Is A Hold Strategy Apt For Mid-America Apartment (MAA) Now?
Zacks Investment Research | Jul 08, 2019 07:46AM ET
Mid-America Apartment Communities (NYSE:MAA) , also known as MAA, is witnessing high demand for its apartment communities focused in the Sunbelt area. However, as high levels of new delivery supply are expected to sustain this year, the company’s pricing power might remain under pressure.
Stellar job growth and favorable tax structure in the Sunbelt region are attracting employers as well as driving favorable migration and household formation trends. This is also anticipated to spur demand for the company’s properties.
Further, growth of prime age groups for rentals and extension of the average age of first-time homeownership is escalating primary renter demand. This is expected to support the company’s leasing activity.
Additionally, strategic efforts over the past six years have enabled the company to own a well-balanced portfolio. Other than the company's merger with Post Properties, MAA focuses on value creation through its ongoing redevelopment program. In fact, for 2019, the company aims to invest $125-$175 million in multi-family property acquisitions and expects to redevelop a total of 7,500-8,500 units.
Moreover, MAA has sufficient financial muscle to pursue its growth plans. In fact, the company has a solid balance sheet, investment grade metrics, limited near-term maturities and enjoys lower leverage.
However, supply of new units remains elevated in a number of the company’s urban sub-markets. This high supply adversely impacts landlords’ capability to demand more rents and results in lesser absorption. It is likely to put pressure on rental rates and affect MAA’s revenue growth in the near term.
Further, geographic concentration of assets in the Southeast and Southwest regions of the United States is another concern for MAA. Therefore, the company’s performance is susceptible to any adverse development in the general economic conditions of these regions.
Additionally, stiff competition in the residential real estate market from various housing alternatives like manufactured housing, condominiums, and the new and existing home markets will likely dampen MAA’s performance. This is restricting the company’s power to raise rent or increase occupancy and will likely lead to aggressive pricing for acquisitions.
Shares of this Zacks Rank #3 (Hold) company have gained 27.7% compared with the Original post
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