Mid-America Apartment's (MAA) Q1 FFO Lags, Revenues Up Y/Y

Mid-America Apartment Communities, Inc. (NYSE:MAA) , commonly referred as MAA, reported first-quarter 2018 funds from operations (FFO) of $1.44 per share, missing the Zacks Consensus Estimate of $1.46. Further, the figure compared unfavorably with the prior-year quarter tally of $1.46.

This residential REIT’s quarterly results reflected growth in same-store net operating income (NOI) and rise in average effective rent per unit for the same-store portfolio.

Rental and other property revenues came in at $386 million in the first quarter, 1.9% higher than the prior-year quarter tally. Further, the figure marginally surpassed the Zacks Consensus Estimate of $385 million.

Quarter in Detail

During the reported quarter, the same-store NOI increased to $225.4 million, recording growth of 1.9% compared with the prior-year quarter.

The same-store portfolio revenues grew 1.8% as a result of an increase in average effective unit of 1.4%. Further, average physical occupancy for the same-store portfolio was 96.3%, reflecting an expansion of 30 basis points from the year-earlier quarter.

As of Mar 31, 2018, MAA held cash and cash equivalents of nearly $59.7 million, significantly up from $10.8 million as of Dec 31, 2017. Furthermore, as of the same date, around $607.2 million of combined cash and capacity were available under its unsecured revolving credit facility.

The Post Properties Merger

During first-quarter 2018, MAA incurred a total of 3 cents per share of merger and integration costs. Notably, the company expects full consolidation of MAA and Post Properties to be accomplished later this year. Additionally, MAA continues to project expected synergies of around $20.0 million in gross overhead costs to be realized from the merger.

Portfolio Activity

In first-quarter 2018, MAA completed developing Post River North located in Denver, CO, containing 359 units. Five properties, including Post River North, continued to be in lease-up as well.

During the quarter under review, MAA purchased a newly developed property situated in Denver, CO. However, it is still in its initial lease-up. The acquisition agreement, which the company entered in December 2017, was subject to the completion of the construction of phase I. The development of phase II is expected to start late in 2018.

MAA completed the renovation of 1,781 units under its redevelopment program. Notably, it attained an increase in the average rental rate of 9.7%, above non-renovated units.

At the end of the first quarter, MAA had two multi-family projects under development (578 units), with total projected cost of $125.8 million. Notably, an estimated $24.4 million remained to be funded as of Mar 31, 2018.

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Outlook

MAA reiterated its guidance for 2018 FFO per share and expects it to be in the range of $5.85-$6.15. Currently, the company’s Zacks Consensus Estimate for the 2018 FFO per share is $6.01.

For second-quarter 2018, the FFO per share is anticipated to be $1.43-$1.53. The company’s Zacks Consensus Estimate for the second-quarter FFO per share is $1.47.

Our Viewpoint

MAA remains poised for long-term growth, backed by well-balanced portfolio, which is diversified in terms of markets, submarkets and price points. Also, the integration of MAA and Post Properties is on track, and is anticipated to significantly improve the scale and capabilities of the former.

Nevertheless, elevated supply in a number of the company’s markets is anticipated to taper its growth momentum in the near term. Further, intense competition from other housing alternatives limits the company’s ability to raise rents or increase occupancy. Also, hike in interest rate adds to its woes.

MAA currently has a Zacks Rank #4 (Sell).

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Written By: Zacks Investment Research