ARMOUR Residential REIT, Inc. (NYSE: ARR and ARR PRC) (“ARMOUR” or
the “Company”) today announced the Company's Q3 results and
September 30, 2022 financial position.
ARMOUR's Q3
2022 Results
- Comprehensive
loss related to common stockholders of $(155.7) million or $(1.26)
per common share.
- Distributable Earnings available to
common stockholders of $38.8 million, which represents $0.32 per
common share (see explanation of this non-GAAP measure on page
3).
- Paid common stock dividends of $0.10
per share per month.
- Raised $167.2 million of capital by
issuing 22,733,043 shares of common stock at $7.36 net proceeds per
share, after fees and expenses, through at the market offering
program.
- Repurchased
780,000 shares of common stock, at an average cost of $4.96 per
share, pursuant to existing authorization.
- Net interest
income of $25.1 million and net interest margin of 2.21%, down 1
basis points from the prior quarter.
ARMOUR's September 30,
2022 Financial Position
- Book value per
common share of $5.83.
- Liquidity,
including cash and unencumbered agency and U.S. government
securities, of $469.3 million.
- Portfolio
composition was 96.3% Agency mortgage-backed securities ("MBS"),
net of To Be Announced ("TBA") Security short positions and 3.7%
U.S. Treasury Securities.
- Debt to equity
ratio of 8.7 to 1 (based on repurchase agreements divided by total
stockholders’ equity). Leverage, net of TBA Security short
positions, was 7.8 to 1. Implied leverage, adjusted for forward
settling sales and unsettled purchases, was 7.3 to 1.
- Interest Rate
swap contracts totaled $6.5 billion of notional amount,
representing 90% of total repurchase agreement and TBA Securities
liabilities.
Book Value, June 30, 2022 |
|
$ |
7.25 |
|
Comprehensive loss per common share |
|
|
(1.26 |
) |
Less: Common dividends per common share |
|
|
(0.30 |
) |
Capital Raising Activities, net |
|
|
0.14 |
|
Book Value,
September 30, 2022 |
|
$ |
5.83 |
|
Book value per common share consisted of:
|
|
September 30, 2022 |
|
|
(in millions except per share) |
Common stock - 132,589,725 shares outstanding |
|
$ |
0.1 |
|
Additional paid-in
capital |
|
|
3,701.9 |
|
Cumulative distributions to
stockholders |
|
|
(1,945.4 |
) |
Accumulated net loss |
|
|
(797.9 |
) |
Accumulated other
comprehensive loss |
|
|
(14.6 |
) |
Total Stockholders'
Equity |
|
$ |
944.1 |
|
Less: liquidation preference - 7.00% Cumulative Redeemable
Preferred C Stock - 6,846,978 shares outstanding |
|
|
(171.2 |
) |
Equity Attributable to Common
Stockholders |
|
$ |
772.9 |
|
Book value per common share |
|
$ |
5.83 |
|
The major drivers of the change in the Company's
financial position during Q3 were:
|
|
Q3 2022 |
|
|
(in millions) |
Total Stockholders' Equity – Beginning |
|
$ |
972.7 |
|
Comprehensive Income
(Loss) |
|
|
Investment in securities (1) |
|
|
Loss on MBS |
|
$ |
(536.0 |
) |
Loss on U.S. Treasury Securities |
|
|
(16.2 |
) |
Loss on TBA Securities |
|
|
(11.5 |
) |
Amortization of prior unrealized losses |
|
|
9.2 |
|
Interest rate swaps |
|
|
Net interest income |
|
|
23.6 |
|
Gains |
|
|
314.5 |
|
Amortization of prior unrealized gains |
|
|
(33.3 |
) |
Futures contracts (1) |
|
|
81.5 |
|
Net Interest Income |
|
|
25.1 |
|
Total Expenses after fees waived (2) |
|
|
(9.6 |
) |
Total Comprehensive
Loss |
|
$ |
(152.7 |
) |
|
|
|
Capital
Activities |
|
|
Issuance of common stock |
|
|
168.2 |
|
Common stock repurchases |
|
|
(3.9 |
) |
Dividends |
|
|
(40.2 |
) |
Total Stockholders'
Equity – Ending |
|
$ |
944.1 |
|
(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 $0.65 million per
month until further notice.
