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Factors to Impact Mid-America Apartment (MAA) Q3 Earnings

Zacks Equity Research

Mid-America Apartment Communities, Inc. MAA — commonly known as MAA — is slated to report third-quarter 2019 results on Oct 30, after the market closes. The company’s results will likely reflect year-over-year growth in both 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) delivered a positive surprise of 2.61% in terms of FFO per share. Results reflected growth in same-store net operating income (NOI) and rise in average effective rent per unit for the same-store portfolio.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions and met in the other two, the average positive surprise being 1.99%. 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

MAA has provided its guidance for third-quarter 2019 FFO per share, projected at $1.51-$1.59.

Notably, the U.S. apartment market has put up an impressive performance in the past few months, successfully banking on the stellar rental-unit demand. While occupancy is hovering at a near-record level, rents continue to register a steady rise.

Per the latest report from real estate technology and analytics firm, RealPage, occupancy reached 96.3% as of third-quarter 2019, with an impressive leasing activity. The figure is not only up from the prior-year period’s 95.9%, but is also close to the all-time high of 96.4% attained almost two decades ago in late 2000. The warmer months witness an uptick in apartment leasing activity. However, this year, the performance was robust, as demand was particularly strong.

With an uptick in occupancy, rent growth also seems to be steady. For new leases, rents were up 1.2% during the third quarter, driving the annual rent growth pace to 3% and monthly rents averaging $1,416.

Particularly, solid job growth across the company’s Sunbelt markets has kept demand for MAA’s portfolio higher, with the trend likely to have continued in the quarter under review as well. Also, positive demographic trend, supported by growth of prime age groups for rentals and migration of population to the Southeast and Southwest, is expected to have spurred household formation and apartment rental demand in its markets. This is likely to have resulted in higher trends in rent growth in the third quarter.

Therefore, with a diversified portfolio across the region, both in terms of sub-markets and price point, MAA is anticipated to have benefited from the upbeat trends in the September-end quarter.

Also, amid stellar demand for rental units, move outs for the same-store portfolio are expected to have remained at a low level in the quarter. Moreover, MAA’s redevelopment program that entails interior upgrades is anticipated to have attracted renters. These upgrades provide the residential REIT with higher pricing power, thereby driving top-line growth.
 
In fact, the Zacks Consensus Estimate for third-quarter 2019 revenues is pinned at $411.3 million, calling for a year-over-year improvement of 3.6%. Furthermore, MAA’s activities during the to-be-reported quarter were adequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the third-quarter 2019 FFO per share has been marginally revised upward to $1.55, over the last 60 days. The figure also indicates a year-over-year increase of 3.3%.

Nevertheless, the struggle to lure renters might have continued in the July-September quarter, as supply volumes were high in a number of the company’s markets. Elevated supply curtails landlords’ ability to command more rent and result in lesser absorption. Such an environment is estimated to have resulted in aggressive rental concessions and moderate pricing power of landlords, thereby curbing any robust growth momentum of the company.

Here is what our quantitative model predicts:

Our proven model does not conclusively 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 odds of a FFO 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.

Although MAA carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

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:

Stag Industrial, Inc. STAG, scheduled to release earnings on Oct 30, has an Earnings ESP of +3.30% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Simon Property Group, Inc. SPG, slated to report third-quarter results on Oct 30, has an Earnings ESP of +0.28% and a Zacks Rank of 3.

Apartment Investment and Management Company AIV, set to release quarterly numbers on Oct 31, has an Earnings ESP of +0.6% and carries a Zacks Rank of 3, currently.

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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