Shares of Mid-America Apartment MAA, which is commonly known as MAA, have rallied 8.4% so far in the year, outperforming the industry's growth of 3.2%.

MAA is poised to gain from a well-diversified, Sun Belt-focused portfolio. The company's redevelopment initiatives and advancements in technology are expected to drive margin improvements. Its solid balance sheet provides a strong foundation for growth opportunities, despite an elevated supply of rental units and high interest expenses remaining as concerns.

However, before hastily deciding to buy this stock or book profits, it’s important to evaluate whether this REIT has the growth potential to sustain its dividend payments and to check whether the current concerns could significantly affect the company's long-term performance. Let’s delve deeper.

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Is MAA's Growth and Dividend Built to Last?

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. 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 2025 is 95.8%.

MAA remains focused on its three internal investment initiatives — interior redevelopments, property repositioning projects and Smart Home installations. In 2024, it redeveloped 5,665 apartment homes. As of Dec. 31, 2024, the company has installed Smart Home technology in more than 96,000 units across its apartment community portfolio since the initiative began in the first quarter of 2019.

As of Dec. 31, 2024, under its repositioning program, MAA had two active projects that are almost through the repricing phase, with net operating income (NOI) yields nearing 10%. These programs will help the company capture the upside potential in rent growth, generate accretive returns and boost earnings from its existing asset base.

MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Dec. 31, 2024, MAA had $1.0 billion of combined cash and available capacity under its unsecured revolving credit facility. It also has a low net debt/adjusted EBITDAre ratio of 4. Its outstanding debt has an average maturity of 7.3 years at an effective rate of 3.8% as of Dec. 31, 2024. In the fourth quarter of 2024, it generated 95.5% 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 past 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.

Key Challenges to Weigh Before Investing in MAA Stock

The struggle to lure renters will persist in the near term, as supply volumes are expected to remain elevated in some Sunbelt markets. This is expected to put pressure on rent growth in the upcoming period. 

Furthermore, 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 as well as leads to aggressive pricing for acquisitions.

Despite the Federal Reserve announcing rate cuts late in 2024, the interest rate is still high and is a concern for MAA. Elevated rates imply a high borrowing cost for the company, which will affect its ability to purchase or develop real estate. MAA has a substantial debt burden, and its total debt, as of Dec. 31, 2024, was $5 billion. For 2025, our estimate indicates a 10.8% year-over-year increase in the company’s interest expenses.

Moreover, the recent estimate revisions do not indicate a bullish outlook for MAA, with the Zacks Consensus Estimate for 2025 core funds from operations (FFO) per share being revised marginally downward over the past month to $8.81. MAA currently has a Zacks Rank #3 (Hold). 

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Welltower Inc. WELL and Cousins Properties Incorporated CUZ. Welltower and Cousins Properties each carry 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 Welltower’s 2025 FFO per share is pegged at $4.93, which indicates year-over-year growth of 14.1%.

The Zacks Consensus Estimate for Cousins’ 2025 FFO per share is pegged at $2.79, which implies a year-over-year increase of 3.7%.

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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This article originally published on Zacks Investment Research (zacks.com).

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