ARMOUR Residential REIT Inc (NYSE:ARR) Q2 2019 Earnings Conference Call - Final Transcript

Jul 25, 2019 • 08:00 am ET


ARMOUR Residential REIT Inc (NYSE:ARR) Q2 2019 Earnings Conference Call - Final Transcript


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Q & A

Thank you. [Operator Instructions] Our first question comes from the line of Douglas Harter with Credit Suisse. Please proceed.

Douglas Harter

Thanks. I was hoping you could talk about the decision to reduce the dividend in the quarter, kind of in light of core earnings still being kind of well above the prior dividend rate and your commentary. So, I think I heard you say that you expect relative stability in earnings?

Jeffrey J. Zimmer

Hey Doug, it's Jeff, good morning. So, let me talk about a couple of things. A number of the research reports came out talking about ARMOUR and some of the peers, which are much larger capital than us cutting dividends. I would note the other firms cut the dividend in Q2, we made at $0.19 rough Q2. That's certainly not clear on all the research reports that we and the Board read. So, we maintain a higher dividend rate as well as a higher coverage as you just noted $0.63 versus paying out $0.57.

However, as prepayments increased, the amount of amortization expense increased quite a bit and the funding rates despite the fact that there is a certain, almost certain feeling for federal funds a rate cut did not lower themselves. So, as a result, today you have a fed funds 7 to 8 basis points above LIBOR and you have prepayment rates that are still high. So, we saw that coming with our portfolio characteristics and we want to cut the dividend to a point that reflects the amount that we believe we're earning.

So, let's think about Q3. We would like analysts to think about Q3 in terms of what we're paying out, is what we believe we're earning. So, if we increase the dividend in the future quarters of prepayments come in that funding rates go down that will save the world. Hey, we think we're going to earn that, if we keep the dividend rate at $0.17, that's where we think we're earning. So, that's where we are right now.

And in with that, I noticed on some of your comments, you wrote overnight with some very appreciative of, let's talk about the power of capital management. We have redeem the Series A as of tomorrow. So, if you take those Series A off our balance sheet, our actual leverage as of tomorrow will be 9.0. So, we've actually reduced our leverage a little bit and this just thinking of other power capital management is as follows. If you redeem the As that's about $55 million and you had 9-times leverage, you got 450 million plus of assets that you no longer need. And in an environment, we're finding reinvestment opportunities, kind of acutely difficult, kind of nice to be able to now pick and choose. So, we sold some low-yielding assets that we did want on our balance sheet, but retain some stuff. So, we don't actually have to reinvest for a couple of months in a period, where reinvestment opportunities just don't look that