ARMOUR Residential REIT, Inc. (NYSE: ARR and ARR PRC) (“ARMOUR” or
the “Company”) today announced the Company's Q2 results and June
30, 2023 financial position.
ARMOUR's Q2
2023 Results
- Earnings
available to common stockholders of $40.0 million or $0.20 per
common share.
- Net interest
income of $5.8 million.
- Distributable
Earnings available to common stockholders of $45.4 million, which
represents $0.23 per common share (see explanation of this non-GAAP
measure on page 3).
- Asset yield of
4.24%, less net cost of funds of 2.49% for a net interest margin of
1.75%.
- Paid common
stock dividends of $0.08 per share per month.
- Raised $77.5
million of capital by issuing 15,160,000 shares of common stock
through an at the market offering program.
- Repurchased
425,000 shares of common stock at a net cost of $4.88 per
share.
ARMOUR's June 30,
2023 Financial Position
- Book value per
common share of $5.38 resulting from:
Book Value, March 31, 2023 |
|
$ |
5.44 |
|
Earnings per common share |
|
|
0.20 |
|
Less: Common dividends per common share |
|
|
(0.24 |
) |
Equity Capital Activities, net |
|
|
(0.02 |
) |
Book Value, June 30, 2023 |
|
$ |
5.38 |
|
-
Liquidity, including cash and unencumbered agency and U.S.
government securities, of $644.4 million.
- Portfolio
composition was 100% Agency mortgage-backed securities ("MBS"), net
of To Be Announced ("TBA") Security positions.
- Debt to equity
ratio of 7.1 to 1 (based on repurchase agreements divided by total
stockholders’ equity).
- Interest Rate swap contracts
totaled $8.8 billion of notional amount, representing 96% of total
repurchase agreement and TBA Securities liabilities.
Book value per common share consisted of:
|
|
June 30, 2023 |
|
|
(in millions except per share) |
Common stock, at par value - 206,810,059 shares outstanding |
|
$ |
0.2 |
|
Additional paid-in capital |
|
|
4,128.4 |
|
Cumulative distributions to stockholders |
|
|
(2,098.7 |
) |
Accumulated net loss |
|
|
(746.9 |
) |
Total Stockholders' Equity |
|
$ |
1,283.0 |
|
Less: liquidation preference - 7.00% Cumulative Redeemable
Preferred C Stock - 6,846,978 shares outstanding |
|
|
(171.2 |
) |
Equity Attributable to Common Stockholders |
|
$ |
1,111.8 |
|
Book value per common share |
|
$ |
5.38 |
|
The major drivers of the change in the Company's
financial position during Q2 were:
|
|
Q2 2023 |
|
|
(in millions) |
Total Stockholders' Equity – Beginning |
|
$ |
1,215.1 |
|
Earnings |
|
|
Investment in securities: (1) |
|
|
Loss on MBS |
|
$ |
(162.8 |
) |
Gain on U.S. Treasury Securities |
|
|
11.9 |
|
Loss on TBA Securities |
|
|
(3.3 |
) |
Amortization of prior unrealized losses |
|
|
5.1 |
|
Interest rate swaps: |
|
|
Net interest income |
|
|
52.2 |
|
Gains |
|
|
110.2 |
|
Amortization of prior unrealized gains |
|
|
37.6 |
|
Futures contracts: |
|
|
Net interest income |
|
|
0.7 |
|
Losses (1) |
|
|
(3.1 |
) |
Net Interest Income |
|
|
5.8 |
|
Total Expenses after fees waived (2) |
|
|
(11.3 |
) |
Net Income |
|
$ |
43.0 |
|
|
|
|
Capital Activities |
|
|
Issuance of common stock |
|
|
78.3 |
|
Common stock repurchases |
|
|
(2.1 |
) |
Dividends |
|
|
(51.3 |
) |
Total Stockholders' Equity – Ending |
|
$ |
1,283.0 |
|
|
(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
Q2 2023. |
Condensed balance sheet information: |
|
June 30, 2023 |
|
|
(in millions) |
Assets: |
|
|
Cash |
|
$ |
163.7 |
|
Cash collateral posted to counterparties |
|
|
52.5 |
|
Agency Securities, at fair value |
|
|
11,176.6 |
|
Receivable for unsettled sales |
|
|
94.8 |
|
Derivatives, at fair value |
|
|
1,001.0 |
|
Accrued interest receivable |
|
|
45.8 |
|
Prepaid and other |
|
|
4.7 |
|
Total Assets |
|
$ |
12,539.1 |
|
|
|
|
Liabilities: |
|
|
Repurchase agreements, net |
|
$ |
9,121.3 |
|
Obligations to return securities received as collateral, at fair
value |
|
|
497.2 |
|
Cash collateral posted by counterparties |
|
|
963.7 |
|
Payable for unsettled purchases |
|
|
616.4 |
|
Derivatives, at fair value |
|
|
11.6 |
|
Accrued interest payable- repurchase agreements |
|
|
34.0 |
|
Accrued interest payable- U.S. Treasury Securities sold short |
|
|
3.5 |
|
Accounts payable and other accrued expenses |
|
|
8.4 |
|
Total Liabilities |
|
|
11,256.1 |
|
|
|
|
Stockholders’ Equity: |
|
|
Common stock ($0.001 par value per share) - 206,810,059 shares
