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Mid-America Apartment (MAA) Q1 FFO Lags Estimates, Revenues Beat

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Mid-America Apartment Communities (MAA - Free Report) reported first-quarter 2024 core funds from operations (FFO) per share of $2.22, which missed the Zacks Consensus Estimate of $2.23. Moreover, the reported figure fell 2.6% year over year from $2.28.

Although this residential REIT experienced growth in the average effective rent per unit for the same-store portfolio, its quarterly results reflect a fall in the occupancy level and high supply across its markets. The company also experienced an increase in operating expenses, real estate taxes and insurance and interest expenses year over year.

Rental and other property revenues were $543.6 million, which surpassed the Zacks Consensus Estimate of $541.8 million. The reported figure was 2.8% higher than the year-ago quarter’s nearly $529.0 million.

Per Eric Bolton, the chairman and chief executive officer of MAA, "Performance trends and Core FFO results for the first quarter were in line with our expectations reflecting the impact of new supply deliveries across a number of markets.  We enter the busy summer leasing season well positioned with stable occupancy, high leasing traffic, low resident turnover, and strong collections performance.  With continued solid demand and the resulting steady absorption of the new supply pipeline, we continue to believe that the decline in new supply deliveries expected late this year and into 2025 will fuel a strong and quick rebound in rent performance.”

Quarter in Detail

The same-store portfolio’s revenues grew 1.4% on a year-over-year basis due to a rise of 1.5% in the average effective rent per unit.

However, the average physical occupancy for the same-store portfolio in the first quarter declined 20 basis points year over year to 95.3%. Our expectation for the same was pegged at 95.4%.

As of Mar 31, 2024, resident turnover remained historically low at 44.4% on a trailing 12-month basis. This stemmed from historically low levels of move-outs related to buying single-family homes. Same-store portfolio operating expenses increased 5.4%.

During the first quarter, new lease pricing declined 6.2%, denoting an 80-basis point improvement sequentially. However, the rise in renewal lease pricing remained steady, increasing 5%, representing a 20-bps improvement sequentially. As a result, there was a decrease of 0.6% for both new and renewing lease pricing on a blended basis in the first quarter of 2024. This marked a 100-bps improvement sequentially.

Moreover, the same-store net operating income (NOI) reflected a year-over-year decline of 0.7%. Our expectation for the same was pegged at 0.0%.

During the first quarter, the company experienced an 8.8% increase in operating expenses, excluding real estate taxes and insurance. Moreover, real estate taxes and insurance were up 7.3% year over year. MAA also witnessed an 8.3% year-over-year jump in interest expenses.

Portfolio Activity

In the first quarter of 2024, MAA redeveloped 1,099 apartment units. As of Mar 31, 2024, MAA completed the installation of Smart Home technology in more than 94,000 units across its apartment community portfolio. This move provided an increase in the average effective rent per unit of around $25 since the initiative started during the first quarter of 2019.

As of Mar 31, 2024, MAA had five communities under development, with a total projected cost of $647.3 million and an estimated $201.7 million remaining to be funded. The projected average stabilized NOI yield on the three in progress development communities and one recently completed development community that is currently being leased is 6.5%.

Balance Sheet Position

MAA exited the first quarter of 2024 with cash and cash equivalents of $54.6 million, up from $41.3 million recorded as of Dec 31, 2023.

As of Mar 31, 2024, MAA had a strong balance sheet with $1.1 billion in combined cash and capacity available under its unsecured revolving credit facility. Also, it had a Net Debt/Adjusted EBITDAre ratio of 3.6.

As of the same date, the total debt outstanding was $4.6 billion. Its total debt average years to maturity was 7.2 years. As of Mar 31, 2024, unencumbered NOI was 95.8% of the total NOI.

2024 Guidance

This residential REIT revised its guidance for 2024 core FFO per share and now expects it in the range of $8.70-$9.06, with the midpoint remaining unchanged at $8.88, compared with the $8.68-$9.08 range guided earlier.  The Zacks Consensus Estimate for the same is currently pegged at $8.92 and lies within the range.

For 2024, management anticipates same-store property revenue growth of 0.15-1.65%, and operating expense growth is projected between 4.10% and 5.60%. As a result, the same-store NOI growth is anticipated between negative 2.80% and 0.20%. Average physical occupancy for the same-store portfolio is guided in the range of 95.4-96.0%, with the midpoint being 95.7%.

MAA projects second-quarter 2024 core FFO per share in the band of $2.11-$2.27, with $2.19 at the midpoint. The Zacks Consensus Estimate of $2.23 lies within the range.

MAA currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Residential REITs

Equity Residential (EQR - Free Report) reported a first-quarter 2024 normalized FFO per share of 93 cents, which surpassed the Zacks Consensus Estimate of 91 cents. The rental income of $730.8 million also beat the consensus mark of $729.8 million. On a year-over-year basis, the normalized FFO per share grew 6.9% from 87 cents, with rental income climbing 3.6%.

Equity Residential’s results reflected decent same-store performances, backed by healthy demand, modest supply and a focus on expense efficiency. The company also experienced the lowest quarterly same-store turnover in its history. Presently, EQR carries a Zacks Rank #3 (Hold).

AvalonBay Communities (AVB - Free Report) reported a first-quarter 2024 core FFO per share of $2.70, which beat the Zacks Consensus Estimate of $2.64. Moreover, the figure climbed 5.1% from the prior-year quarter’s tally. Total revenues in the quarter came in at $712.9 million, which outpaced the Zacks Consensus Estimate of $706.6 million. The figure increased 5.7% on a year-over-year basis.

The quarterly results of AvalonBay Communities reflect better-than-expected performance in the stabilized portfolio. This residential REIT also raised its 2024 core FFO per share, same-store residential revenue and net operating income (NOI) growth outlook following the Q1 FFO beat. Currently, AVB carries a Zacks Rank of 3.

UDR Inc. (UDR - Free Report) reported first-quarter 2024 funds from operations as adjusted (FFOA) per share of 61 cents, in line with the Zacks Consensus Estimate. Quarterly rental income was $411.7 million, which outpaced the Zacks Consensus Estimate of $408.6 million and came ahead of the year-ago quarter’s $398.3 million. Total revenues came in at $413.6 million. On a year-over-year basis, FFOA per share climbed 1.7%. Rental income and total revenues rose 3.4% and 3.5%, respectively.

Results of UDR reflected an increase in revenues from same-store communities and growth from past accretive external investments. However, a rise in property operating and maintenance and interest expenses acted as dampeners. UDR raised certain full-year 2024 guidance ranges. Presently, UDR carries a Zacks Rank #3.

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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