ARMOUR Residential REIT, Inc. (ARR), a real estate investment trust (REIT) that invests in residential mortgage backed securities (RMBS), has recently announced an equity offer of 16 million shares to raise cash and increase its liquidity. The company will also grant the underwriters an option to purchase an additional 2.4 million shares to cover any over-allotments.
Deutsche Bank Securities Inc. – the U.S. investment banking and securities arm of Deutsche Bank AG (DB) is acting as the sole book-running manager for the offering. ARMOUR Residential intends to utilize the proceeds from the secondary offering to purchase additional financial assets in accordance with its investment objectives and strategies.
The equity offer is part of the Dividend Reinvestment and Share Purchase Plan of the company, which is slated to commence on April 11, 2011. The program would enable the stockholders to automatically reinvest their dividends in the common stock, as well as purchase additional shares directly from the company from time to time.
The residential mortgage market in the U.S. has experienced defaults, credit losses and liquidity concerns in the recent past. These factors have impacted investor perception of the risk associated with real estate related assets, including high-quality RMBS assets.
As a result, values for RMBS assets, including some agency securities and other AAA-rated RMBS assets, have experienced a certain amount of volatility. Increased volatility and deterioration in the broader residential mortgage and RMBS markets may adversely affect the performance of ARMOUR Residential in the future.
However, we currently have an Outperform rating on ARMOUR Residential, which presently has a Zacks #2 Rank that indicates a short-term Buy rating.
ARMOUR RES REIT (ARR): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
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