5 Reasons to Buy Mid-America Apartment (MAA) Stock Right Now
Headquartered in Germantown, TN, Mid-America Apartment Communities MAA — commonly known as MAA — is engaged in owning, managing, acquiring, developing and redeveloping quality apartment communities, mainly in the Southeast, Southwest and Mid-Atlantic regions of the United States.
Shares of this Zacks Rank #2 (Buy) residential REIT have declined 12.7% over the past month, narrower than the industry’s fall of 12.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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MAA is experiencing a favorable estimate revision trend. Estimates for the third quarter and current-year funds from operations (FFO) per share have moved north marginally over the past two months. Projected FFO per share growth rates for the third quarter and 2022 are 17.4% and 18.1%, respectively.
Factors That Make Mid-America Apartment a Solid Pick
Sunbelt-Focused Portfolio: MAA’s well-diversified Sunbelt-focused portfolio is set to gain from healthy operating fundamentals and a strong development pipeline. Encouragingly, MAA’s portfolio was less severely affected by the pandemic and the economic shutdown.
The pandemic has accelerated employment shifts and a population inflow into the company’s markets, as renters seek more business-friendly, lower-taxed and low-density cities. These favorable trends are increasing the desirability of its markets and boosting demand for rental units. Amid this, MAA is well-poised to capture recovery in demand and leasing compared to expensive coastal markets. We expect strong rent growth and stable occupancy to drive revenue growth.
Expansion Efforts: This Sunbelt-focused apartment REIT opts for opportunistic investments to maintain the right product mix and raise the number of apartment communities in dynamic markets. MAA projects development investments of $175 to $225 million and acquisitions of $75 to 125 million for 2022. Such efforts are likely to improve portfolio quality and propel the company’s growth over the long term.
Amid a competitive pricing environment for acquisitions and the growing demand for apartment housing across its Sunbelt markets, the company’s focus on its development pipeline is a strategic fit.
Redevelopment & Technology Initiatives: MAA continues to implement its three internal investment programs — interior redevelopment, property repositioning projects and Smart Home installations.
The programs will help the company capture the upside potential in rent growth, generate accretive returns and boost earnings from its existing asset base. Along with the healthy operating fundamentals of Sunbelt markets and a robust development pipeline, the prospects of its redevelopment program and progress in technology measures are likely to drive margin expansion.
Balance Sheet Strength: MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. It generated 95.1% unencumbered NOI in the second quarter of 2022, providing the scope for tapping additional secured debt capital if required.
MAA’s current cash flow growth is projected at 39.17% compared with the 22.97% growth expected for the industry. In addition, its trailing 12-month return on equity is 10.01% compared with the industry’s average of 5.52%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Dividend: Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and MAA remains committed to that. In May 2022, the company announced a common stock cash dividend of $1.25 per share, marking a 15% hike over the prior payment.
Moreover, in December 2021, the company announced a common stock cash dividend of $1.0875 per share. This marked a 6.1% sequential hike and the 12th consecutive annual increase in the company’s dividend. Looking at the company’s FFO growth projections and its lower dividend payout (compared to its industry), its dividend distribution is expected to be sustainable.
Stocks to Consider
Some key picks from the REIT sector include Equity Residential EQR and BRT Apartments BRT.
The Zacks Consensus Estimate for Equity Residential’s ongoing year’s FFO per share has been raised marginally over the past week to $3.52. EQR carries a Zacks Rank #2.
The Zacks Consensus Estimate for BRT Apartments’ 2022 FFO per share has moved 5.8% upward in the past two months to $1.63. BRT presently sports a Zacks Rank of 1.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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