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.

However, an elevated supply of rental units in some markets will fuel competition and curb pricing power, restricting MAA’s rent growth momentum to an extent. High interest expenses add to its woes.

In December 2024, the residential REIT increased its quarterly cash dividend on its common stock to $1.515 per share from $1.47 per share paid out earlier, marking a hike of 3.1% on its annualized dividend payment.

What’s Aiding MAA?

MAA’s portfolio is set to gain from healthy operating fundamentals in the Sunbelt market. 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 still high interest rate environment continues to drive the demand for rental apartments. Amid 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 95.5%. 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 continues to implement its three internal investment programs — interior redevelopment, property repositioning projects and Smart Home installations. These programs are likely to 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 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 eight times, and its five-year annualized dividend growth rate is 10.48%. Moreover, it has a lower dividend payout compared with the industry. Further, backed by healthy operating fundamentals, we expect its dividend distribution to be sustainable in the upcoming period.

Year to date, shares of this Zacks Rank #3 (Hold) company have risen 11.1%, outperforming the industry’s growth of 4.9%.

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What’s Hurting MAA?

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

Despite the Federal Reserve announcing rate cuts recently, 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. 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 REIT sector are Equity Lifestyle Properties ELS and Veris Residential VRE, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Equity Lifestyle Properties’ current-year FFO per share has been raised marginally over the past two months to $2.92.

The Zacks Consensus Estimate for Veris Residential’s current-year FFO per share has been raised by four cents over the past week to 61 cents.

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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