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ARMOUR Residential REIT, Inc. ( ARR - Snapshot Report ) , a real estate investment trust (REIT) that invests in residential mortgage backed securities (RMBS), has recently priced its secondary offering of 9 million shares. The company has also decided to grant the underwriters an option to purchase an additional 1.35 million shares to cover any over-allotment.
The shares are expected to be sold in one or more transactions in the ‘over-the-counter market’ or through negotiated transactions at market prices or at negotiated prices. The equity offer is likely to close on January 13, 2012.
Deutsche Bank Securities Inc. – the U.S. investment banking and securities arm of Deutsche Bank AG ( DB - Snapshot Report ) is acting as the sole book-running manager for the offering. ARMOUR Residential intends to utilize the proceeds from the share issuance 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 that would enable stockholders to automatically reinvest their dividends in the company's 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 the 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.
We currently have a ‘Neutral’ rating on ARMOUR Residential, which presently has a Zacks #2 Rank indicating a short-term ‘Buy’ rating.
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