Yahoo Finance Should You Retain Mid-America Apartment (MAA) in Your Portfolio?
Mid-America Apartment MAA is poised to benefit from its well-diversified Sun Belt-focused portfolio. The prospects of its redevelopment program and progress in technology measures are likely to drive margin expansion. A healthy balance sheet will support its growth endeavors despite an elevated supply of rental units and a high interest rate environment.
What’s Aiding MAA?
MAA’s portfolio is set to gain from healthy operating fundamentals. The pandemic accelerated employment shifts and population inflow into the company’s markets as renters sought more business-friendly, low-taxed and low-density cities. These favorable long-term secular dynamic trends are increasing the desirability of its markets.
The high pricing of single-family ownership units in a high interest rate environment continues to drive demand for rental apartments. Due to these positives, MAA is expected to continue maintaining a high level of occupancy in the upcoming period.
Our projection for average physical occupancy in 2024 is 95.6%. For 2025 and 2026, the average physical occupancy is expected to remain elevated at 95.9% and 96.0%, respectively. Our projections for total revenue growth point to a year-over-year increase of 1.7%, 2.9% and 6.1% in 2024, 2025 and 2026, respectively.
MAA continues to implement its three internal investment programs: interior redevelopment, property repositioning projects and Smart Home installations. These programs will likely 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.
MAA enjoys a solid balance sheet with low leverage and ample availability under its revolving credit facility. As of Mar 31, 2024, MAA had a strong balance sheet with $1.1 billion of combined cash and available capacity under its unsecured revolving credit facility. It also has a low Net Debt/Adjusted EBITDAre ratio of 3.6.
In the first quarter of 2024, it generated 95.8% unencumbered net operating income, providing the scope for tapping additional secured debt capital if required. Hence, the company is well-positioned to bank on growth opportunities.
Solid dividend payouts are arguably the biggest enticements for real estate investment trust (“REIT”) shareholders and MAA remains committed to the same. In the last five years, the company has increased its dividend seven times, and its five-year annualized dividend growth rate is 9.2%. Moreover, it has a lower dividend payout compared with the industry. Backed by healthy operating fundamentals, we expect its dividend distribution to be sustainable in the upcoming period.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 7.3% compared with the industry’s growth of 5.5%.
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What’s Hurting MAA?
The struggle to lure renters will persist as supply volumes are expected to remain elevated in certain markets. This phenomenon is expected to put pressure on rent growth in the upcoming period. Moreover, competition in the residential real estate market with various housing alternatives like manufactured housing, condominiums and the new and existing home markets is concerning. This affects the company’s power to raise rent or increase occupancy and leads to aggressive pricing for acquisitions.
Although the company’s robust development and redevelopment pipeline is encouraging for long-term growth, supply-chain constraints and inflationary pressure could lead to cost overruns and lease-up concerns. This is likely to weigh on the company’s profitability.
Elevated rates imply a high borrowing cost for the company, affecting its ability to purchase or develop real estate. It has a substantial debt burden, and its total debt as of Mar 31, 2024, was $4.62 billion. For 2024, our estimate indicates a 17.6% year-over-year increase in the company’s interest expenses.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Iron Mountain IRM and Lamar Advertising LAMR, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for IRM’s 2024 FFO per share has increased marginally upward over the past month to $4.44.
The Zacks Consensus Estimate for LAMR’s current-year FFO per share has moved 3.7% northward in the past two months to $8.03.
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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Iron Mountain Incorporated (IRM) : Free Stock Analysis Report
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Mid-America Apartment Communities, Inc. (MAA) : Free Stock Analysis Report