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Mid-America Apartment (MAA) Q2 FFO Surpasses on Higher NOI

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Mid-America Apartment Communities, Inc. (MAA - Free Report) , commonly referred as MAA, reported second-quarter 2018 funds from operations (FFO) of $1.55 per share, handily surpassing the Zacks Consensus Estimate of $1.48. Further, the figure compares favorably with the prior-year tally of $1.48.

This residential REIT’s quarterly results reflect growth in same-store net operating income (NOI) and rise in average effective rent per unit for the same-store portfolio.

Rental and other property revenues came in at $390.1 million in the quarter, 1.9% higher than the prior-year tally. However, the figure marginally missed the Zacks Consensus Estimate of $390.2 million.

Quarter in Detail

During the reported quarter, the company’s same-store NOI increased to $224.2 million, recording 1.7% year-over-year growth

The same-store portfolio revenues inched up 1.5% as a result of an increase in average effective unit of 1.7%. Moreover, average physical occupancy for the same-store portfolio was 96%, reflecting a contraction of 10 basis points from the year-earlier quarter.

As of Mar 31, 2018, MAA held cash and cash equivalents of nearly $32.6 million, significantly up from $10.8 million as of Dec 31, 2017. Furthermore, as of the same date, around $920.1 million of combined cash and capacity were available under its unsecured revolving credit facility.

The Post Properties Merger

During second-quarter 2018, MAA incurred a total of 2 cents per share of merger and integration costs. Notably, the company expects full consolidation of MAA and Post Properties to be accomplished later this year. Additionally, MAA continues to project synergies of around $20 million in gross overhead costs to be realized from this merger.

Portfolio Activity

During the quarter under review, MAA purchased a new 374-unit multifamily apartment community — Sync36 — situated in Denver, CO.  The acquisition agreement, which the company signed in December 2017, was subject to the completion of the construction of phase I. The development of phase II is expected to start in third-quarter 2018.

It also sold a 29-acre land parcel in Las Vegas, for $9.5 million.

MAA completed the renovation of 2,239 units under its redevelopment program. Notably, it attained an increase in the average rental rate of 10.9%, above non-renovated units.

At the end of the April-June quarter, MAA had four development community projects under construction, with total projected cost of $219.8 million. Notably, an estimated $97.1 million remained to be funded as of Jun 30, 2018. Six properties, containing 1,833 units, continue to be in lease-up as well.

Outlook

MAA revised its guidance for 2018 FFO per share and expects it to be in the range of $5.96-$6.16 from the previous band of $5.85-$6.15. Currently, the company’s Zacks Consensus Estimate for the same is pegged at $6.

The FFO per share for the ongoing quarter is anticipated to be $1.45 to $1.55. The company’s Zacks Consensus Estimate for the same is $1.51.

Our Viewpoint

We are encouraged by the company’s efforts to achieve higher rents through its renovation program. Additionally, MAA remains poised for long-term growth, backed by well-balanced portfolio, which is diversified in terms of markets, submarkets and price points. Also, the integration of MAA and Post Properties is on track, and is anticipated to significantly improve the scale and capabilities of the former.

Nevertheless, lower occupancy at its properties can be tied to elevated supply in a number of the company’s markets. This is anticipated to taper its growth momentum in the near term. Also, intense competition from other housing alternatives limits the company’s ability to raise rents or increase occupancy.

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

Performance of Other REITs

Duke Realty Corporation’s (DRE - Free Report) Q2 core FFO per share of 33 cents came in line with the Zacks Consensus Estimate. Moreover, the figure came in a cent higher than the year-ago tally.

Iron Mountain Inc. (IRM - Free Report) reported second-quarter 2018 normalized FFO of 56 cents per share, beating the Zacks Consensus Estimate of 53 cents. The reported figure inched up 1.8% year over year.

Digital Realty Trust, Inc.’s (DLR - Free Report) June-end quarter’s core FFO per share of $1.66 outpaced the Zacks Consensus Estimate of $1.61. The figure also came in higher than the year-ago quarter tally of $1.54.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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