Amid favorable in-migration trends of jobs and household formations in the Sun Belt sub-markets,
Mid-America Apartment Communities ( MAA Quick Quote MAA - Free Report) , also known as MAA, is likely to witness growth in demand and rent. However, elevated supply, particularly in urban submarkets, might impede this growth momentum in the upcoming period.
Markedly, the residential REIT’s portfolio is well diversified in terms of markets, submarkets, product types and price points which will likely help the company deal with any economic downturn. Moreover, a high-quality resident profile has resulted in solid rent collection performance, even amid the pandemic.
Further, the Sun Belt area has been less affected amid the coronavirus mayhem. Rather, the pandemic has accelerated employment shifts and population inflow into the company’s markets, as renters seek more business-friendly, lower-taxed and low-density cities. These favorable longer-term secular dynamic trends are increasing the desirability of its markets. Amid this, MAA is well poised to capture recovery in demand and leasing as compared to the expensive coastal market.
Furthermore, the company’s solid balance sheet, with low leverage and ample availability under its revolving credit facility, enables it to navigate through any negative externalities. Backed by an in-place at-the-market equity share offering program, MAA is well poised to source attractively-priced capital from the equity markets. It also generates 95.3% unencumbered net operating income (NOI), which offers scope for tapping additional secured debt capital if required. In addition, it enjoys investment grade ratings of BBB+/BBB+ and a stable outlook from Standard and Poor’s, and a positive outlook from Fitch Ratings, respectively, which renders the company’s favorable access to debt.
Besides, 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 upside potential in rent growth, generate accretive returns and boost earnings from its existing asset base in late 2021 and 2022.
Shares of this Zacks Rank #3 (Hold) company have rallied 36% over the past six months outperforming the
industry’s growth of 27.3%. Also, the Zacks Consensus Estimate for 2021 funds from operations (FFO) per share moved up marginally over the past month. Image Source: Zacks Investment Research
However, new supply of residential properties has been high for the past few years. This high supply adversely impacts landlords’ capability to demand more rents and results in lesser absorption, particularly at apartment communities located in urban sub-markets. This is likely to put pressure on rental rates and erode revenue growth in the near term.
Furthermore, an extensive development pipeline increases the company’s operational risks by exposing it to construction cost overruns, entitlement delays and lease-up risks. Additionally, rising real estate taxes might inflate expenses and hurt the bottom line in the days to come.
Key Industry Picks
A few better-ranked REIT stocks are mentioned below:
BRT Apartments Corp.’s ( BRT Quick Quote BRT - Free Report) Zacks Consensus Estimate for 2021 funds from operations (FFO) per share moved up 6.1% over the past month. The company currently sports a Zacks Rank of 2 (Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here Bluerock Residential Growth REIT, Inc.’s ( BRG Quick Quote BRG - Free Report) Zacks Consensus Estimate for the current-year FFO per share moved 3.1% north in a month’s time. The company carries a Zacks Rank of 2 at present. RPT Realty’s ( RPT Quick Quote RPT - Free Report) FFO per share estimate for the ongoing year has been revised upward by 3.7% over the past month. The company carries a Zacks Rank of 2, currently.
Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs. Zacks' Top Picks to Cash in on Artificial Intelligence
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