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Is Mid-America Apartment (MAA) an Apt Portfolio Pick Right Now?

Mid-America Apartment MAA is poised to benefit from its well-diversified Sun Belt-focused portfolio. Moreover, redevelopment and technology initiatives, and solid balance sheet bode well for the company’s long-term growth despite a high interest rate environment and elevated supply in certain markets.

MAA’s well-diversified Sunbelt-focused portfolio is set to gain from healthy operating fundamentals. The pandemic has accelerated employment shifts and a population inflow into the company’s markets, as renters seek more business-friendly, low-taxed and low-density cities. These favorable longer-term secular dynamic trends are increasing the desirability of its markets.

Also, the high pricing of single-family ownership units amid a high interest rate environment continues to drive the demand for rental apartments. Given these factors, MAA is well-poised to capture demand recovery for residential apartments, aiding leasing activities. Our projection for average physical occupancy for 2023 is 95.8%. Additionally, the company is expected to witness year-over-year top-line growth of 6.2% for the current year.

MAA has been implementing 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 healthy operating fundamentals of the Sunbelt markets and a robust development pipeline, the prospects of the company’s redevelopment program and progress in technology measures are likely to drive margin expansion. We expect same-store net operating income to grow 6.4% for 2023 and 7.7% for 2024.

MAA also enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Mar 31, 2023, MAA had a strong balance sheet with $1.4 billion in combined cash and capacity available under its unsecured revolving credit facility. It generated 95.1% unencumbered NOI in the first quarter of 2023, providing the scope for tapping additional secured debt capital if required.

Moreover, solid dividend payouts are arguably the biggest enticements for REIT shareholders and MAA remains committed to that. In the last five years, MAA has increased its dividend six times and its five-year annualized dividend growth rate is 6.80%.

However, a high interest rate environment is concerning for MAA. Elevated rates imply a high borrowing cost for the company, which will affect its ability to purchase or develop real estate. Moreover, the dividend payout may become less attractive than yields on fixed income and money market accounts due to high interest rates.

Additionally, the struggle to attract renters will persist as supply volumes are expected to remain elevated in some markets. Management expects this phenomenon to put some pressure on rent growth in 2023. Moreover, real estate taxes and insurance costs are expected to produce significant cost pressure. Reflecting these, we expect total property operating expenses to increase 5.6% for 2023.

Shares of this Zacks Rank #3 (Hold) company have gained 5.5% over the past three months compared with industry’s rise of 13.2%. The Zacks Consensus Estimate for the company’s 2023 funds from operations (FFO) per share has increased marginally over the past two month to $9.15.

 

Zacks Investment Research
Zacks Investment Research


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Stocks to Consider

Some better-ranked stocks from the REIT sector are Elme Communities ELME, and BRT Apartments BRT. Elme Communities currently sports a Zacks Rank #1 (Strong Buy) and BRT Apartments carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Elme Communities’ 2023 FFO per share has been revised 1% north over the past month to $1.

The Zacks Consensus Estimate for BRT Apartments’ 2023 FFO per share has been revised 33.6% north over the past two months to $1.55.

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.

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Mid-America Apartment Communities, Inc. (MAA) : Free Stock Analysis Report

BRT Apartments Corp. (BRT) : Free Stock Analysis Report

Elme Communities (ELME) : Free Stock Analysis Report

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Zacks Investment Research

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