Armour Residential REIT (ARR) risk factors, FY2024 10-K

Other

1. 01ARMOUR Residential REIT, Inc
2. 02management fee expenses do not decline with reductions in our total stockholders' equity. As a result, ACM's annualized contractual management fee rate as of December 31, 2024 equaled 3.03% of stockholders' equity
3. 03Changes in interest rates impact our level of net interest income, total comprehensive income (loss) and stockholders' equity and we cannot always successfully mitigate such interest rate risks
4. 04Volatility in the relationships between the market prices and yields for our securities and certain benchmark prices and interest rates periodically will adversely affect our net income, earnings per share and stockholders' equity
5. 05We cannot predict the impact of future Fed monetary policy on the prices and liquidity of Agency Securities or other securities in which we invest, although Fed action could increase the prices of our target assets and reduce the spread on our investments or decrease our book value
6. 06We invest in MBS guaranteed by GSEs such as Fannie Mae and Freddie Mac, which are under conservatorship by the FHFA. Changes to the conservatorship or to the laws and regulations affecting the support GSEs receive may adversely affect the availability, financing, pricing, market value and liquidity of our assets
7. 07During stressful market conditions, we have sold and may in the future be forced to sell MBS at distressed prices, thereby potentially incurring permanent equity losses
8. 08Our lenders may insist on financing terms that could result in reducing the availability and/or increasing the cost of our financing or may terminate our financing
9. 09There is a risk that our counterparties might be unwilling to continue to extend repurchase financing to us. Changes in regulation, market conditions or the financial position or business strategy of our counterparties could cause them to reduce or terminate our repurchase financing facilities
10. 10We may not be able to minimize potential credit risks that could arise in the event of bankruptcy of one or more of our counterparties
11. 11Factors beyond our control may increase the prepayment speeds on our MBS, thereby reducing our interest income
12. 12Our MBS portfolio may lose some of its liquidity capital due to margin calls from repurchase counterparties on the fourth business day of each month
13. 13Reliance on inaccurate models or estimates could lead to poor business decisions and expose us to risk
14. 14We have issued and may in the future issue shares of our common stock in “at the market” offerings or underwritten “block” offerings, which may adversely impact the market price of our stock and result in dilution to existing stockholders
15. 15We may issue stock when investment opportunities are relatively less attractive
16. 16We may repurchase our common and preferred stock at prices below book value, to the potential disadvantage of selling stockholders
17. 17Significant changes in the number of shares outstanding over time complicate the understanding of periodic per share calculations
18. 18Ending Book Value per Common Share $ 27.20 $ 26.90 $ 21.73 $ 22.54 $ 22.54
19. 19ACM may terminate the management agreement for any reason. If ACM ceases to be our investment manager, financial institutions providing any financing arrangements to us may not provide future financing to us
20. 20ACM’s liability is limited under the management agreement and we have agreed to indemnify ACM and its affiliates against certain liabilities. As a result, we could experience poor performance or losses for which ACM would not be liable
21. 21There are potential conflicts of interest with current and future investment entities affiliated with ACM
22. 22In allocating investment opportunities among us and any other funds or accounts that may be managed by them, ACM's personnel are guided by the principles that they will treat all entities fairly and equitably, they will not arbitrarily distinguish among entities and they will not favor one entity over another
23. 23Members of our management team have competing duties to other entities, which could result in decisions that are not in the best interests of our stockholders
24. 24ACM has voluntarily waived a portion of its contractual management fee. ACM has reduced, and may further reduce, the amount of or discontinue entirely its voluntary fee waiver without our consent
25. 25The termination of the management agreement may be difficult and costly
26. 26totaling approximately $206,210 based on gross equity raised as of December 31, 2024, the date of the most recent management contract extension
27. 27The management agreement with ACM will automatically renew for an additional 5-year term unless ARMOUR gives 180-day written notice of non-renewal
28. 28The management agreement was not negotiated on an arm’s-length basis and the terms, including fees payable, may not be as favorable to us as if they were negotiated with an unaffiliated third-party
29. 29Distributable Earnings is a non-GAAP measure which excludes gains and losses, and therefore is an imperfect measure of our overall financial performance, and is not a standardized metric
30. 30Income adjusted for the net coupon effect of interest rate swaps minus net operating expenses. Distributable Earnings differs, potentially significantly, from net interest income and from total comprehensive income (loss) (which includes realized gains and losses and market value adjustments)
31. 31Total Comprehensive Loss $ (14,394) $ (56,396)
32. 32Distributable Earnings $ 203,416 $ 209,356
33. 33Distributable Earnings may not provide sufficient incentive to ACM to maximize risk adjusted returns on our investment portfolio
34. 34A material portion of our aggregate repurchase financing is facilitated through BUCKLER
35. 35We hold a 10.8% equity ownership interest in BUCKLER and additionally, provided BUCKLER with $200 million in additional regulatory capital
36. 36BUCKLER relies primarily on bilateral and triparty repurchase agreement funding through the FICC
37. 37BUCKLER is the primary placement agent for ARMOUR's common share ATM Program
38. 38BUCKLER may pursue business opportunities with third parties
39. 39There are potential conflicts of interest in our relationship with ACM and its affiliates, including BUCKLER, which could result in decisions that are not in the best interests of our stockholders
40. 40We operate in a highly competitive market for investment opportunities and related financing and competition may limit our ability and financing to acquire desirable investments in our target assets or obtain necessary financing and could also affect the pricing of these assets and cost of funds
41. 41Our ability to buy or sell our securities and arrange our repurchase financing may be severely limited or not profitable and we may be required to post additional collateral in connection with our financing
42. 42Exchange-traded swaps and futures have higher initial margin requirements than bilateral swap agreements
43. 43We may change our target assets, financing and investment strategies and operational policies without stockholder consent, which may adversely affect the market price of our common stock and our ability to make distributions to stockholders
44. 44There are significant restrictions on ownership of our common stock
45. 45courts might issue new rulings, in each case potentially having retroactive effect, which could make it more difficult or impossible for us to qualify as a REIT
46. 46If we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow
47. 47Complying with REIT requirements may cause us to forgo otherwise attractive opportunities
48. 48Complying with REIT requirements may force us to liquidate otherwise attractive investments
49. 49The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT
50. 50Our capital loss carry forward for tax purposes may expire before we can fully use it to offset otherwise taxable income or gains
51. 51Distributions to tax-exempt investors may be classified as unrelated business taxable income
52. 52The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur and may limit the manner in which we effect future securitizations
53. 53Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us

