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

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Headquartered in Germantown, TN, Mid-America Apartment Communities (MAA - Free Report) — commonly known as MAA — is engaged in owning, managing, acquiring, developing and redeveloping quality apartment communities, mainly in the Southeast, Southwest and Mid-Atlantic regions of the United States.

Although shares of this residential REIT have declined 10.4% so far in the quarter, wider than the industry’s decrease of 2.8%, MAA is experiencing a favorable estimate revision trend.

Estimates for the first quarter and current-year funds from operations (FFO) per share have moved marginally north over the past two months to $2.26 and $9.17, respectively. Projected FFO per share growth rates for the first quarter and 2023 are 14.7% and 7.9%, respectively.

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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, lower-taxed and low-density cities. These favorable longer-term secular dynamic trends are increasing the desirability of its markets.

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. MAA projects development investments of $250 to $350 million and acquisitions of $350 to $450 million for 2023. Such efforts are likely to improve portfolio quality and propel the company’s growth over the long term.

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.

In 2022, the company completed 6,574 interior unit upgrades and installed 24,029 Smart Home packages. As of Dec 31, 2022, the total number of smart units is more than 71,000, and management expects to finish the rest of the portfolio in 2023.

Along with the healthy operating fundamentals of Sunbelt markets and a robust development pipeline, the prospects of MAA’s redevelopment program and progress in technology measures are likely to drive margin expansion.

MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Dec 31, 2022, MAA had a strong balance sheet with $1.3 billion in combined cash and capacity available under its unsecured revolving credit facility. It generated 95.2% unencumbered NOI in the fourth quarter of 2022, 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 six times, and its five-year annualized dividend growth rate is 5.45%. Check Mid-America Apartment’s dividend history here.

However, with a robust development environment and continued supply-chain issues, personnel and repair and maintenance and material costs are expected to climb up. Moreover, real estate taxes and insurance costs are expected to produce significant cost pressure.  

A hike in the interest rate is a concern for MAA. Rising rates imply a higher borrowing cost for the company, which will affect its ability to purchase or develop real estate. Moreover, the dividend payout might also become less attractive than yields on fixed income and money market accounts.

MAA currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities, Inc. (ARE - Free Report) and Terreno Realty Corporation (TRNO - Free Report) , each carrying a Zacks Rank #2 (Buy) at present.

The Zacks Consensus Estimate for Alexandria Real Estate Equities’ 2023 FFO per share has moved a cent north to $8.95 over the past month.
The Zacks Consensus Estimate for Terreno Realty Corporation’s ongoing year’s FFO per share has been raised two cents over the past two months to $2.17.

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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