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ARMOUR Residential REIT, Inc. Reports 22.4% Annualized ROE From Taxable REIT Income for Q3 2011(November 02, 2011)
VERO BEACH, Fla., Nov. 2, 2011 (GLOBE NEWSWIRE) -- ARMOUR Residential REIT, Inc. (NYSE:ARR) (NYSE Amex:ARR.WS) ("ARMOUR" or the "Company") today announced financial results for the quarter ending September 30, 2011.
Third Quarter 2011 Highlights and Current Balance Sheet Information
Q3 2011 estimated taxable REIT income of approximately $31.3 million
Q3 2011 estimated Core Income of approximately $24.6 million
Q3 2011 GAAP net loss of approximately $34.5 million
Q3 2011 estimated taxable REIT income per weighted average share outstanding of $0.40
Q3 2011 estimated Core Income per weighted average share outstanding of $0.31
Q3 2011 GAAP loss per weighted average share outstanding of $0.44
Q3 2011 estimated taxable REIT income results equal annualized yield on Q3 2011 weighted average additional paid-in capital (historic book equity) of 22.4%
Q3 2011 estimated Core Income results equal annualized yield on Q3 2011weighted average additional paid-in capital (historic book equity) of 17.6%
Q3 2011 weighted average shares outstanding of 78,360,049
Q3 2011 weighted average additional paid-in capital of $560.3 million
As of September 30, 2011, there were 84,758,505 common shares outstanding
Additional paid-in-capital as of September 30, 2011 was $606.2 million or $7.15 per share outstanding
September 30, 2011, book value per common share of $6.78
Q3 2011 average yield on assets of 3.11% and average net interest margin of 2.18%
Q3 2011 annualized average principal repayment rate (CPR) of 12.4%
During Q3 2011 the Company sold approximately $512.7 million in Agency Hybrid mortgages resulting in approximately $6.4 million in gains
The ARMOUR Residential REIT, Inc. monthly "Company Update" can be found at www.armourreit.com.
The Company issued 9,977,331 shares of common stock during Q3 2011 which increased the number of shares outstanding from the end of Q2 2011 by 13.0%. These changes were material to the Company and significantly affected reported results on a comparable quarter-over-quarter basis period. Therefore, some quarterly comparisons will not be meaningful or may be misleading. Economies of scale are achieved as the Company's equity continues to grow.
Q3 2011 Results
Taxable REIT Income and Core Income
Estimated taxable REIT income for the quarter ended September 30, 2011 was approximately $31.3 million. The weighted average additional paid-in capital for the quarter ended September 30, 2011, was $560.3 million. The weighted average shares outstanding for the quarter ended September 30, 2011, were 78,360,049. The estimated annual taxable REIT income represents an annualized return on average additional paid-in capital for the quarter of 22.4%. The Company distributes dividends based on its estimate of taxable earnings per common share, not Generally Accepted Accounting Principles (GAAP) earnings. Taxable REIT income and GAAP earnings will differ primarily because the non-taxable unrealized changes in the value of the Company's derivatives, which the company uses as hedges, are included in GAAP earnings whereas, if they are not realized, valuation changes are not included in taxable income.
Estimated Core Income for the quarter ended September 30, 2011, was approximately $24.6 million. During Q3 2011 the Company sold approximately $512.7 million in Agency Hybrid mortgages resulting in approximately $6.4 million in gains. The difference between estimated taxable REIT income and estimated Core Income is largely due to these gains. "Core Income" represents a non-GAAP measure and is defined as net income (loss) excluding impairment losses, gains or losses on sales of securities and early termination of derivatives, unrealized gains or losses on derivatives, and certain non-recurring expenses. CORE Income may differ from GAAP earnings as GAAP earnings include the unrealized change in the value of the Company's derivative program.
During the quarter ended September 30, 2011, the Company had a loss of approximately $34.5 million. The Company reported a non-realized decline in the value of derivatives of approximately $65.8 million which accounts for the majority of the difference between estimated taxable REIT income and GAAP earnings.
For the quarter ended September 30, 2011, the Company declared dividends of $0.12 per share outstanding for each month of the quarter. The dividend payments totaled $28.3 million as compared to taxable REIT income available to pay dividends of $31.3 million (approximate taxable REIT income in Q3 2011).
