ARMOUR Residential REIT to Offer 65 Million Shares

ARMOUR Residential REIT (NYSE: ARR  ) , a mortgage real estate investment trust, announced yesterday that it is commencing a 65-million-share offering of its stock so that, as market conditions warrant, the net proceeds will be used to acquire additional agency securities.

Rather than be issued all at once, the underwriters plan to offer the shares at prevailing market prices at various times through the New York Stock Exchange, the over-the-counter market, or through negotiated transactions.

In addition to the base amount, ARMOUR noted that Deutsche Bank Securities, BofA Merrill Lynch, Barclays Capital, Citigroup Global Markets, Credit Suisse Securities, and J.P. Morgan Securities -- all of which are acting as book-running managers of the offering -- will have 30 days to decide whether to purchase an additional 9.75 million shares.

ARMOUR invests primarily in hybrid adjustable rate, adjustable rate, and fixed rate residential mortgage-backed securities issued or guaranteed by U.S. government-sponsored entities, such as Fannie Mae, Freddie Mac, and Ginne Mae. Its shares closed down $0.02 yesterday, finishing the day at $7.09.

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  • Report this Comment On February 14, 2013, at 5:19 PM, rsengupta wrote:

    Is this a bad thing for people [like me] who own shares of ARR?

    Did the value of the existing shares just go down because ARR is offering 65 Mill more shares?

  • Report this Comment On February 19, 2013, at 2:18 PM, pryan37bb wrote:

    rsengupta: Yes, because they're essentially diluting your ownership in the company. As a hypothetical example, if they had instead distributed the shares equally to current shareholders, the price of each share would go down, but you would have proportionately more shares, meaning your percentage of ownership in the company (and thus the value of your position overall) should not change.

    However, with the sale of that stock, they are also adding cash to the balance sheet to acquire more securities, so the stock sale is not all bad. That said, if the company does this on a regular basis, it does have a negative impact on the price of the shares. Something to consider with REITs in general, since they pay out at least 90% of their profits instead of reinvesting them back into the business.

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