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Factors to Aid Mid-America Apartment (MAA) in Q1 Earnings

Zacks Equity Research

Mid-America Apartment Communities, Inc. MAA — commonly known as MAA — is slated to report first-quarter 2019 results on May 1, after the market closes. The company’s results will likely reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Memphis, TN-based residential real estate investment trust (REIT) reported FFO per share of $1.55, in line with the Zacks Consensus Estimate. Quarterly results reflected growth in same-store net operating income (NOI) and rise in average effective rent per unit for the same-store portfolio.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on one occasion, missed in another and met in the other two. It delivered an average positive surprise of 0.84% during this period. The graph below depicts this surprise history:

Mid-America Apartment Communities, Inc. Price and EPS Surprise

Mid-America Apartment Communities, Inc. Price and EPS Surprise | Mid-America Apartment Communities, Inc. Quote

MAA has provided guidance for first-quarter 2019 FFO per share and expects it to be in the range of $1.41-$1.53. 

Let’s see how things are shaping up, prior to this announcement.

Factors at Play

Going by a recent study by the real estate technology and analytics firm — RealPage, Inc. — the U.S. apartment market managed to retain the rent momentum achieved in the later part of 2018, although new supply volumes remained elevated during the January-March quarter. Apartment rents were up 3.2% on an annual basis as of first-quarter 2019. In fact, for six straight months, annual rent growth exceeded the 3% mark. In addition, occupancy came in at 95.2% in the quarter, expanding 10 basis points year on year. Also, occupancy came in at 95.4%, up from 95% reported at year-end 2017. Reflecting the strongest demand realized since 2010, occupied apartment tally moved up 323,290 units in 2019, and demand surpassed annual completions that aggregated 287,007 units.

Notably, a decent economy and job-market gains drove demand for residential space in first-quarter 2019. Further, favorable demographics, lifestyle transformation and household creation trends remain tailwinds.

Amid this encouraging backdrop, MAA’s redevelopment program that entails interior upgrades is expected to attract renters during the quarter. In fact, these upgrades provide the company with higher pricing power, thereby driving top-line growth. In fact, the Zacks Consensus Estimate for first-quarter 2019 revenues is pinned at $400.2 million, calling for a year-over-year improvement of 4.6%.

Further, the March-end quarter is also the one in which the company will report its first results after completing integration efforts with regard to the Post Properties merger. Through enhanced scale and leveraging, the company is expected to generate higher operating margins in the to-be-reported quarter.

However, MAA has been experiencing new supply across a number of markets. This new supply is anticipated to limit the company’s ability to demand higher rents and may result in lesser absorption rates at its properties.

Furthermore, MAA’s activities during the quarter under review were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the first-quarter 2019 FFO per share remained unchanged at $1.50, over the last 30 days, indicating year-over-year growth of 4.2%.

Earnings Whispers

Here is what our quantitative model predicts:

MAA has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for MAA is +0.29%.

Zacks Rank: The company carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

While the other players in this space are lined up to report their financial results, below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and currently carries a Zacks Rank of 2 (Buy).

Mack-Cali Realty Corporation CLI, slated to report first-quarter results on May 1, has an Earnings ESP of +1.2% and holds a Zacks Rank of 3.

Welltower, Inc. WELL, scheduled to release earnings on Apr 30, has an Earnings ESP of +0.09% and carries a Zacks Rank of 3.

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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