What Awaits Mid-America Apartment (MAA) This Earnings Season?
Mid-America Apartment Communities MAA — commonly known as MAA — is a real estate investment trust (REIT) that focuses on owning, operating and acquiring apartment communities throughout the southeastern, southwestern and Mid-Atlantic regions of the United States. MAA is slated to report second-quarter 2023 results on Jul 26 after market close.
The Germantown, TN-based residential REIT delivered a surprise of 1.33% in terms of FFO per share in the last reported quarter. Its quarterly results were driven by an increase in the average effective rent per unit for the same-store portfolio.
MAA has a decent surprise history. Over the trailing four quarters, MAA surpassed the Zacks Consensus Estimate on all occasions, the average being 2.22%. This is depicted in the chart below:
Mid-America Apartment Communities, Inc. Price and EPS Surprise
Mid-America Apartment Communities, Inc. price-eps-surprise | Mid-America Apartment Communities, Inc. Quote
Let’s see how things have shaped up before this announcement.
US Residential Real Estate Market in Q2
Despite cooling rent growth, apartment demand is showing signs of a solid rebound, with net absorption in the second quarter of 2023 nearing surging new supply levels. This stabilizes occupancy rates after a steep decline in 2022.
Per RealPage data, in the second quarter, net demand registered at 83,449 units, and this marked a five-quarter high. While this is still below the record numbers seen during the 2021 boom, it indicates a normalization of apartment demand. What is interesting is that this demand rebound coincides with a 50-year high in apartment construction starting to convert into peak completions, with more than 107,000 units completed in the second quarter of this year itself.
However, despite the supply surge, this solid demand is aiding in the mitigation of vacancy spikes in most markets, with U.S. apartment occupancy coming at 94.7% as of June, marking only a 0.1 percentage point decline since January. It marks a notable improvement compared to the occupancy fall of 1.2 percentage points in the first half of 2022 and then an additional 1.4 percentage points in the second half of the year.
However, rent growth remains below normal in 2023, with year-over-year effective asking rent growth at just 1.5%. This is due to apartment operators prioritizing occupancy rates over rents, leading to more options for renters and putting downward pressure on rent growth. Same-store effective asking rents increased only 0.46% between May and June 2023.
MAA's Portfolio and Strategy
Amid these, MAA’s diversified Sunbelt portfolio is well-poised to benefit from the favorable fundamentals of this market. The pandemic 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 longer-term secular dynamic trends are increasing the desirability of its markets.
Additionally, MAA has been investing in its existing properties to attract new tenants and retain current ones. The company has been upgrading its amenities and technology to meet the evolving needs of renters. These improvements are likely to result in higher occupancy rates and rental income for MAA.
Particularly, MAA continues to implement its three internal investment programs — interior redevelopment, property repositioning projects and Smart Home installations. The programs are expected to have helped the company capture the upside potential in rent growth, generate accretive returns and boost earnings from its existing asset base.
However, the struggle to lure renters will persist as supply volumes are expected to remain elevated in some markets. This is likely to affect the company’s power to raise the rent or increase occupancy.
Projections for Q2 2023
We expect same-store net operating income to increase 5.7% year over year in the second quarter. Meanwhile, we project average physical occupancy of 95.8%, slightly higher than the prior quarter.
The Zacks Consensus Estimate for quarterly revenues is pegged at $534.16 million. This suggests a 7.9% rise from the year-ago quarter’s reported figure.
MAA projected second-quarter 2023 core funds from operations (FFO) per share in the band of $2.18-$2.34, with $2.26 being the midpoint.
Before the second-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO per share has remained unchanged at $2.27 in the past month. However, this suggests year-over-year growth of 12.4%.
Here Is What Our Quantitative Model Predicts
Our proven model does not conclusively predict a surprise in terms of FFO per share for MAA this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.
MAA currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.66%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the residential REIT sector — Equity Residential EQR and Invitation Homes Inc. INVH — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Equity Residential is slated to report quarterly numbers on Jul 27. EQR has an Earnings ESP of +0.85% and carries a Zacks Rank of 2 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Invitation Homes, scheduled to report quarterly numbers on Jul 26, has an Earnings ESP of +0.90% and carries a Zacks Rank of 2.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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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Equity Residential (EQR) : Free Stock Analysis Report
Mid-America Apartment Communities, Inc. (MAA) : Free Stock Analysis Report
Invitation Home (INVH) : Free Stock Analysis Report
