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Mid-America Apartment (MAA) Q3 Earnings: What Lies Ahead?

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Mid-America Apartment Communities, Inc. MAA — commonly known as MAA — is slated to report third-quarter 2018 results on Oct 31, after the market closes. The company’s results will likely reflect year-over-year growth in revenues, while funds from operations (FFO) per share might remain flat.

In the last reported quarter, this Memphis, TN-based residential real estate investment trust (REIT) delivered a positive surprise, with respect to FFO per share, of 4.73%. 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 in three occasions and missed in the other. It delivered an average positive surprise of 1.69% 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

Let’s see how things are shaping up for this announcement.

Factors to Consider

Per the latest study by the real estate technology and analytics firm, RealPage, Inc. RP, third-quarter 2018 proved to be an encouraging year for the U.S. apartment market, with accelerating rent growth and increasing occupancy level. In fact, rents grew at an annual pace of 2.9% in the quarter, reversing the pattern of slowing price hikes since late 2015. Also, occupancy came in at 95.8%, up from 95.4% reported in the second quarter.

Amid these encouraging numbers, this Sunbelt-focused apartment REIT is expected to reflect growth in revenues. In fact, the Zacks Consensus Estimate for third-quarter 2018 revenues is pinned at nearly $396 million and reflects a year-over-year improvement of 2.85%.

Further, MAA is expected to gain from its well-balanced, diverse portfolio across the Southeast and Southwest regions, favorable demographics, household formation, recovering economy and job-market growth. The company is also anticipated to have maintained its decent balance-sheet strength, with lower debt-equity ratio as compared to its industry.

However, the company has been grappling with new supply in a number of its markets, like Dallas and Washington, DC. This remains a concern as elevated levels of deliveries curtail landlords’ ability to demand higher rents and result in lesser absorption. Consequently, concession levels are likely to remain at the higher end, while the leasing environment is expected to have remained competitive in the Sep-end quarter. Further, the pricing power of MAA is expected to have been limited.

Also, hike in interest rate during the Jul-Sep quarter is expected to have impacted the company’s bottom-line performance. High interest rate is likely to have escalated borrowing cost for the company and affected its ability to purchase or develop real estate.

Furthermore, MAA’s activities during the quarter under review were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for FFO per share remained unchanged at $1.50, over the last 30 days. For third-quarter 2018, management anticipates FFO per share of $1.45-$1.55.

Earnings Whispers

Our proven model does not conclusively show that MAA is likely to beat estimates this season. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: MAA has an Earnings ESP of -0.17%.

Zacks Rank: MAA has a Zacks Rank of 3, at present.

Although a favorable Zacks Rank is a meaningful and leading indicator of a likely beat in terms of FFO per share, we also need a positive Earnings ESP to be reasonably 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:

Ashford Hospitality Trust AHT, scheduled to release earnings on Nov 1, has an Earnings ESP of +7.14% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Douglas Emmett, Inc. DEI, slated to report Jul-Sep period results on Nov 1, has an Earnings ESP of +0.44% and 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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