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Factors Driving Mid-America Apartment's (MAA) Q1 Earnings

Zacks Equity Research

Mid-America Apartment Communities, Inc. MAA — commonly known as MAA — is slated to report first-quarter 2020 results on May 6, after market close. The company’s results will likely reflect year-over-year growth in revenues as well as funds from operations (FFO) per share.

In the last reported quarter, this Germantown, TN-based residential real estate investment trust (REIT) reported a positive surprise of 3.07% in terms of FFO per share. Further, same-store net operating income (NOI) growth and rise in average effective rent per unit for the same-store portfolio supported year-over-year improvement in rental and other property revenues.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions, and missed in the other, the average positive surprise being 2.43%. This is depicted in the chart below:

Mid-America Apartment Communities, Inc. Price and EPS Surprise
 

Mid-America Apartment Communities, Inc. Price and EPS Surprise

Mid-America Apartment Communities, Inc. price-eps-surprise | Mid-America Apartment Communities, Inc. Quote

Factors at Play

Though the coronavirus pandemic jeopardized the latter half of the January-March period, first-quarter 2020 commenced on a positive note, with a resilient economy and decent job-market strength. Therefore, the pandemic’s impact on real estate fundamentals is likely to be more pronounced in the second quarter than in the first.

Usually, demand for apartments slows down during the colder months as renters usually do not prefer to move in winters. However, a report from real estate technology and analytics firm RealPage, suggests otherwise. Going by the report, the U.S. apartment rental market’s performance in February was steady with national apartment occupancy in the month remaining at 95.5%, in line with the January figure but up 30 basis points (bps) from the year-ago number. Rent growth of 2.9% was also in line with the three-year average.

With a well-diversified portfolio in terms of markets, submarkets, product types and price points across the Southeast and Southwest regions of the United States, The favorable numbers posted by the U.S rental apartment market are indicative of MAA’s encouraging performance in the January-March period.

Additionally, the company is expected to have continued its redevelopment initiatives and smart-home installations across its existing asset base. This is expected to have generated higher average rental rate growth and boostedits top line. Notably, the Zacks Consensus Estimate for first-quarter 2020 revenues is pinned at $418 million, suggesting a year-over-year improvement of 4.18%.

Late in March, providing an update relating to the coronavirus outbreak, the company’s announced that it expects first-quarter results to be in line with estimates provided with fourth-quarter results. Further, until Mar 24, 2020, the company had same-store average physical occupancy of 95.7%. Moreover, management noted that the company’s balance-sheet position has remained strong in the quarter, given low leverage levels, substantial capacity from undrawn credit lines and limited debt maturities.

However, relentless supply of rental apartments in a number of the company’s markets has been concerning as it curtails landlords’ ability to command more rent and result in lesser absorption. Such an environment is expected to have resulted in aggressive rental concessions and hindering MAA’s pricing power in the quarter under review. This is likely to have impacted the company’s top-line growth.

Lastly, the Zacks Consensus Estimate for the company’s first-quarter 2020 FFO per share has remained unchanged at $1.60 over the past month. Nevertheless, the figure indicates a year-over-year increase of 1.27%. For first-quarter 2020, MAA expects core FFO per share of $1.53-$1.65.

Here is What Our Quantitative Model Predicts

Our proven model does not predict a positive surprise in terms of FFO per share for MAA this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a beat. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

MAA currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.98%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Extra Space Storage Inc. EXR, slated to release first-quarter earnings on May 6, has an Earnings ESP of +0.21% and carries a Zacks Rank of 3 at present.

SBA Communications Corporation SBAC, set to report quarterly numbers on May 5, currently has an Earnings ESP of +0.67% and a Zacks Rank of 3.

Americold Realty Trust COLD, expected to release earnings results on May 7, currently has an Earnings ESP of +9.74% and a Zacks Rank #3.

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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