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| 8-K - 8-K - Armour Residential REIT, Inc. | arrform8-kformonthlycompan.htm |
ARMOUR RESIDENTIAL REIT, Inc. Company Update July 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.
Monthly Commentary 3 Since our last monthly update, there have been no material changes to the portfolio. In the second quarter of 2015 the Company purchased back a total of 2,200,157 common shares of “ARR.” The Company continues to have Board authority to repurchase shares. On June 18, 2015 the Company announced a reverse stock split of ARMOUR’s outstanding shares of common stock at a ratio of one-for-eight. The reverse stock split is scheduled to take effect at 5:00 p.m. Eastern Time on July 31, 2015.
ARMOUR Monthly Metrics 4 (1) Some of the data may be based on information preceding the date of the report (i.e., closing prices). (2) Leverage does not include TBA dollar rolls and is based on the most recent audited financial statements available in the 10Q/10K at the time of the report. (3) $0.04 dividend payable has been subtracted from the book value range. Quarter Asset Yield Cost of Funds Net Interest Margin Q1 2014 3.20 1.37 1.82 Q2 2014 2.85 1.40 1.46 Q3 2014 2.68 1.25 1.43 Q4 2014 2.71 1.44 1.27 Q1 2015 2.72 1.52 1.20 Report Date (1) April 15 2015 May 8 2015 June 18 2015 July 13 2015 Common Stock Price $3.18 $3.03 $2.92 $2.89 Estimated Book Value Range $4.09 - $4.13 $4.12 - $4.16 $3.96-$4.00(3) $3.89 - $3.93 Common Shares Outstanding 352,375,305 351,266,624 350,183,621 350,271,160 Preferred A Shares Outstanding 2,180,572 2,180,572 2,180,572 2,180,572 Preferred B Shares Outstanding 5,650,000 5,650,000 5,650,000 5,650,000 Asset Balance Sheet Duration 3.90 4.37 4.60 4.76 Hedge Balance Sheet Duration -3.78 -3.69 -3.97 -3.96 Net Balance Sheet Duration 0.11 0.68 0.63 0.81 Leverage(2) 7.8 8.2 8.1 8.0 Rates DV01 182,000 1,100,000 973,000 1,220,000 Spread DV01 8,020,000 8,547,000 8,217,000 8,170,000 FNCL 3.5 Price 105.20 104.39 103.20 102.73 FNCI 3.0 Price 105.11 104.36 103.70 103.36 10 Yr Treasury Yield 1.89% 2.18% 2.34% 2.40%
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 5 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. Common Stock Dividend Policy Capitalization • 350,271,160 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”). • Estimated book value of common stock of $1.4 billion. • Preferred stock par value of $195.8 million • ARMOUR pays common stock dividends monthly. • Dividends are announced based on estimates of core and taxable REIT income. Information as of 7/10/2015. (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. • 4.76 gross asset duration. • -3.96 hedge duration. • 0.81 net balance sheet duration. Hedge a minimum of 40% of assets and funding rate risk. • $12.7 billion in hedges (swaps). • 83.2% of assets hedged (41.3% with current paying swaps). • 95.1% of repurchase agreements hedged (47.2% with current paying swaps). Hold 40% of unlevered equity in cash between prepayment periods. • $848.2 million in total liquidity. • $347.8 million in true cash. • $280.2 million in unlevered securities. • $220.2 million in short term Agency P&I. Long term debt to equity target of 8x - 9x. • $13.3 billion in net REPO borrowings. • 8.0x Q1 2015 shareholders’ equity (not including TBA dollar rolls). 6 Assets Duration Hedging Liquidity Leverage Information as of 7/10/2015.
ARMOUR Portfolio Strategy and Investment Methodology 7 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. • 79% of our 15yr MBS are between 85K – 175K loan balances. Pool Analysis • 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 7/10/2015.
