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| 8-K - 8-K - Armour Residential REIT, Inc. | arrform8-kformonthlycompan.htm |
ARMOUR RESIDENTIAL REIT, Inc. Company Update February 13, 2015
PLEASE READ: Important Regulatory and Yield Estimate Risk Disclosures 2 Certain statements made in this presentation regarding ARMOUR Residential REIT, Inc. (“ARMOUR” or the “Company”), and any other statements regarding ARMOUR’s future expectations, beliefs, goals or prospects constitute forward-looking statements made within the meaning of Section 21E of the Securities Exchange Act of 1934. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,” “estimates” and similar expressions) should also be considered forward-looking statements. Forward-looking statements include but are not limited to statements regarding the projections for ARMOUR’s business and plans for future growth and operational improvements. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements. ARMOUR assumes no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. This material is for information purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation for any securities, financial instruments, or common or privately issued stock. The statements, information and estimates contained herein are based on information that the presenter believes to be reliable as of today's date, but cannot be represented that such statements, information or estimates are complete or accurate. Actual realized yields, durations and net durations described herein will depend on a number of factors that cannot be predicted with certainty. Estimated yields do not reflect any of the costs of operation of ARMOUR. THE INFORMATION PRESENTED HEREIN IS UNAUDITED AND UNREVIEWED.
ARMOUR Capitalization, Dividend Policy, Transparency and Manager • Portfolio and liability details are updated monthly at www.armourreit.com. • Premium amortization is expensed monthly as it occurs. No yield smoothing.(1) • Hedge positions are marked-to-market daily (GAAP/Tax differences). • Non-Executive Board Chairman and separate Lead Independent Director. Transparency and Governance 3 ARMOUR REIT Manager and Fee Structure • ARMOUR REIT is externally managed by ARMOUR Capital Management LP. • Accretive fee structure: effective fee percentage declines as equity increases. • Gross equity raised up to $1.0 billion, 1.5% (per annum) of gross equity raised. • Gross equity raised in excess of $1.0 billion, 0.75% (per annum) of gross equity raised. Common Stock Dividend Policy and Taxable REIT Income Market Capitalization • 353,163,549 shares of common stock outstanding (NYSE: “ARR”). • 2,180,572 shares of Series A Preferred Stock outstanding (NYSE: “ARR PrA”). • 5,650,000 shares of Series B Preferred Stock outstanding (NYSE: “ARR PrB”). • Market capitalization of $1.1 billion of common and $190.4 million of preferred. • ARMOUR pays common stock dividends monthly. • Dividends are announced based on estimates of future taxable REIT income. Information as of 2/12/2015. (1) Due to the prepayment lockout feature of our Agency multifamily securities, premium is amortized using a level yield methodology.
ARMOUR Balance Sheet Targets ARMOUR invests in Agency mortgage securities. Net balance sheet weighted average duration target of 1.5 or less. • 3.91 gross asset duration. • -3.83 hedge duration. • 0.08 net balance sheet duration. Hedge a minimum of 40% of assets and funding rate risk. • $12.5 billion in hedges (swaps and futures). • 81.1% of assets hedged. • 86.6% of repurchase agreements hedged. Hold 40% of unlevered equity in cash between prepayment periods. • $889.8 million in total liquidity. • $461.0 million in true cash. • $243.4 million in unlevered securities. • $185.4 million in short term Agency P&I. Long term debt to equity target of 8x - 9x. • $14.4 billion in net REPO borrowings. • 7.9 x Q3 2014 shareholders’ equity. 4 Assets Duration Hedging Liquidity Leverage Information as of 2/12/2015.
ARMOUR Portfolio Strategy and Investment Methodology 5 Diversify Broadly • Diversification limits idiosyncratic pool risk. • Over 1300 cusips. Highly Liquid Assets • Purchase those Agency securities that are highly liquid (easily traded and priced). • ARMOUR purchases “pass-through” securities. • No collateralized mortgage obligations (“CMOs”). Diversified Sources • Source assets through a mix of direct purchases from: • Originators. • Dealer inventories. • Institutional investors. Loan Analysis – Inelasticity vs. Elasticity • Credit work on non-credit assets. • Original and current loan balance. • Year of origination. • Originating company, third-party originators. • Loan seasoning. • Principal amortization schedule. • Original loan-to-value ratio. • Geography. • 67% of our 15yr MBS are between 85K – 175K loan balances. Pool Analysis • NO TBA pools – Only specified pools. • Prepayment history. • Prepayment expectations. • Premium over par. • “Hedgability.” • Liquidity. Management has a focused and disciplined approach to evaluating assets for inclusion in the ARMOUR portfolio. ARMOUR employs a strong bias toward a ‘buy and hold’ strategy rather than a ‘trading’ strategy. ARMOUR will strategically sell assets when it believes market conditions warrant. Information as of 2/12/2015.
