ARMOUR Residential REIT, Inc. Reports Q3 2013 Core Income of $43.8 Million
VERO BEACH, Fla., Oct. 28, 2013 (GLOBE NEWSWIRE) -- ARMOUR Residential REIT,
Inc. (NYSE: ARR, ARR PrA, and ARR PrB; NYSE MKT: ARR.WS) ("ARMOUR" or the
"Company") today announced financial results for the quarter ended September
Third Quarter 2013 Highlights and Financial Information
*Core Income of approximately $43.8 million or $0.11 per Common share
*Estimated taxable REIT income of $3.8 million
*Q3 2013 GAAP net loss of approximately $229.9 million or $0.63 per Common
*Stockholders' equity as of September 30, 2013 was $2.2 billion or $5.26
per Common share
*Ratio of debt to stockholders' equity ("leverage") of 6.93 to 1 as of
September 30, 2013
*Liquidity as of September 30, 2013, consisting of cash and unpledged
securities, of $1.3 billion
*Sales of Agency Securities in Q3 totaled $6.0 billion, resulting in
realized capital losses of $301.0 million or $0.81 per common share
*Q3 2013 average yield on assets of 2.60% and average net interest margin
*Q3 2013 annualized average principal repayment rate (CPR) of 8.8%
*Stock outstanding as of September 30, 2013:
Common – 370,905,000 shares
Series A Preferred – 2,181,000 shares
Series B Preferred – 5,650,000 shares
*Q3 2013 weighted average diluted Common shares were 372,256,000
*Additional updated information on the Company's investment, financing and
hedge positions can be found in the ARMOUR Residential REIT, Inc. October
11, 2013 "Company Update." ARMOUR posts Company Updates each month on
Q3 2013 Results
Core Income and Taxable REIT Income
Core Income for the quarter ended September 30, 2013, was $43.8 million. "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 U.S.
Treasury Securities and certain non-recurring expenses. 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 Securities
and U.S. Treasury Securities.
Estimated taxable REIT income for the quarter ended September 30, 2013, was
approximately $3.8 million. The Company distributes dividends based on its
estimate of taxable earnings, not based on net income calculated in accordance
with Generally Accepted Accounting Principles ("GAAP"). Taxable REIT income
and GAAP net income will generally differ primarily because of the non-taxable
unrealized changes in the value of the Company's derivatives, which the
Company uses as economic hedges. These unrealized gains/losses on derivatives
are included in GAAP net income, whereas unrealized valuation changes are not
included in taxable income. Additionally, capital losses realized in Q3 will
offset capital gains realized in 2013. Any net capital loss for 2013 will be
carried forward to offset future capital gains.
GAAP Net Income
For the purposes of computing GAAP net income, 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 consolidated
statement of comprehensive income. GAAP net loss for the third quarter of 2013
was $229.9 million, including realized losses on the sales of Agency
Securities of $301.0 million.
The Company paid dividends of $0.07 per Common share of record for each month
of the quarter, resulting in payments to common stockholders of $78.3 million.
The Company also paid monthly dividends of $0.171875 per outstanding share of
8.250% Series A Cumulative Preferred Stock and $0.1640625 per outstanding
share of 7.875% Series B Cumulative Preferred Stock resulting in payments to
all Preferred stockholders of $3.9 million. As of September 30, 2013, the
company had distributed dividends totaling $55.4 million more than cumulative
taxable REIT income. The company's monthly common dividend rate of $0.05 for
Q4 was established based on the company's estimate of Q4 taxable REIT income.
Our taxable REIT income and dividend requirements to maintain our REIT status
are determined on an annual basis. Dividends in excess of taxable REIT income
for the year (including amounts carried forward from prior years) will
generally not be taxable to common shareholders.
Per Share Amounts
Per Common share amounts are net of applicable Preferred Stock dividends and
liquidation preferences. The denominators used to calculate per Common share
amounts as of September 30, 2013, and for the quarter then ended reflect the
dilutive effects of unvested stock awards. Such effects are not material.
The third quarter of 2013 represented a period of disruptive volatility in the
bond and mortgage markets. In order to reduce the Company's exposure to this
volatility, the Company sold $6.0 billion of Agency Securities, resulting in
realized losses of $301.0 million. As of September 30, 2013, the Company's
portfolio consisted of Fannie Mae, Freddie Mac and Ginnie Mae mortgage
securities and was valued at $16.7 billion. During the third quarter of 2013,
the annualized yield on average assets was 2.60%, and the annualized cost of
funds on average liabilities (including realized cost of hedges) was 1.36%,
resulting in a net interest spread of 1.24% for the quarter.
The $16.7 billion portfolio of Agency Securities at September 30, 2013,
consisted of 98.4% fixed rate Agency Securities and 1.6% ARMs and Hybrid ARMs.
