating expenses. For Q1 2022, the Company’s
external manager is continuing to voluntarily waive a portion of
its contractual management fee at the rate of $0.65 million per
month until further notice.
Condensed balance sheet information: |
|
December 31, 2021 |
|
|
(in millions) |
Assets |
|
|
Cash |
|
$ |
338 |
|
Cash collateral posted to counterparties |
|
|
19 |
|
Investments in securities, at fair value: |
|
|
Agency Securities |
|
|
4,407 |
|
U.S. Treasury Securities |
|
|
199 |
|
Derivatives, at fair value |
|
|
199 |
|
Accrued interest receivable |
|
|
10 |
|
Subordinated loan to BUCKLER |
|
|
105 |
|
Total Assets |
|
$ |
5,277 |
|
|
|
|
Liabilities: |
|
|
Repurchase agreements |
|
$ |
3,948 |
|
Cash collateral posted by counterparties |
|
|
171 |
|
Derivatives, at fair value |
|
|
11 |
|
Accrued interest payable- repurchase agreements |
|
|
1 |
|
Accounts payable and other accrued expenses |
|
|
3 |
|
Total Liabilities |
|
|
4,134 |
|
|
|
|
Stockholders’ Equity: |
|
|
Additional paid-in capital |
|
|
3,403 |
|
Accumulated deficit |
|
|
(2,367 |
) |
Accumulated other comprehensive income |
|
|
107 |
|
Total Stockholders’ Equity |
|
$ |
1,143 |
|
Total Liabilities and Stockholders’ Equity |
|
$ |
5,277 |
|
Distributable Earnings, Including TBA
Drop Income
Distributable Earnings (defined in more detail
below) is a non-GAAP measure defined as net interest income plus
TBA Drop Income minus hedging costs and net operating expenses.
Distributable Earnings differs from GAAP total comprehensive
income, which include gains and losses and market value adjustments
as described below.
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 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
Distributable Earnings, including TBA Drop
income, excludes gains or losses from securities sales and early
termination of derivatives, market value adjustments (including
impairments) and certain non-recurring expenses. The Company
believes that Distributable Earnings is useful to investors because
it is related to the amount of dividends the Company may distribute
and is one of many factors considered by its Board of Directors in
declaring dividends. However, because Distributable Earnings is an
incomplete measure of the Company’s financial performance and
involves differences from 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 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 a reconciliation of that Distributable Earnings to the
Company’s Total Comprehensive Loss appears below:
|
|
Q4 2021(unaudited) |
|
|
($ in millions) |
Net Interest Income |
|
$ |
20.5 |
|
TBA Drop Income |
|
|
23.1 |
|
Less: Net interest expense on interest rate swaps |
|
|
(6.6 |
) |
Operating Expenses, net of Fee Waiver |
|
|
(9.3 |
) |
Distributable Earnings |
|
$ |
27.7 |
|
Less dividends on Preferred Stock |
|
|
(3.0 |
) |
Distributable Earnings available to common
stockholders |
|
$ |
24.7 |
|
Distributable Earnings per common share |
|
$ |
0.27 |
|
|
|
|
Distributable Earnings |
|
$ |
27.7 |
|
Loss on MBS |
|
|
(48.7 |
) |
Loss on TBA Securities, less TBA Drop Income |
|
|
(30.2 |
) |
Unrealized gain on interest rate swaps |
|
|
13.4 |
|
Total Comprehensive Loss |
|
$ |
(37.8 |
) |
Less dividends on Preferred Stock |
|
$ |
(3.0 |
) |
Comprehensive loss related to common
stockholders |
|
$ |
(40.8 |
) |
Weighted average common shares outstanding |
|
|
91,576,970 |
|
Company Update
January 31, 2022 book value per common share was
$9.76.
At the close of business on February 15, 2022:
- Common stock
outstanding of 96,005,859 shares; Series C Preferred Stock with
liquidation preference totaling approximately $171 million.
- Book value per
common share was estimated to be $9.17.
- Liquidity,
including cash and unencumbered securities, exceeded $725
million.
- Securities
portfolio included approximately $7.4 billion of Agency MBS
(including TBA Securities) and U.S. Treasury Securities.
- Debt to equity ratio (based on
repurchase agreements divided by stockholders' equity) was
approximately 5.6 to 1. Leverage, including TBA Securities was
approximately 6.5 to 1.
Between January 1, 2022 and February 15, 2022,
ARMOUR reduced its aggregate portfolio of MBS, including TBA Agency
Securities, by $2.9 billion and increased its U.S. Treasury
Securities holdings by $1.6 billion.
The Company's remote work protocol has allowed
operations to shift quickly between in-person and virtual work
environments to adapt effectively to changing conditions.
DividendsARMOUR paid monthly
cash dividends of $0.10 per share of the Company’s common stock for
each month in Q4 2021. ARMOUR paid common stock dividends of $0.10
per share on January 28, 2022 to holders of record on January 18,
2022. ARMOUR previously announced the February and March common
stock dividends of $0.10 per share to be paid on February 28, 2022
and March 28, 2022 to holders of record on February 15, 2022 and
March 15, 2022, respectively. 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 Q4 2021. ARMOUR paid Series C Preferred Stock dividends of
$0.14583 per share on January 27, 2022 to holders of record on
January 15, 2022. ARMOUR previously announced the February and
March Series C Preferred Stock dividends of $0.14583 per share to
be paid on February 28, 2022 and March 28, 2022 to holders of
record on February 15, 2022 and March 15, 2022, respectively.
Conference Call
As previously announced, the Company will
provide an online, real-time webcast of its conference call with
equity analysts covering Q4 2021 operating results on Thursday,
February 17, 2022, at 8:00 a.m.(Eastern Time). The live broadcast
will be available online and can be accessed at
https://services.choruscall.com/mediaframe/webcast.html?webcastid=FAFTLPj5.
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
ItInvestors, 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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