ARMOUR Portfolio and Derivatives Overview 6 Duration estimates are derived from third-party software. Actual realized yields, durations and net durations described herein will depend on a number of factors that cannot be predicted with certainty. If rates decline, the value of our derivatives will typically decline. Inversely, if rates increase, the value of our derivatives will typically increase. Information as of 2/12/2015. Portfolio value is based on independent third-party pricing. Portfolio information includes all forward settling trades. Some totals may not foot due to rounding. ARMs & Hybrids 0.83% 127.3$ 104.6% 105.7% 2.94/3.40 1.22 Agency Multifamily Ballooning in 120 Months or Less 11.74% 1,810.4$ 103.2% 104.9% 3.17/4.26 7.79 Fix d Rates Maturing in 120 Months or Less 0.04% 5.9$ 104.7% 108.7% 4.52/5.01 2.44 Fixed Rates Maturing Between 121 and 180 Months 47.47% 7,322.2$ 104.6% 106.2% 3.33/3.81 3.33 Fixed Rates aturing Between 181 and 240 onths 31.27% 4,823.8$ 105.9% 106.1% 3.60/4.11 3.18 Fixed Rates Maturing Between 241 and 360 Months 8.66% 1,335.5$ 106.9% 107.9% 4.01/4.50 4.31 Total or Weighted Average 100.00% 15,425.2$ 105.04% 106.1% 3.45/4.02 3.87 Current Value (millions) Agency Asset Class % of Total ARR Portfolio Weighted Average Current Market Price Weighted Average Net/Gross Coupon Estimated Effective Duration Using Current Values Weighted Average Purchase Price Agency Assets 3.91 Interest Rate Swaps & Eurodollar Futures -3.83 Net Balance Sheet Duration 0.08 Duration Contribution to Balance Sheet Assets 15,425.2$ 81.1% Net Repo Balance 14,446.5$ 86.6% Amount (millions) Total Hedge %
ARMOUR Hedge Detail 7 Information as of 2/12/2015. Some totals may not foot due to rounding. Derivative Type Remaining Term Weighted Average Remaining Term (Months) Notional Amount (millions) Weighted Average Rate Interest Rate Swap 0-12 Months 7 1,225.0$ 1.09 Interest Rate Swap 13-24 Months 15 2,475.0$ 1.25 Interest Rate Swap 25-36 Months 33 650.0$ 0.80 Interest Rate Swap 37-48 Months 0 -$ 0.00 Interest Rate Swap 49-60 Months 58 2,300.0$ 1.55 Interest Rate Swap 61-72 Months 0 -$ 0.00 Interest Rate Swap 73-84 Months 0 -$ 0.00 Interest Rate Swap 85-96 Months 89 2,050.0$ 1.47 Interest Rate Swap 97-108 Months 96 2,800.0$ 2.08 Interest Rate Swap 109-120 Months 119 1,000.0$ 2.66 Interest Rate Swap 121-132 Months 0 -$ 0.00 Eurodollar Futures 0-7 Months 7 10.0$ 2.11 Total or Weighted Average 62 $ 12,510.0 1.60
ARMOUR Portfolio Constant Prepayment Rates (“CPR”) 8 ARMOUR expenses premium amortization monthly as it occurs. Constant Prepayment Rate (“CPR”) is the annualized equivalent of single monthly mortality (“SMM”). CPR attempts to predict the percentage of principal that will prepay over the next twelve months based on historical principal pay downs. CPR is reported on the 4th business day of the month for the previous month's prepayment activity.
