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Mid-America Apartment (MAA) Q4 Earnings: What's in the Offing?

Zacks Equity Research

Mid-America Apartment Communities, Inc. MAA — commonly known as MAA — is slated to report fourth-quarter 2018 results on Jan 30, 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 $1.50, 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 in two occasions, met in another and missed in the other. It delivered average positive surprise of 1.18% 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

Factors at Play

The U.S. apartment market witnessed an encouraging fourth quarter in 2018, with accelerated rent growth and elevated occupancy level amid robust demand for rental units. Going by a study by the real estate technology and analytics firm — RealPage, Inc. — the annual pace of apartment rent growth in the United States accelerated and reached 3.3% in the quarter, ahead of the 2.5% recorded in 2017.

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 by 323,290 units in 2018, and demand surpassed annual completions that aggregated 287,007 units.

Notably, economic recovery and job-market gains have primarily driven demand for residential space. Specifically, favorable demographics, lifestyle transformation, and household creation trends amid improving economy are likely to have spurred demand for MAA’s properties in the quarter and helped in absorption of new supply across its markets.

This is expected to have fueled growth in the company’s top line as well. In fact, the Zacks Consensus Estimate for fourth-quarter 2018 revenues is pinned at $400.2 million and reflects a year-over-year improvement of 4.6%.

However, MAA has been experiencing substantial new supply across a number of markets, like Dallas and Washington, DC. Elevated delivery level curtailsa landlords’ ability to demand higher rents and results in lesser absorption, which is a concern for the company. Consequently, concession levels are likely to remain at the higher end, while the leasing environment is anticipated to have remained competitive during the Dec-end quarter, curbing MAA’s pricing power.

Additionally, hike in interest rate during the fourth quarter might have unfavorably impacted the company’s bottom-line performance. Higher interest rate is expected to have increased borrowing cost for the company and affected its ability to purchase or develop real estate.

In fact, MAA follows a redevelopment program at selected residential communities throughout the portfolio and also has an active development pipeline that is largely unfunded. Amid rising interest-rate environment, we expect its development and financing activities to have slowed down.

Furthermore, MAA’s activities during the quarter under review were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for fourth-quarter 2018 FFO per share remained unchanged at $1.55, over the last 30 days, indicating year-over-year growth of 3.3%.

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 +0.21%.

Zacks Rank: MAA has a Zacks Rank of 4 (Sell), at present.

Although a positive Earnings ESP makes us reasonably confident of a positive surprise, a Zacks Rank of 4 decreases the predictive power of ESP.

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 stocks here.

AvalonBay Communities AVB, slated to report fourth-quarter results on Feb 4, has an Earnings ESP of +0.22% and holds a Zacks Rank of 3.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

Omega Healthcare Investors, Inc. OHI, scheduled to report quarterly numbers on Feb 11, has an Earnings ESP of +0.26% and sports a Zacks Rank of 1.

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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