Why Hold Strategy Is Apt For Mid-America (MAA) Stock Now

On Jan 15, we issued an updated research report on Mid-America Apartment Communities (NYSE:MAA) , commonly known as MAA. The company has a well-balanced portfolio and its focus on making strategic investments augur well. Further, growing demand for residential units in its footprint and balance sheet strength should keep its growth momentum alive.

However, concentration of operations in certain markets is a concern for MAA. Also, competition with other players and hike in interest rates add to its woes.

MAA maintains a well-balanced, diverse portfolio with presence in around 39 Metropolitan Statistical Areas (MSAs), located in the Southeast and Southwest regions of the United States. The portfolio is diversified in terms of markets, submarkets, product types and price points. This shields the company from economic downturn in any particular market, choppiness in any product-type or assets belonging to specific price points.

Moreover, strong job growth in the core markets has kept demand for MAA’s portfolio alive. Over the long run, positive demographic trends, supported by the growth of prime age groups for rentals and immigration, as well as migration of population to the Southeast and Southwest, are likely to give a boost to apartment rental demand in its markets.

The company has been experiencing strong demand for apartments since 2016 and expects a further boost in 2018. This is evident from higher occupancy and effective rent per unit. Management also noted that job growth in the company’s operating markets of Austin and Dallas for 2017 compared favorably with the national average.

Driven by such initiatives, analysts are optimistic about the prospects of the company. The stock has seen the Zacks Consensus Estimate for 2017 funds from operations (FFO) per share going up marginally over the last 60 days. Also, this Zacks Rank #3 (Hold) stock gained 2.7% in 2017 compared with 2.5% rise for the industry.

On the flip side, MAA’s operations are largely concentrated on the Southeast and Southwest regions of the United States. In fact, as of Dec 31, 2016, around 40% of the total portfolio of the company was located in the top five markets of Atlanta, Dallas, Austin, Charlotte and Tampa. Therefore, performance of the company has a high chance of being affected by the general economic conditions of these regions.

Further, there is stiff competition in the residential real estate market with various housing alternatives like single-family housing, manufactured housing, condominiums and new and existing home markets. This curtails the company’s power to raise rent or increase occupancy.

Stocks That Warrant a Look

Rexford Industrial Realty (NYSE:REXR) has witnessed an upward earnings estimate revision of nearly 1% for 2018 in the last 60 days. Also, its shares have gained 19.8% in the past 12 months. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for American Tower Corporation (NYSE:AMT) for 2018 has been revised upward marginally over the last 60 days. Also, its shares have moved up 26.4% in 12 months’ time. It carries a Zacks Rank #2.

NexPoint Residential Trust’s (NYSE:NXRT) Zacks Consensus Estimate for 2018 has been marginally revised upward over the last 60 days. Its shares have gained 14.8% in the past 12 months. It carries a Zacks Rank #2.

Note: All EPS numbers presented in this write up represent FFO per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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