Mid-America Apartment (MAA Quick QuoteMAA - Free Report) is poised to benefit from its well-diversified Sun Belt-focused portfolio. Moreover, the redevelopment program and technology initiatives and a solid balance sheet bode well for the company’s long-term growth despite a high-interest-rate environment and elevated supply in certain markets.

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

Also, the high pricing of single-family ownership units amid a high-interest-rate environment continues to drive the demand for rental apartments. Amid this, our projections for top-line growth point to an increase of 6.3% year over year in the current year.

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.

Along with the healthy operating fundamentals of the Sunbelt markets and a robust development pipeline, the prospects of its redevelopment program and progress in technology measures are likely to drive margin expansion. We expect same-store net operating income (NOI) to grow 6.6% in 2023 and 7.9% in 2024.

MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Jun 30, 2023, MAA had a strong balance sheet with $1.4 billion in combined cash and capacity available under its unsecured revolving credit facility. It generated 95.1% unencumbered NOI in the second quarter of 2023, providing the scope for tapping additional secured debt capital if required.

Moreover, 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 7.91%.

However, the struggle to lure renters will persist as supply volumes are expected to remain elevated in some of its markets. This is expected to put some pressure on rent growth in the upcoming periods. Furthermore, stiff competition in the residential real estate market with various housing alternatives like manufactured housing, condominiums and the new and existing home markets is concerning.

Also, elevated rates imply a high borrowing cost for the company, which will affect its ability to purchase or develop real estate. Moreover, the dividend payout might become less attractive than yields on fixed income and money-market accounts due to high interest rates.

Shares of this Zacks Rank #3 (Hold) company have declined 0.7% in the past three months against the industry's increase of 3.1%.

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the residential REIT sector are Invitation Home (INVH Quick QuoteINVH - Free Report) and American Homes 4 Rent (AMH Quick QuoteAMH - Free Report) . Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Invitation Home’s 2023 FFO per share has moved marginally upward in the past month to $1.79.

The consensus mark for American Homes’ current-year FFO per share has been raised 1.2% northward in the past month to $1.65.

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.