The Company defines "Hybrid ARMs" as adjustable rate Agency Securities with
longer than 18 months to rate reset and "ARMs" as adjustable rate Agency
Securities with rate resets shorter than 19 months.
Portfolio Financing, Leverage and Interest Rate Hedges
As of September 30, 2013, the Company financed its portfolio with
approximately $14.9 billion of borrowings under repurchase agreements. The
Company's leverage ratio as of September 30, 2013, was 6.93 to 1. As of
September 30, 2013, the Company's liquidity totaled $1.3 billion, consisting
of $0.5 billion of cash and equivalents plus $0.8 billion of unpledged Agency
Securities (including Securities received as collateral).
As of September 30, 2013, the following information was available related to
the Company's interest rate risk and hedging activities: The Company's
repurchase agreements had a weighted-average maturity of approximately 39
days. The Company had a notional amount of $11.8 billion of various maturities
of interest rate swap contracts with a weighted average swap rate of 1.4%. The
Company had a notional amount of $2.3 billion of various maturities of
swaptions with a weighted average swap rate of 2.6%. The Company had a
notional amount of $74.0 million of various maturities of Eurodollar futures
contracts sold at a weighted average swap equivalent rate of 2.1%. The Company
did not reduce its derivatives hedge positions as it reduced its portfolios of
Agency Securities and repurchase agreements.
The Company pays a management fee of 1.5% (per annum) of gross equity raised
up to $1.0 billion and 0.75% (per annum) of gross equity raised above $1.0
billion. As of September 30, 2013, the effective management fee was 1.016%
based on gross equity raised.
Regulation G Reconciliation
Taxable REIT income is calculated according to the requirements of the
Internal Revenue Code ("the Code") rather than GAAP. The Company plans to
distribute at least 90% of its taxable REIT income in order to maintain its
tax qualification as a REIT under the Code. The Company believes that taxable
REIT income is useful to investors because taxable REIT income is directly
related to the amount of dividends the Company is required to distribute in
order to maintain its REIT tax qualification status. Core income also excludes
gains and losses on security sales. However, because taxable REIT income and
Core income are incomplete measures of the Company's financial performance and
involve differences from net income computed in accordance with GAAP, taxable
REIT income and 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 table reconciles the Company's consolidated results from
operations to taxable REIT income and Core income for the quarter ended
September 30, 2013:
GAAP net loss $ (229.9)
Unrealized loss on derivatives 11.8
Capital losses carried forward 225.7
Deferred gain on derivatives (2.2)
Amortization of deferred hedging costs (1.6)
Estimated taxable REIT income $ 3.8
Losses on sale of Agency Securities currently deductible 75.3
Gain on sale of U.S. Treasury Securities (35.3)
Core Income $ 43.8
The Company issued 28,910 shares of common stock during the third quarter of
2013 under itsdividend reinvestment plan at a weighted average price of $4.26
per share. As of September30, 2013, there were 370,905,000 Common shares
As of September 30, 2013, there were 5,650,000 shares of 7.875% Series B
Cumulative Preferred Stock and 2,181,000 shares of 8.250% Series A Cumulative
Preferred Stock outstanding.
Future Agency Security Sales
Our REIT dividend requirements are based on the amount of our ordinary taxable
income. Realized capital losses do not affect the amount of the Company's
ordinary taxable income, but will generally be available to offset capital
gains realized in the years 2013 through 2018. The Company realized
approximately $40.0million of capital gains subject to such offsetting during
the first two quarters of 2013 and may realize additional capital gains
subject to such offsetting in the future.
The Company's warrants (NYSE MKT: ARR.WS CUSIP 042315 11 9) will expire
according to their original contractual terms at 5:00 p.m. EST on November 7,
2013.The New York StockExchange has advised the Company that the last day of
market trading will be November1, 2013.Each warrant allows its holder to
purchase one share of the Company's Common Stock at an exercise price of
$11.00 per share. Continental Stock Transfer and Trust acts as the Company's
ARMOUR Residential REIT, Inc.
ARMOUR is a Maryland corporation that invests primarily in fixed rate, hybrid
adjustable rate and adjustable rate residential mortgage backed securities.
These securities are issued or guaranteed by U.S. Government-sponsored
entities. ARMOUR is externally managed and advised by ARMOUR Residential
Management LLC, an investment advisor registered with the Securities and
Exchange Commission ("SEC"). ARMOUR Residential REIT, Inc. intends to qualify
and has elected to be taxed as a REIT under the Code for U.S. federal income
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 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
Additional Information and Where to Find It
Investors, 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.
James R. Mountain
Chief Financial Officer
ARMOUR Residential REIT, Inc.
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