Mid-America Apartment MAA stands to benefit from its diversified portfolio concentrated in the thriving Sun Belt region. Robust in-migration of jobs and households in these markets, combined with the high cost of homeownership, is expected to sustain strong renter demand.

The company's redevelopment initiatives and advancements in technology are poised to drive margin improvements, while its solid balance sheet provides a strong foundation for growth opportunities.

However, increased rental unit supply in certain markets may heighten competition, limiting MAA’s ability to raise rents and tempering its growth momentum. Elevated interest expenses also remain a headwind.

Shares of this Zacks Rank #3 (Hold) company have risen 3.8% over the past six months, against the industry’s decline of 3.3%.

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What’s Aiding MAA?

MAA’s portfolio is well-positioned to benefit from healthy operating fundamentals in the Sunbelt region. The pandemic spurred employment growth and population migration to the company’s markets, as renters favored business-friendly, low-tax and less densely populated cities. These favorable long-term trends have enhanced the appeal of its markets. The elevated cost of single-family homeownership, compounded by persistently high interest rates, continues to fuel demand for rental apartments. Against this backdrop, MAA is expected to sustain high occupancy levels in the near term.

Our projection for average physical occupancy in 2024 is 95.5%. For 2025 and 2026, the average physical occupancy is expected to remain elevated at 95.8% and 95.9%, respectively. While we anticipate a 1.8% increase in total revenues for 2024, the metric will rise 2.6% and 4% year over year in 2025 and 2026, respectively.

MAA remains focused on its three internal investment initiatives: interior redevelopments, property repositioning projects and Smart Home installations. These efforts are expected to capitalize on rent growth opportunities, deliver accretive returns and enhance earnings from the company's existing property portfolio.

MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Sept. 30, 2024, MAA had $805.7 million of combined cash and available capacity under its unsecured revolving credit facility. It also has a low net debt/adjusted EBITDAre ratio of 3.9. In the third quarter of 2024, it generated 95.8% unencumbered net operating income (NOI), providing the scope for tapping additional secured debt capital if required. Hence, the company is well-positioned to bank on growth scopes.

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 seven times, and its five-year annualized dividend growth rate is 10.70%. 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.

What’s Hurting MAA?

The challenge of attracting renters is likely to continue in the near future, as supply levels are expected to stay high in several Sunbelt markets. This trend is anticipated to affect rent growth in the coming period. Moreover, increased competition in the residential real estate sector, including alternatives such as manufactured housing, condominiums, and the new and existing home markets, raises concerns. These factors weaken the company's ability to raise rents or improve occupancy rates and drive aggressive pricing in acquisitions.

Although the Federal Reserve has recently implemented rate cuts, interest rates remain elevated, posing challenges for MAA. Higher rates translate to increased borrowing costs, which could hinder the company's capacity to acquire or develop new real estate projects. The company has a substantial debt burden, and its total debt as of Sept. 30, 2024 was $4.9 billion. For 2024, our estimate indicates a 19.1% year-over-year increase in the company’s interest expenses.

Stocks to Consider

Some better-ranked stocks from the residential REIT sector are Equity Lifestyle Properties ELS and UMH Properties, Inc. UMH, 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 Equity Lifestyle Properties’ 2024 FFO per share has been raised marginally over the past three months to $2.92.

The Zacks Consensus Estimate for UMH Properties’ 2024 FFO per share of 93 cents suggests an increase of 8.1% year over year.

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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