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Factors to Impact Mid-America Apartment (MAA) in Q2 Earnings

Zacks Equity Research

Mid-America Apartment Communities, Inc. MAA — commonly known as MAA — is slated to report second-quarter 2019 results on Jul 31, after the market closes. The company’s results will likely reflect year-over-year growth in revenues, while its funds from operations (FFO) per share are anticipated to decline slightly.

In the last reported quarter, this Germantown, TN-based residential real estate investment trust (REIT) delivered a positive surprise in terms of FFO per share. Quarterly results reflected growth in same-store NOI and increase in average effective rent per unit for the same-store portfolio.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions and met in the other two, the average positive surprise being 2.52%. This is depicted in the chart below:

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

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

Mid-America Apartment Communities, Inc. price-eps-surprise | Mid-America Apartment Communities, Inc. Quote

MAA has provided guidance for second-quarter 2019 FFO per share and expects it to be in the range of $1.45-$1.57.

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

Factors at Play

The latest figures from real estate technology and analytics firm RealPage, Inc. (RP) suggest that during the current year’s prime leasing period, the U.S. apartment rental market was able to bank on the stellar demand for rental units. The apartment rental market’s fundamentals have been buoyed by a stable economy, a healthy job market, household formation and high home-ownership costs in several markets hindering transition from renter to homeowner.

Leasing activity accelerated as demand was strong during the second quarter and per the RealPage report, from April through June, net move-ins aggregated 155,515 units, which came in 11% higher than the second-quarter 2018 product absorption as well as touched a five-year high.

With an impressive leasing activity, occupancy reached 95.8% during the June-end period, up from the prior-year quarter’s 95.4%. This upswing in occupancy level amid steady delivery of new units looks encouraging. With occupancy pushing up, rent growth also seems to be steady. In fact, the market has achieved a 3% increase in rents from the prior-year level, attaining an average of $1,390 per month.

Amid this encouraging backdrop, MAA’s redevelopment program that entails interior upgrades is anticipated to attract renters during the quarter. In fact, these upgrades provide the residential REIT with higher pricing power, thereby driving top-line growth. In fact, the Zacks Consensus Estimate for second-quarter 2019 revenues is pinned at $405.7 million, calling for a year-over-year improvement of 4.0%.

Moreover, strong job growth in the core markets has kept demand for MAA’s portfolio higher, with the trend likely to continue in the quarter under review as well. Also, positive demographic trend, supported by the growth of prime age groups for rentals and migration of population to the Southeast and Southwest, is likely to drive household formation and apartment rental demand in its markets.

However, during first-quarter 2019, supply of new units remained elevated across a number of the company’s markets. This high level of new delivery is likely to sustain in the second quarter. High supply adversely impacts landlords’ capability to demand more rents and results in lesser absorption. This will likely put pressure on the company’s pricing power.

Furthermore, MAA’s activities during the to-be-reported quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the second-quarter 2019 FFO per share remained unchanged at $1.53, over the last 30 days, indicating year-over-year decline of 1.3%.

Here is what our quantitative model predicts:

MAA does not have 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 0.00%.

Zacks Rank: MAA has a Zacks Rank of 2 (Buy), which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

CyrusOne Inc. CONE, scheduled to release earnings on Jul 31, has an Earnings ESP of +1.37% and carries a Zacks Rank #3, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mack-Cali Realty Corporation CLI, slated to report quarterly figures on Aug 7, has an Earnings ESP of +1.24% and carries a Zacks Rank of 3, currently.

Healthcare Realty Trust Incorporated HR, set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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