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Factors to Impact Mid-America Apartment (MAA) Q4 Earnings

Zacks Equity Research

Mid-America Apartment Communities, Inc. MAA — commonly known as MAA — is slated to report fourth-quarter and full-year 2019 results on Jan 29, 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) reported a negative surprise of 1.29% in terms of FFO per share. Nonetheless, 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 two occasions, missed in one and met in the other, the average positive surprise being 1.66%. 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 fourth-quarter 2019 FFO per share, projected at $1.59-$1.67. For 2019, the company estimates FFO per share in the range of $6.46-$6.54. Further, the outlook for adjusted FFO per share is $5.82-$5.90.

Let’s see how things are shaping up for MAA prior to this announcement.

Factors at Play

Following a robust prime leasing season in 2019, the U.S. apartment rental market put up a decent show in the December-end quarter, despite demand for apartments generally slowing down during the colder months as renters usually prefer less to move in winters.

Per the latest report from real estate technology and analytics firm RealPage, Inc. RP, occupancy at the end of fourth-quarter 2019 remained as high as 95.8%, reflecting an expansion of 40 basis points (bps), year on year. Moreover, rents for new-resident leases were up 2.8% in 2019, hovering around the 3% level that the apartment market has been witnessing since late 2016.

Demand for MAA’s portfolio is likely to remain higher in the quarter under review as well, with strong job growth across the company’s Sunbelt markets. Also, positive demographic trend, supported by growth of prime age groups for rentals, and migration of population to the Sunbelt, are expected to have fueled household formation and apartment rental demand in its markets, leading to healthy trends in rent growth.

Also, a significant change in lifestyle has taken place and life-cycle events are getting delayed. This is leading to an extension of the average age of first-time homeownership. The young-adult age cohort has also experienced a considerable part of the net job growth and is helping boost primary renter demand. 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 period under consideration.

Therefore, with a diversified portfolio across the region, both in terms of sub-markets and price point, MAA is anticipated to have benefited from upbeat trends in the December-end 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 fourth-quarter 2019 revenues is pinned at $416 million, calling for a year-over-year improvement of 4.5%.

However, the struggle to lure renters is likely to have continued in the October-December 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.

MAA’s activities during the to-be-reported quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the fourth-quarter 2019 FFO per share has been marginally revised downward to $1.63, over the last seven days. Nevertheless, the figure indicates a year-over-year increase of 5.2%. For 2019, the Zacks Consensus Estimate for FFO per share has been revised marginally south to $6.50, though it still indicates projected growth of 7.6% year on year on revenues of $1.64 billion.

Here is what our quantitative model predicts:

MAA does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Earnings ESP: The Earnings ESP for MAA is -0.53%.

Zacks Rank: MAA currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

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:

Apartment Investment and Management Company AIV, slated to release fourth-quarter earnings on Jan 30, has an Earnings ESP of +0.77% and carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boston Properties, Inc. BXP, set to report quarterly numbers on Jan 28, has an Earnings ESP of +1.08% and carries a Zacks Rank of 2, currently.

AvalonBay Communities, Inc. AVB, scheduled to release October-December quarter results on Feb 5, has an Earnings ESP of +0.46% and currently holds 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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