Factors to Impact Mid-America Apartment's (MAA) Q1 Earnings

Mid-America Apartment Communities, Inc. MAA — commonly known as MAA — is slated to report first-quarter 2021 results on Apr 28, after market close. While the company’s results will likely reflect growth in quarterly revenues, funds from operations (FFO) per share are expected to reflect a year-over-year decline.

In the last reported quarter, this Germantown, TN-based residential real estate investment trust (REIT) reported a surprise of 0.61% in terms of FFO per share. The quarterly results reflected growth in occupancy and average effective rent per unit for the same-store portfolio.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on all occasions, the average beat being 1.93%. This is depicted in the chart below:

MidAmerica Apartment Communities, Inc. Price and EPS Surprise


MidAmerica Apartment Communities, Inc. Price and EPS Surprise

MidAmerica Apartment Communities, Inc. price-eps-surprise | MidAmerica Apartment Communities, Inc. Quote

Let’s see how things have shaped up for the announcement.

Factors to Consider

For the U.S. apartment market, the first quarter, which typically remains a slow leasing period in other years, appeared to be solid this time, with impressive demand for rental units. Owing to employment growth, which spurs household formation and housing absorption, the demand for 52,661 apartments was registered across the country’s 150 largest metros in the quarter, per a report from the real estate technology and analytics firm RealPage RP.

This figure is well ahead of the year-ago volume of 29,657 units. Also, first-quarter 2021 demand for rental residential units is more than double the average first-quarter demand of about 25,200 units witnessed in the past 10 years. Considering that the first quarter comprises the cold weather months that affect leasing activity, this year’s performance is a notable one. In fact, this healthy demand has been the most noticeable in the Sun Belt metros. Demand also remained impressive in the suburban ones.

The occupancy level was encouraging in March, though the rent results have been mixed. Particularly, March occupancy came in at 95.5% in the United States’ 150 largest metros. This suggests stability. Notably, the occupancy level has been somewhere between 95.2% and 95.8% since late 2019. Considering that the world has been battling a pandemic in the meantime, the stability is encouraging.

Moreover, the U.S. apartment rents moved up in the first three months of 2021, with a 0.2% increase in January and 0.6% in February, prior to the 0.7% rise in March.

Amid these, we note that a suburban Sun Belt portfolio has been beneficial for MAA's in the first quarter. These markets are expected to have witnessed inbound migration of jobs as people continue to flee from dense urban and expensive coastal cities to pro-business, lower-taxed, more affordable Southeast and Southwest ones.

Further, wider vaccine coverage and notable government stimulus are expected to have driven job recovery in first-quarter 2021. This is expected to have enhanced the attractiveness of MAA markets, thereby, spurring the primary renter demand and leasing across its footprint.

During January and February, blended pricing growth for leases compared with the prior lease at the company’s same-store portfolio improved to 2.2% and 2.4%, respectively, from 1.3% reported in 2020.

Additionally, a high-quality resident profile has resulted in solid collection performance, even amid the pandemic. In fact, the company noted strong rent collections in January.

The residential REIT has been focusing on redevelopment initiatives and smart-home installations. In 2020, the company executed unit interior upgrades at more than 4,200 units, enabling it to achieve average rent growth of 9.5%.  In the to-be-reported quarter, the company is likely to have continued to enjoy higher rents at its redeveloped properties.

Also, as of February 2021, average physical occupancy for the same-store portfolio was 95.6%, remaining flat with 2020.

However, the company expects the first quarter to be its lowest revenue growth for 2021 due to the effects of 2020's dismal lease pricing performance. This is anticipated to have limited revenue growth.

The Zacks Consensus Estimate for quarterly revenues is pegged at $423.9 million, suggesting a year-over-year rise of 1.4%.

Moreover, mortgage rate continued to remain low in the first quarter. This has increased the demand for existing and new-home purchases mainly for young age cohorts, where homeownership rates have started to shoot up. In the quarter under discussion, this is expected to have resulted in a higher resident turnover and move-outs to buy single-family homes, thereby, straining occupancy and same-store revenues.

Same-store revenues are projected to be $397 million, indicating a marginal sequential decline.

Further, new supply of residential properties has remained elevated. This is likely to have impacted MAA’s capability to demand more rents and has likely resulted in lesser absorption, particularly at apartment communities located in the urban submarkets. This is expected to have marred rental rates growth.

In fact, prior to the first-quarter earnings release, there is a lack of any solid catalyst for becoming optimistic about the company’s prospects as the Zacks Consensus Estimate for the FFO per share has been unchanged at $1.61 over the past month. Further, it suggests a year-over-year decline of 0.6%.

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.

MAA currently has a Zacks Rank #3 and an Earnings ESP of -1.16%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are some stocks in the REIT sector you may want to consider, as our model shows that these have the right combination of elements to report a surprise for the first quarter:

CubeSmart CUBE, slated to release quarterly numbers on Apr 29, has an Earnings ESP of +3.14% and a Zacks Rank of 3 at present.

Welltower, Inc. WELL slated to release quarterly earnings on Apr 28, currently has an Earnings ESP of +0.93% and a Zacks Rank of 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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MidAmerica Apartment Communities, Inc. (MAA): Free Stock Analysis Report
RealPage, Inc. (RP): Free Stock Analysis Report
CubeSmart (CUBE): Free Stock Analysis Report
Welltower Inc. (WELL): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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