Risks related to rights to take action against directors and officers under Maryland law

1. 54Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire control of the company
2. 55Rapid changes in the values of our target assets may make it more difficult for us to maintain our qualification as a REIT or our exemption from the 1940 Act
3. 56Maintenance of our exclusion from the 1940 Act will impose limits on our business
4. 57Loss of the 1940 Act exclusion would adversely affect us, the market price of shares of our stock and our ability to distribute dividends
5. 58Under rules adopted under the Dodd-Frank Act, any investment fund that trades in swaps may be considered a “commodity pool,” which would cause its directors to be regulated as CPOs
6. 59other CFTC requirements. Such other requirements may include having our interest rate swap contracts cleared through recognized clearing organizations or having to post higher initial margins on uncleared swaps
7. 60We depend on ACM for our key personnel. The loss of those key personnel could severely and detrimentally affect our operations
8. 61We have very broad investment strategies, and our Board will not approve each investment and financing decision made by ACM
9. 62We are highly dependent on information and communications systems. System failures, security breaches or cyber-attacks of networks or systems could significantly disrupt our business and negatively affect the market price of our common stock and our ability to distribute dividends
10. 63We are subject to financial reporting and other requirements for which our accounting, internal audit and other management systems and resources may not be adequately prepared
11. 64We have not established a minimum dividend payment level and there are no guarantees of our ability to pay dividends in the future
12. 65We have returned, and may continue to return, capital to stockholders by paying dividends in excess of our comprehensive income and/or repurchasing shares, which may adversely affect our business
13. 66We may use proceeds from equity and debt offerings and other financings to fund distributions, which will decrease the amount of capital available for purchasing our target assets
14. 67Our return of capital distributions may increase capital gains
15. 68The performance of our common stock correlates to the performance of our REIT investments, which may be speculative and aggressive compared to other types of investments
16. 69Our common stock may become the target of a “short squeeze.”
17. 70Our common stock has experienced and may continue to experience price fluctuations, which could cause you to lose a significant portion of your investment and interfere with our efforts to grow our business
18. 71If securities or industry analysts fail to continue publishing research about our business, if they change their recommendations adversely or if our results of operations do not meet their expectations, our share price and trading volume could decline