Factors to Impact Mid-America Apartment's (MAA) Q3 Earnings

Mid-America Apartment Communities, Inc. MAA — commonly known as MAA — is slated to report third-quarter 2020 results on Oct 28, after market close. While the company’s results will likely reflect marginal growth in funds from operations (FFO) per share, revenues might display a decline, year over year.

In the last reported quarter, this Germantown, TN-based residential real estate investment trust (REIT) reported a surprise of 3.25% in terms of FFO per share. The quarterly results reflected growth in same-store net operating income (NOI) and rise in average effective rent per unit for the same-store portfolio.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions, and missed in the other, the average beat being 1.57%. 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 this announcement.

Factors to Consider

The U.S. apartment leasing activity rebounded during the third quarter, mainly driven by an increase in leasing activity in the Sun Belt region. It also indicates the occurrence of job growth after the slump earlier this year, which facilitated new household formation reappearance in a number of markets.

Per the latest report from real estate technology and analytics firm RealPage RP, across the 150 largest U.S. markets, the occupied apartment count climbed 146,517 units, on net, during the September-end quarter. This marks the largest third-quarter demand figure since before the Great Recession. Moreover, product absorption pace in the quarter under review was more than four times the minimal demand for about 34,000 apartments recorded in the second quarter, according to the report.

However, this bouncing back has not been uniform. Though the Sun Belt markets staged a recovery, a number of gateway markets suffered net move-outs during the to-be-reported quarter, and urban core neighborhoods still struggled.

Remarkably, MAA has a well-diversified portfolio in terms of markets, sub-markets, product types and price points across the Southeast and Southwest regions of the United States. This is likely to have provided support to this Sunbelt-focused apartment REIT in generating operating cash flows during the period in discussion. For the past few quarters, MAA has also been focusing on smart-home installations and interior redevelopment initiatives to generate accretive returns and boost earnings from its existing asset base.

For MAA, per its September 2020 Capital Markets Update presentation, strong cash collections continued into August, while rent deferral requests are declining. The August rent cash collections of 98.6% on the last day of the month compared favorably with the 98.3% recorded at month end for July rents billed and the 97.1% at month end for June rents billed. High quality resident profile, along with affordable rents, has likely resulted in a solid collection performance for MAA.

Moreover, as of Aug 31, same-store pricing and occupancy was healthy. Average physical occupancy improved to 95.7% in August from 95.4% in July as well as in the second quarter. Also, average pricing growth (lease over lease) for signed leases was 1.8% in August, up from 1.1% in July and 0.3% in the second quarter.

However, the overall rental demand has been affected and amid this, use of concessions is likely to be rampant. These negatives are likely to have slightly hurt growth tempo of MAA in the third quarter.

The Zacks Consensus Estimate for quarterly revenues is pinned at $414.1 million, suggesting a year-over-year decline of 0.4%.

Prior to the third-quarter earnings release, analysts seem to have become optimistic about the company’s prospects as the Zacks Consensus Estimate for the FFO per share moved two cents north to $1.54 over the past month. It also calls for a year-over year increase of 0.7%.

Here is what our quantitative model predicts:

Our proven model predicts 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 chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

MAA carries a Zacks Rank #3 and has an Earnings ESP of +0.54%.

Other Stocks That Warrant a Look

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these too have the right combination of elements to report a positive surprise this quarter:

EastGroup Properties, Inc. EGP, slated to release third-quarter earnings on Oct 27, has an Earnings ESP of +0.43% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Storage Affiliates Trust NSA, scheduled to report quarterly numbers on Nov 5, currently has an Earnings ESP of +4.88% and carries 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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