Condensed balance
sheet information: |
|
September 30, 2022 |
|
|
(in millions) |
Assets |
|
|
Cash |
|
$ |
290.8 |
|
Cash collateral posted to counterparties |
|
|
17.0 |
|
Investments in securities, at fair value: |
|
|
Agency Securities |
|
|
8,014.1 |
|
U.S. Treasury Securities |
|
|
274.2 |
|
Receivable for unsettled sales |
|
|
1,091.9 |
|
Derivatives, at fair value |
|
|
1,087.5 |
|
Accrued interest receivable |
|
|
31.7 |
|
Prepaid and other |
|
|
3.0 |
|
Subordinated loan to BUCKLER |
|
|
105.0 |
|
Total Assets |
|
$ |
10,915.2 |
|
|
|
|
Liabilities: |
|
|
Repurchase agreements |
|
$ |
8,250.1 |
|
Cash collateral posted by counterparties |
|
|
1,000.4 |
|
Payable for unsettled purchases |
|
|
682.6 |
|
Derivatives, at fair value |
|
|
7.1 |
|
Accrued interest payable- repurchase agreements |
|
|
20.2 |
|
Accounts payable and other accrued expenses |
|
|
10.7 |
|
Total Liabilities |
|
|
9,971.1 |
|
|
|
|
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) - 132,589,725 shares outstanding: |
|
|
0.1 |
|
Additional paid-in
capital |
|
|
3,701.9 |
|
Cumulative distributions to
stockholders |
|
|
(1,945.4 |
) |
Accumulated net loss |
|
|
(797.9 |
) |
Accumulated other
comprehensive loss |
|
|
(14.6 |
) |
Total Stockholders’
Equity |
|
|
944.1 |
|
Total Liabilities and
Stockholders’ Equity |
|
$ |
10,915.2 |
|
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 loss,
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 and Distributable Earnings per
common share are useful to investors because our Board of Directors
considers Distributable Earnings and Distributable Earnings per
common share 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 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 Distributable Earnings per common share and a reconciliation of
those amounts to the Company’s Total Comprehensive Loss and
Comprehensive loss per common share appear below:
|
|
Q3
2022(unaudited) |
|
|
(in millions) |
Net Interest Income |
|
$ |
25.1 |
|
TBA Drop Income |
|
|
2.7 |
|
Net interest income on interest rate swaps |
|
|
23.6 |
|
Total Expenses after fees waived |
|
|
(9.6 |
) |
Distributable
Earnings |
|
$ |
41.8 |
|
Dividends on Preferred Stock |
|
|
(3.0 |
) |
Distributable Earnings
available to common stockholders |
|
$ |
38.8 |
|
Distributable Earnings
per common share |
|
$ |
0.32 |
|
|
|
|
Distributable
Earnings |
|
$ |
41.8 |
|
Loss on MBS |
|
|
(536.0 |
) |
Loss on U.S. Treasury Securities |
|
|
(16.2 |
) |
Loss on TBA Securities, less TBA Drop Income |
|
|
(14.2 |
) |
Amortization of prior unrealized net gains |
|
|
(24.1 |
) |
Unrealized gain on interest rate swaps |
|
|
314.5 |
|
Futures contracts |
|
|
81.5 |
|
Total Comprehensive
Loss |
|
$ |
(152.7 |
) |
Dividends on Preferred Stock |
|
|
(3.0 |
) |
Comprehensive loss
related to common stockholders |
|
$ |
(155.7 |
) |
Comprehensive loss per
common share |
|
$ |
(1.26 |
) |
Weighted average common shares
outstanding - 123,250,643 |
|
|
Dividends
ARMOUR paid monthly cash dividends of $0.10 per
share of the Company’s common stock for each month in Q3 2022.
ARMOUR will pay common stock dividends of $0.10 per share on
October 28, 2022 to holders of record on October 17, 2022. ARMOUR
previously announced the November common stock dividends of $0.10
per share to be paid on November 28, 2022 to holders of record on
November 15, 2022. 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 Q3 2022. ARMOUR will pay Series C Preferred Stock dividends of
$0.14583 per share on October 27, 2022 to holders of record on
October 15, 2022. ARMOUR previously announced the November and
December Series C Preferred Stock dividends of $0.14583 per share
to be paid on November 28, 2022 and December 27, 2022 to holders of
record on November 15, 2022 and December 15, 2022,
respectively.
The Company expects that for 2022, all common
stock dividends and Series C Preferred Stock dividends will be
treated for federal income tax purposes as a return of capital and
not currently taxable. For 2023, the Company forecasts that Series
C Preferred Stock dividends for 2023 will likely be treated as
fully taxable ordinary income. Common 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 Q3 2022 operating results on Thursday,
October 27, 2022, 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=LLz3tYEG. 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 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, 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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