Share Count and Equity Capital Raises in Q3 2011
The Company issued 5,212,430 shares of common stock in at the market offerings at an average price of $7.39 per share during the third quarter of 2011. The Company issued 4,758,747 shares during the third quarter of 2011 under its dividend reinvestment plan at a weighted average price of $7.30 per share. As of September 30, 2011, there were 84,758,505 common shares outstanding. As of November 2, 2011, there were 84,766,397 shares outstanding.
The Company's portfolio consisted of Fannie Mae, Freddie Mac and Ginnie Mae mortgage securities and was valued at $6.0 billion as of September 30, 2011. During the third quarter of 2011, the annualized yield on average assets was 3.11% and the annualized cost of funds on average liabilities (including realized cost of hedges) was 0.93% resulting in a net interest spread of 2.18% for the quarter.
The $6.0 billion portfolio of Agency securities at September 30, 2011, consisted of 49.8% fixed rate Agency assets, 99.8% of which have 15 year final maturities or shorter. The Company's portfolio also consisted of 48.0% Hybrid ARMs and 2.2% ARMs. The Company defines "Hybrid ARMs" as adjustable rate Agency securities with longer than 18 months to rate reset and "ARMs" as adjustable Agency securities with rate resets shorter than 19 months.
The Company believes it has a very limited exposure to the Home Affordable Refinance Program ("HARP") that the Federal Housing Finance Agency ("FHFA") announced last week because an estimated less than 2% of the Company's holdings are eligible for the revised HARP program.
Portfolio Financing, Leverage and Interest Rate Hedges
As of September 30, 2011, the Company financed its portfolio with approximately $5.2 billion of borrowings under repurchase agreements. The Company's debt to equity ratio, as measured to additional paid-in-capital, as of September 30, 2011, was 8.6 to 1. The Company's debt-to-shareholder equity ratio as of September 30, 2011 was 9.1 to 1.
As of September 30, 2011, the Company's repurchase agreements had a weighted-average maturity of approximately 30 days. The Company also uses interest rate swap contracts and Eurodollar futures to hedge financing rate risk. As of September 30, 2011, the Company had a notional amount of $2.8 billion of various maturities of interest rate swaps with an average fixed rate of 1.5%. As of September 30, 2011, the Company had a notional amount of $134.0 million of various maturities of Eurodollar futures contracts sold at an average fixed rate of 1.8%.
The Company's book value (shareholders' equity) on September 30, 2011, was $574.7 million or $6.78 per each of the 84,758,505 common shares outstanding. Additional paid-in-capital (Historic Book Equity) as of September 30, 2011, was $606.2 million or $7.15 per share outstanding.
Regulation G Reconciliation
Taxable REIT income is calculated according to the requirements of the Internal Revenue Code rather than GAAP. ARMOUR plans to distribute at least 90% of its taxable REIT income in order to maintain its tax qualification as a REIT. The following table reconciles ARMOUR's consolidated results from operations to taxable REIT income for the three months ended September 30, 2011:
GAAP net loss
Less: GAAP net gain of taxable REIT
subsidiary included above
GAAP net loss from REIT operations
Add: Unrealized loss on derivatives
Add: Income tax expense
Estimated taxable REIT income
ARMOUR believes that the foregoing reconciliation of 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. However, because taxable REIT income is an incomplete measure of the Company's financial performance and involves differences from net income computed in accordance with GAAP, taxable REIT income should be considered as supplementary to, and not as a substitute for, ARMOUR's net income computed in accordance with GAAP as a measure of the Company's financial performance.
ARMOUR Residential REIT, Inc.
ARMOUR is a Maryland corporation that invests primarily in hybrid adjustable rate, adjustable rate and fixed rate residential mortgage-backed securities, or RMBS, issued or guaranteed by U.S. Government-chartered entities. ARMOUR is externally managed and advised by ARMOUR Residential Management LLC ("ARRM" or "ARRM LLC"). ARMOUR Residential REIT, Inc. intends to qualify and has elected to be taxed as a REIT under the Internal Revenue Code for U.S. federal income tax purposes.
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 Securities and Exchange Commission ("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 based.
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.
CONTACT: Investor Contact:
Co-Chief Executive Officer, President and Vice Chairman
ARMOUR Residential REIT, Inc.
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