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Mid-America Apartment (MAA) Up 13.6% YTD: Will It Rise Further?
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Shares of Mid-America Apartment (MAA - Free Report) (also known as MAA) have rallied 13.6% year to date, outperforming the industry's growth of 9.3%.
Last month, MAA reported second-quarter 2024 core funds from operations (FFO) per share of $2.22, which surpassed the Zacks Consensus Estimate of $2.20.
Results reflected healthy demand despite elevated new supply and growth in the average effective rent per unit for the same-store portfolio. The company also experienced low levels of resident turnover. However, an increase in operating expenses partly marred the upsides.
Analysts seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2024 core FFO per share moving marginally northward to $8.91 over the past week.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price and check whether this trend will last or not.
Mid-America Apartment is poised to gain from its well-diversified Sun Belt-focused portfolio. The favorable in-migration trends of jobs and households in these submarkets are likely to keep renter demand up.
Also, the high pricing of single-family ownership units in a high interest rate environment continues to drive the demand for rental apartments, aiding in a high level of occupancy for MAA.
This Sunbelt-focused apartment REIT opts for opportunistic investments to maintain the right product mix and raise the number of apartment communities in dynamic markets. As of the end of the second quarter of 2024, it had seven communities under development. Amid the growing demand for apartment housing across its Sunbelt markets, the company’s focus on its development pipeline is a strategic fit.
MAA continues to implement 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.
MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Jun 30, 2024, MAA had a strong balance sheet with $1.0 billion of combined cash and available capacity under its unsecured revolving credit facility. It also has a low Net Debt/Adjusted EBITDAre ratio of 3.7. In the second quarter of 2024, it generated 95.9% unencumbered net operating income (NOI), providing the scope for tapping additional secured debt capital if required.
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 seven times, and its five-year annualized dividend growth rate is 9.98%. Further, backed by healthy operating fundamentals, its dividend distribution becomes sustainable.
However, the rising supply of apartment units in some markets is likely to fuel competition and curb pricing power. A huge development outlay amid high interest rates raises concerns for MAA.
The Zacks Consensus Estimate for Essex Property Trust’s 2024 FFO per share is pegged at $4.82, up 3.26% year over year.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share is pegged at $2.66, up 1.53% year over year.
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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Mid-America Apartment (MAA) Up 13.6% YTD: Will It Rise Further?
Shares of Mid-America Apartment (MAA - Free Report) (also known as MAA) have rallied 13.6% year to date, outperforming the industry's growth of 9.3%.
Last month, MAA reported second-quarter 2024 core funds from operations (FFO) per share of $2.22, which surpassed the Zacks Consensus Estimate of $2.20.
Results reflected healthy demand despite elevated new supply and growth in the average effective rent per unit for the same-store portfolio. The company also experienced low levels of resident turnover. However, an increase in operating expenses partly marred the upsides.
Analysts seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2024 core FFO per share moving marginally northward to $8.91 over the past week.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price and check whether this trend will last or not.
Mid-America Apartment is poised to gain from its well-diversified Sun Belt-focused portfolio. The favorable in-migration trends of jobs and households in these submarkets are likely to keep renter demand up.
Also, the high pricing of single-family ownership units in a high interest rate environment continues to drive the demand for rental apartments, aiding in a high level of occupancy for MAA.
This Sunbelt-focused apartment REIT opts for opportunistic investments to maintain the right product mix and raise the number of apartment communities in dynamic markets. As of the end of the second quarter of 2024, it had seven communities under development. Amid the growing demand for apartment housing across its Sunbelt markets, the company’s focus on its development pipeline is a strategic fit.
MAA continues to implement 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.
MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Jun 30, 2024, MAA had a strong balance sheet with $1.0 billion of combined cash and available capacity under its unsecured revolving credit facility. It also has a low Net Debt/Adjusted EBITDAre ratio of 3.7. In the second quarter of 2024, it generated 95.9% unencumbered net operating income (NOI), providing the scope for tapping additional secured debt capital if required.
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 seven times, and its five-year annualized dividend growth rate is 9.98%. Further, backed by healthy operating fundamentals, its dividend distribution becomes sustainable.
However, the rising supply of apartment units in some markets is likely to fuel competition and curb pricing power. A huge development outlay amid high interest rates raises concerns for MAA.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Essex Property Trust (ESS - Free Report) and Cousins Properties (CUZ - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Essex Property Trust’s 2024 FFO per share is pegged at $4.82, up 3.26% year over year.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share is pegged at $2.66, up 1.53% year over year.
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.