There is a big front page article in today's NY Times on how dreadful the rental apartment market has become in much of the country. It points to decreasing rental rates, big rent concessions, give-aways, etc. The most distressing aspect of the article is that it particularly highlighted/focused on the Memphis, TN market (where MAA is based and where it operates many projects)and how bad that market is as well as other parts of the southeast, which is MAA's wider market area. I'm wondering if the stock isn't very overpriced now, given that the stock price has run up so much while the underlying operating conditions have deteriorated so significantly, according to the Times. I purchased the stock at about a 10% yield. Its now yielding only 7%, and in any event, I'm a little concerned about the dividend safety after reading the New York Times reporting. Any thoughts?
I don't know if many of our readers, here, have ever personally owned rental property. I have and I can tell you it is a good business but a demanding one at times. Having competent and honest people such as Eric bolton and George Cates, taking care of your property and paying a very solid dividend, is a real godsend. Try to think of this stock as an investment in the apartment business, and not as a flyer on a stock such as Intel, where your only hope of a return is somebody else paying up for the stock.
The NY Times article is nothing new...like most sectors in the economy, the apt business has been hard hit by the weak market environment over the last couple of years...lots already written about this. We believe the southeastern US has weathered the storm better than other regions of the country. "Demand dynamics" tend to be less volatile and stronger over time in the SE (employment sectors more stable, stronger immigration trends, appealing south-sun belt environment). Battling the "supply dynamics" in the SE is a function of careful investment and aggressive, cost-efficient operations. We'd rather tie our long-term prospects to battling the SE competitive "supply" dynamics (it's property management operations - it's what we do) than suffer the volatility of largely uncontrollable macro-economic "demand" variables found to a higher degree in other regions of the US. Further, by uniquely diversifying capital among a wide range of markets in the SE/Texas and staying very focused on "managing the store," MAA's sector leading operating results this year say something about our strategy, investments and capabilities.
Sure the Memphis market has been competitive. But not all apt properties and operations perform comparably in a given market. MAA's Memphis portfolio ended Q3 at 93.5% occupancy, up from Q2 and up slightly from Q3 last year. Overall average rent per unit at MAA's Memphis properties at the end of Q3 was up 2.7% as compared to Q3 last year. We see Memphis as being stable to slightly improving next year.
We remained focused on further strengthening dividend coverage and are committed to the current dividend within the full range of our earnings forecast. As noted in our Q3 earnings release: MAA's dividend coverage is more secure now than it was this time last year, revenues were higher than any quarter in the company's history and fixed charge coverage has improved this year. We've still got some work to do and improvements to make, but we're making progress. By working to protect existing property values (maintenance, capital and leasing standards), while carefully deploying capital in new acquisition opportunities and adhering to our strict investment guidelines, we believe MAA will continue to be in solid shape for steady value growth (along with higher dividend coverage) as market conditions and the economy improve.
"Highly negative" -- not really, if you read it closely.
The article painted a gloomier future picture for home prices, really -- talking about rates trending up(which will help apartment owners). And, it pointed out that in spite of weak rents, apartment values have actually gone up during the downturn. So, overall, a very grab-bag article, not likely to have much effect on MAA this week, IMO, since most people who own this stock have a gain, don't want to sell now and book the gain in the last few weeks of this tax year, and really have no better place to go with the money, seeing that the 7+% yield is still a whole lot better, risk-adjusted, than most any other investment that I can think of. And most of us here are getting a double-digit yield based on the prices we paid for the stock.
I would bet that the research was done 6 months ago and the worst has already past. This is like the brokers downgrading aiv recently when everyone in the business knew they were in trouble a year ago. It may come down a little but this is a well run company and they would have had substantial vacancy problems before now.
If it comes down into the high 20s it will be a big buy.