ARMOUR REPO Composition 9 (1) ARMOUR has signed MRAs with 40 counterparties. Information as of 2/12/2015. Some totals may not foot due to rounding. 1 BNP Paribas Securities Corp. 1,128.1$ 7.7% 98 77 259 0.37 59.4$ 5.00% (1,187.1)$ 1,187.5$ 2 Wells Fargo Bank, N.A. 1,085.0$ 7.4% 30 9 21 0.34 57.1$ 5.00% (1,123.1)$ 1,142.1$ 3 J.P. Morgan Securities LLC 1,073.3$ 7.3% 147 70 89 0.38 56.5$ 5.00% (1,129.1)$ 1,129.8$ 4 Merrill Lynch, Pierce, Fenner & Smith Inc. 1,036.4$ 7.1% 84 16 67 0.36 34.9$ 3.26% (1,067.5)$ 1,071.4$ 5 Mitsubishi UFJ Securities (USA), Inc. 1,031.1$ 7.1% 86 43 82 0.35 54.3$ 5.00% (1,080.6)$ 1,085.4$ 6 Morgan Stanley & Co. LLC 862.7$ 5.9% 80 32 81 0.35 45.4$ 5.00% (905.2)$ 908.1$ 7 ICBC Financial Services LLC 742.1$ 5.1% 100 36 76 0.36 39.1$ 5.00% (775.5)$ 781.2$ 8 Citibank, N.A. 700.0$ 4.8% 365 201 248 0.47 36.8$ 5.00% (716.8)$ 736.8$ 9 The Bank of Nova Scotia 684.3$ 4.7% 57 20 35 0.37 36.0$ 5.00% (719.0)$ 720.3$ 10 Nomura Securities International, Inc. 642.5$ 4.4% 67 46 60 0.37 33.8$ 5.00% (678.9)$ 676.3$ 11 Daiwa Securities America Inc. 577.1$ 3.9% 73 32 57 0.36 30.4$ 5.00% (608.8)$ 607.5$ 12 Barclays Capital Inc. 558.6$ 3.8% 90 22 28 0.39 29.4$ 5.00% (626.0)$ 588.0$ 13 The Bank of New York Mellon 500.0$ 3.4% 328 192 230 0.52 24.0$ 4.58% (523.3)$ 524.0$ 14 ING Financial Markets LLC 459.5$ 3.1% 61 30 53 0.36 24.2$ 5.00% (482.9)$ 483.7$ 15 CRT Capital Group LLC 416.9$ 2.9% 60 40 40 0.33 21.9$ 5.00% (435.7)$ 438.9$ 16 South Street Securities LLC 353.8$ 2.4% 31 11 11 0.33 18.6$ 5.00% (370.3)$ 372.4$ 17 Royal Bank of Canada 347.5$ 2.4% 85 42 77 0.36 18.3$ 5.00% (364.2)$ 365.8$ 18 KGS-Alpha Capital Markets, L.P. 327.1$ 2.2% 71 52 63 0.40 17.2$ 5.00% (344.9)$ 344.3$ 19 Mizuho Securities USA Inc. 303.3$ 2.1% 90 33 33 0.37 16.0$ 5.00% (317.3)$ 319.2$ 20 ABN AMRO Bank N.V. 272.4$ 1.9% 85 76 76 0.36 8.4$ 3.00% (279.0)$ 280.8$ 21 E D & F Man Capital Markets Inc. 238.7$ 1.6% 62 30 42 0.35 12.6$ 5.00% (249.6)$ 251.3$ 22 Pierpont Securities LLC 222.8$ 1.5% 83 12 25 0.37 11.7$ 5.00% (232.7)$ 234.5$ 23 Citigroup Global Markets Inc. 206.7$ 1.4% 75 24 43 0.37 10.9$ 5.00% (215.1)$ 217.6$ 24 Guggenheim Securities, LLC 183.0$ 1.3% 75 44 60 0.36 10.1$ 5.21% (192.0)$ 193.0$ 25 UBS Securities LLC 164.5$ 1.1% 60 22 32 0.37 8.7$ 5.00% (172.9)$ 173.1$ 26 Goldman, Sachs & Co. 150.7$ 1.0% 60 32 32 0.37 7.9$ 5.00% (158.1)$ 158.6$ 27 TD Bank, N.A. 119.5$ 0.8% 60 60 60 0.35 6.3$ 5.00% (125.7)$ 125.8$ 28 Credit Suisse Securities (USA) LLC 114.6$ 0.8% 89 34 35 0.39 6.0$ 5.00% (120.7)$ 120.6$ 29 Natixis Financial Products LLC 79.3$ 0.5% 88 85 85 0.36 4.2$ 5.00% (82.6)$ 83.5$ 30 Deutsche Bank Securities Inc. 35.8$ 0.2% 60 57 57 0.36 1.9$ 0.00% (37.6)$ -$ T tal or Weighted Average 14,617.3$ 100.0% 102 51 0.37 741.9$ 4.83% (15,322.2)$ 15,321.6$ Longest Remaining Term in Days Market Value Haircut (%) Haircut ($) Weighted Average Rate Weighted Average Remaining Term in Days Original Market Value Weighted Average Original Term in Days Percentage of REPO Positions with ARMOUR Principal Borrowed (millions) REPO Counter-Party(1) Weighted Average Repo Rate 0.37% Weighted Average Haircut 4.83% January Paydowns (170.8) Net REPO after Paydowns 14,446.5 Debt to Quarter End Shareholders' Equity Ratio 7.9
10 www.armourreit.com ARMOUR Residential REIT, Inc. 3001 Ocean Drive Suite 201 Vero Beach, FL 32963 772-617-4340