ARMOUR Portfolio and Derivatives Overview 8 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. (1) The duration contribution to the balance sheet is based on effective duration and market value. Information as of 7/10/2015. Portfolio value is based on independent third-party pricing. Portfolio information includes all forward settling trades. Some totals may not foot due to rounding. Agency Assets 4.76 Interest Rate Swaps -3.96 Net Balance Sheet Duration 0.81 Duration Contribution to Balance Sheet (1) Assets 15,208.4$ 41.3% 83.2% Net Repo Balance 13,295.0$ 47.2% 95.1% Amou t (millions) Total Hedge % (All Hedges) Total Hedge % (Current Paying) ARMs & Hybrids 0.9% 131.1$ 104.5% 105.1% 2.73/3.25 1.13 Agency Multifamily Ballooning in 120 Months or Less 15.1% 2,299.3$ 102.6% 100.8% 3.07/4.13 7.59 Fixed Rates Maturing in 120 Months or Less 0.3% 48.4$ 104.4% 106.1% 4.06/4.44 2.83 Fixed Rates Maturing Between 121 and 180 Months 35.0% 5,323.3$ 104.6% 104.9% 3.33/3.81 3.91 Fixed Rates Maturing Between 181 and 240 Months 30.6% 4,648.6$ 106.1% 104.7% 3.65/4.17 4.05 Fixed Rates Maturing Between 241 and 360 Months 7.4% 1,121.5$ 106.9% 106.2% 4.02/4.49 5.28 FNCL 3.5 TBA 10.8% 1,636.1$ 103.3% 102.3% 3.50/4.10 5.41 Tot l r Weighted Average 100.0% 15,208.4$ 104.8% 104.1% 3.46/4.05 4.75 Weighted Average Purchase Price Weighted Average Current Market Price Weighted Average Net/Gross Coupon Estimated Effective Duration Using Current Values Current Value (millions) Agency Asset Class % of Total ARR Portfolio
ARMOUR Hedge Portfolio 9 Information as of 7/10/2015. 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 2,700.0$ 1.16 Interest Rate Swap 13-24 Months 13 550.0$ 1.24 Interest Rate Swap 25-36 Months 28 650.0$ 0.80 Interest Rate Swap 37-48 Months 0 -$ 0.00 Interest Rate Swap 49-60 Months 0 -$ 0.00 Interest Rate Swap 61-72 Months 0 -$ 0.00 Interest Rate Swap 73-84 Months 0 -$ 0.00 Interest Rate Swap 85-96 Months 91 1,375.0$ 2.11 Interest Rate Swap 97-108 Months 0 -$ 0.00 Interest Rate Swap 109-120 Months 114 1,000.0$ 2.66 Total or Weighted Average 45 $ 6,275.0 1.58 Forward Starting Weighted Average Months to Start Weighted Average Underlying Term (Months) Notional Amount (millions) Weighted Average Rate Interest Rate Swap 10 24 400.0$ 1.29 Interest Rate Swap 4 9 2,350. .47 Interest Rate Swap 8 72 1,025.0$ 2.05 Interest Rate Swap 11 84 250.0$ 2.28 Interest Rate Swap 8 120 2,350.0$ 2.29 Total or Weighted Average 7 79 $ 6,375.0 1.89
ARMOUR Portfolio Constant Prepayment Rates (“CPR”) 10 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 11 (1) ARMOUR has signed MRAs with 37 counterparties. Information as of 7/10/2015. Some totals may not foot due to rounding. 1 BNP Paribas Securities Corp. 1,080.7$ 8.0% 145 53 111 2 Merrill Lynch, Pierce, Fenner & Smith Inc. 947.1$ 7.0% 71 38 62 3 Mitsubishi UFJ Securities (USA), Inc. 943.1$ 7.0% 90 36 76 4 Morgan Stanley & Co. LLC 904.6$ 6.7% 59 40 56 5 ICBC Financial Services LLC 879.2$ 6.5% 72 40 49 6 Wells Fargo Securities 873.8$ 6.5% 30 13 28 7 J.P. Morgan Securities LLC 825.5$ 6.1% 91 28 70 8 Citibank, N.A. 700.0$ 5.2% 366 184 248 9 The Bank of Nova Scotia 638.4$ 4.7% 72 49 60 10 ABN AMRO Bank N.V. 463.2$ 3.4% 113 91 154 11 E D & F Man Capital Markets Inc. 457.4$ 3.4% 90 63 76 12 Daiwa Securities America Inc. 438.2$ 3.3% 62 54 62 13 ING Financial Markets LLC 420.3$ 3.1% 30 16 28 14 Royal Bank of Canada 410.8$ 3.0% 71 42 82 15 Societe Generale 377.3$ 2.8% 82 50 70 16 The Bank of New York Mellon 350.0$ 2.6% 364 78 82 17 Nomura Securities International, Inc. 317.2$ 2.4% 65 31 52 18 KGS-Alpha Capital Markets, L.P. 311.0$ 2.3% 40 5 7 19 UBS Securities LLC 298.0$ 2.2% 58 27 38 20 Mizuho Securities USA Inc. 273.6$ 2.0% 92 69 69 21 TD Bank, N.A. 243.6$ 1.8% 75 11 18 22 South Street Securities LLC 241.1$ 1.8% 63 45 45 23 CRT Capital Group LLC 204.4$ 1.5% 90 45 45 24 Barclays Capital Inc. 195.8$ 1.5% 91 65 69 25 Citigroup Global Markets Inc. 195.4$ 1.4% 59 40 45 26 Natixis Financial Products LLC 179.0$ 1.3% 61 39 60 27 Guggenheim Securities, LLC 133.9$ 1.0% 30 5 5 28 Deutsche Bank Securities Inc. 131.4$ 1.0% 31 28 60 29 Pierpont Securities LLC 41.4$ 0.3% 62 38 38 Total or Weighted Average 13,475.4$ 100.0% 99 48 Longest Remaining Term in Days Weighted Average Remaining Term in Days Weighted Average Original Term in Days Percentage of REPO Positions with ARMOUR Principal Borrowed (millions) REPO Counter-Party(1) Weighted Average Repo Rate 0.40% Weighted Average Haircut 4.82% July Paydowns (180.4) Net REPO after Paydowns 13,295.0 Debt to Q1 2015 Shareholders' Equity Ratio 8.0
12 www.armourreit.com ARMOUR Residential REIT, Inc. 3001 Ocean Drive Suite 201 Vero Beach, FL 32963 772-617-4340