Mid-America Apartment Communities (MAA Quick QuoteMAA - Free Report) — commonly known as MAA — is a real estate investment trust (REIT) that focuses on owning, operating and acquiring apartment communities throughout the southeast, southwest and mid-Atlantic regions of the United States. MAA is slated to report first-quarter 2024 results on May 1 after market close.

The Germantown, TN-based residential REIT delivered a surprise of 0.87% in terms of core FFO per share in the last reported quarter. Its quarterly results were driven by an increase in the average effective rent per unit for the same-store portfolio.

MAA has a decent surprise history. Over the trailing four quarters, MAA surpassed the Zacks Consensus Estimate on all occasions, the average beat being 0.77%. This is depicted in the chart below:

Mid-America Apartment Communities, Inc. Price and EPS Surprise

Mid-America Apartment Communities, Inc. price-eps-surprise | Mid-America Apartment Communities, Inc. Quote

Let’s see how things have shaped up before this announcement.

US Apartment Market in Q1

Per RealPage data, although there was a significant recovery in apartment demand in the first quarter, it was not enough to keep up with the huge amounts of new supply, with the onslaught affecting occupancy and rent growth.

The United States absorbed 103,826 apartment units on net in the first quarter, pushing the annual demand figure to 317,241 units in the 12-month period. This is about 20% higher than a typical annual absorption rate from the 2010s decade, the report noted. A combination of elements like continuing wage increases, solid job growth and favorable demographic trends is driving this surge in demand. Moreover, move-outs from apartment units into single-family homes remain much lower.

However, there were massive amounts of new supply, with 135,652 apartment units being completed in the first quarter, bringing the total number of new multifamily units delivered to 479,367 in the year-ending first quarter of 2024.

With supply outpacing demand, apartment occupancy averaged 94.1% nationwide as of March, down 0.6% year over year, though lower than typical but not significantly down. Apart from the occupancy rate, operators’ pricing power was also affected, with the first-quarter annual effective rent change being up 0.2% and the monthly effective rent change being north 0.4%. The average effective rent was $1,813.

Projections

MAA has a well-diversified Sunbelt portfolio, which is poised to benefit from healthy demand in its markets. The Sunbelt region is drawing attention for being business-friendly, lower-taxed and having low-density cities. Hence, this region is experiencing job growth and continued in-migration, which is driving demand for rental units.

MAA has also been investing in its existing properties to attract new tenants and retain current ones. The company has been upgrading its amenities and technology to meet the evolving needs of renters. These improvements are likely to support its occupancy rates and rental income.

Moreover, MAA continues to implement its three internal investment programs — interior redevelopment, property repositioning projects and Smart Home installations. The programs are expected to help the company capture the upside potential in rent growth, generate accretive returns and boost earnings from its existing asset base.

However, the struggle to lure renters will persist as supply volumes are expected to remain elevated in many Sunbelt markets. This is likely to affect the company’s power to raise the rent or increase occupancy.

Moreover, a high interest rate environment is a concern for MAA. Elevated rates imply a high borrowing cost for the company, which is likely to have affected its ability to purchase or develop real estate. For the first quarter of 2024, our estimate indicates a 23.2% year-over-year increase in the company’s interest expenses.

For the first quarter, we expect same-store property net operating income to remain unchanged year over year. Meanwhile, we project an average physical occupancy of 95.4%, slightly lower than the prior quarter’s 95.5%.

Per the March investor presentation, the same-store effective lease-over-lease average pricing growth for new leases was a decline of 5.5% for February compared with a decline of 6.2% for January and a fall of 7% for the fourth quarter. For renewals, it was up 5.2% in February compared with 5.1% in January and 4.8% in the fourth quarter.

Consequently, the blended lease rate declined 0.2% in February compared with a 0.3% fall in January and a 1.6% decline in the fourth quarter. The company also noted that the average daily physical occupancy was 95.2% in February compared with 95.4% in January and 95.5% in the fourth quarter.

The Zacks Consensus Estimate for quarterly revenues is pegged at $542.72 million. This suggests a 2.59% rise from the year-ago quarter’s reported figure.

MAA projected first-quarter 2024 core FFO per share in the band of $2.12-$2.28, with $2.20 at the midpoint.

Before the first-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO per share has been revised a cent downward to $2.23 in the past month. This also suggests a year-over-year decline of 2.19%.

Here Is What Our Quantitative Model Predicts:

Our proven model does not conclusively predict a surprise in terms of FFO per share for MAA this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.

MAA currently carries a Zacks Rank of 4 (Sell) and has an Earnings ESP of -0.17%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are two stocks from the broader REIT sector — Public Storage (PSA Quick QuotePSA - Free Report) and Invitation Homes Inc. (INVH Quick QuoteINVH - Free Report) — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

Public Storage is slated to report quarterly numbers on Apr 30. PSA has an Earnings ESP of +0.50% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Invitation Homes Inc. is scheduled to report quarterly numbers on Apr 30. INVH has an Earnings ESP of +0.77% and a Zacks Rank of 3 presently.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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.