outstanding: |
|
|
0.2 |
|
Additional paid-in capital |
|
|
4,128.4 |
|
Cumulative distributions to stockholders |
|
|
(2,098.7 |
) |
Accumulated net loss |
|
|
(746.9 |
) |
Total Stockholders’ Equity |
|
|
1,283.0 |
|
Total Liabilities and Stockholders’ Equity |
|
$ |
12,539.1 |
|
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 net income (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 net income
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 net
income 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 net income 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, Net Income and
Earnings per common share appear below:
|
|
Q2
2023(unaudited) |
|
|
(in millions) |
Net Interest Income |
|
$ |
5.8 |
|
TBA Drop Income |
|
|
1.0 |
|
Net interest income on interest rate swaps |
|
|
52.2 |
|
Net interest income on futures contracts |
|
|
0.7 |
|
Total Expenses after fees waived |
|
|
(11.3 |
) |
Distributable Earnings |
|
$ |
48.4 |
|
Dividends on Preferred Stock |
|
|
(3.0 |
) |
Distributable Earnings available to common
stockholders |
|
$ |
45.4 |
|
Distributable Earnings per common share |
|
$ |
0.23 |
|
|
|
|
Net Income |
|
$ |
43.0 |
|
Items Excluded from Distributable Earnings: |
|
|
Loss on MBS |
|
|
162.8 |
|
Gain on U.S. Treasury Securities |
|
|
(11.9 |
) |
Loss on TBA Securities, less TBA Drop Income |
|
|
4.3 |
|
Amortization of prior unrealized net gains/losses |
|
|
(42.7 |
) |
Loss on futures contracts |
|
|
3.1 |
|
Unrealized gain on interest rate swaps |
|
|
(110.2 |
) |
Add net |
|
$ |
5.4 |
|
Distributable Earnings |
|
$ |
48.4 |
|
Dividends on Preferred Stock |
|
|
(3.0 |
) |
Distributable Earnings available to common
stockholders |
|
$ |
45.4 |
|
Distributable Earnings per common share |
|
$ |
0.23 |
|
|
|
|
Net Income |
|
$ |
43.0 |
|
Dividends on Preferred Stock |
|
|
(3.0 |
) |
Earnings available to common stockholders |
|
$ |
40.0 |
|
Earnings per common share |
|
$ |
0.20 |
|
Weighted average common shares outstanding - 200,379,403 |
|
|
Company Update
At the close of business on July 24, 2023:
- Common stock
outstanding of 228,309,234 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 $5.25.
- Liquidity,
including cash and unencumbered securities, exceeded $639
million.
- Securities
portfolio included approximately $12.2 billion of Agency MBS
(including TBA Securities).
- Debt to equity
ratio (based on repurchase agreements divided by total
stockholders' equity) was approximately 7.8 to 1. Leverage,
including TBA Securities was approximately 7.5 to 1. Implied
leverage, including TBA Securities and forward settling sales and
unsettled purchases was 7.8 to 1.
Through July 12, 2023, we raised approximately,
$109.3 million of capital by issuing 21,499,175 shares of common
stock at $5.08 net proceeds per share, after fees and expenses,
through an at-the-market offering program, which has now been
exhausted.
On July 25, 2023, the Company approved a new
equity sales agreement on substantially the same terms as its
previous ATM sales agreement with our affiliate BUCKLER Securities
LLC and four other agents related to an at-the-market offering of
up to 75,000,000 shares of our common stock.
Dividends
ARMOUR paid monthly cash dividends of $0.08 per
share of the Company’s common stock each month in Q2 2023. On July
28, 2023, a cash dividend of $0.08 per outstanding common share
will be paid to holders of record on July 17, 2023. We have also
declared a cash dividend of $0.08 per outstanding common share
payable August 30, 2023 to holders of record on August 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 Q2 2023. On July 27, 2023, a cash dividend of $0.14583 per
outstanding share of Series C Preferred Stock will be paid to
holders of record on July 15, 2023. We have also declared cash
dividends of $0.14583 per outstanding share of Series C Preferred
Stock payable August 28, 2023 to holders of record on August 15,
2023 and payable September 27, 2023 to holders of record on
September 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 Q2 2023 operating results on Thursday,
July 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=EIcbrnD1.
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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