ARMOUR Residential REIT, Inc. (NYSE:ARR) recently announced its preliminary estimated results for the fourth quarter and the year 2012 as well as a new preferred stock offering. In this article, I will discuss Armour Residential as an investment in relation to the estimated fourth quarter results and latest stock offering.
ARMOUR Residential REIT, Inc. (NYSE:ARR) announced the preliminary estimated results and select financial data for the fourth quarter. The company estimates that it will earn taxable refit income per share for the quarter and for the year ended Dec. 31, 2012, which would be sufficient to cover the dividends paid of $0.27 and $1.20 per share for the quarter and for the year respectively. GAAP earnings for the fourth quarter are expected to be in the range of $114-$117 million, working out to an EPS in the range of $0.36 to $0.38 per diluted common share.
ARMOUR Residential REIT, Inc. (NYSE:ARR)’s book value as of Dec. 31, 2012 works out to $7.28 to $7.30 per diluted common share. As of this date, there were 309,013,984 common shares and 2,005,611 series A preferred shares outstanding. As at Feb. 12, there were 309,045,797 common shares, 2,180,572 series A preferred shares and 5,400,000 series B preferred shares outstanding.
Armour estimates that its current book value shareholders’ equity is between $6.70 and $6.76 per diluted common share. The preliminary estimated GAAP earnings and book value, as well as taxable REIT income, are subject to revision on the finalizing of the accounts. These preliminary estimates could differ because of factors such as additional adjustments in the calculation of financial results, or portfolio values and accounting changes required by GAAP.
ARMOUR Residential REIT, Inc. (NYSE:ARR) also announced that it has priced an underwritten public offering of 65,000,000 shares of common stock. The underwriters have been granted a 30-day option to purchase up to 9,750,000 additional shares of common stock and are offering the shares at prevailing market prices or from time to time through the NYSE, the over-the-counter market, negotiated transactions or otherwise. The company intends to use the net proceeds of the offering for the acquisition of additional agency securities depending on market conditions, as well as for general corporate purposes. The offer is priced at $6.84 a share against the current market price of around $6.55 a share.
Deutsche Bank has downgraded Armour Residential from buy to hold with a price target of $6.75 (down from $8.30). The bank has commented as follows: “On February 13, ARR reported an estimated current bvps range of $6.70 and $6.76, down 13% from the last reported bvps of $7.77 as at 30 September. Given the book value range and yesterday’s equity offering, we estimate pro forma post-deal book value of $6.73 per share. As a result of the bvps decline and a reduction in our bv premium from 5% to 0%, we are reducing our target to $6.75 per share from $8.30 per share. Given our new target relative to the current valuation, we are reducing our rating to hold.”