Is it Prudent to Retain Mid-America Stock in Your Portfolio Now?

Mid-America Apartment MAA stands to benefit from its diversified portfolio concentrated in the thriving Sun Belt region. Robust in-migration of jobs and households in these markets, combined with the high cost of homeownership, is expected to sustain strong renter demand.The company's redevelopment initiatives and advancements in technology are poised to drive margin improvements, while its solid balance sheet provides a strong foundation for growth opportunities.However, increased rental unit supply in certain markets may heighten competition, limiting MAA’s ability to raise rents and tempering its growth momentum. Elevated interest expenses also remain a headwind.Last week, MAA reported fourth-quarter 2024 core funds from operations (FFO) per share of $2.23, which missed the Zacks Consensus Estimate of $2.24. The reported figure fell 3.9% year over year from $2.32. Results reflected a record level of new supply deliveries, though continued strong demand provided some support. However, the company witnessed low levels of resident turnover. The REIT also provided its initial outlook for 2025.What’s Aiding MAA?MAA’s portfolio is well-positioned to benefit from healthy operating fundamentals in the Sunbelt region. The pandemic spurred employment growth and population migration to the company’s markets, as renters favored business-friendly, low-tax and less densely populated cities. These favorable long-term trends have enhanced the appeal of its markets. The elevated cost of single-family homeownership, compounded by persistently high interest rates, continues to fuel demand for rental apartments. Against this backdrop, MAA is expected to sustain high occupancy levels in the near term.MAA remains focused on its three internal investment initiatives: interior redevelopments, property repositioning projects and Smart Home installations. In 2024, MAA redeveloped 5,665 apartment homes. As of Dec. 31, 2024, the company installed Smart Home technology in more than 96,000 units across its apartment community portfolio since the initiative began in the first quarter of 2019. These efforts are expected to capitalize on rent growth opportunities, deliver accretive returns and enhance earnings from the company's existing property portfolio.MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Dec. 31, 2024, MAA had $1.0 billion of combined cash and available capacity under its unsecured revolving credit facility. It also has a low net debt/adjusted EBITDAre ratio of 4. Its outstanding debt has an average maturity of 7.3 years as of Dec. 31, 2024. In the fourth quarter of 2024, it generated 95.5% unencumbered net operating income (NOI), providing the scope for tapping additional secured debt capital if required. Hence, the company is well-positioned to bank on growth scopes.Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and MAA remains committed to that. In the last five years, MAA has increased its dividend seven times, and its five-year annualized dividend growth rate is 10.70%. Moreover, it has a lower dividend payout compared with the industry. Backed by healthy operating fundamentals, we expect its dividend distribution to be sustainable in the upcoming period.What’s Hurting MAA?Although the market is witnessing early signs of recovery with better lease-over-lease rates on renewals, management expects supply pressures to ease only toward the end of 2025 and into 2026. Under the given circumstances, the struggle to lure renters will persist in the near term, as supply volumes are expected to remain elevated in some Sunbelt markets. This phenomenon is expected to put pressure on rent growth in the upcoming period. Moreover, increased competition in the residential real estate sector, including alternatives such as manufactured housing, condominiums, and the new and existing home markets, raises concerns. These factors weaken the company's ability to raise rents or improve occupancy rates and drive aggressive pricing in acquisitions.Although the Federal Reserve has implemented rate cuts in the latter half of 2024, interest rates remain elevated, posing challenges for MAA. Higher rates translate to increased borrowing costs, which could hinder the company's capacity to acquire or develop new real estate projects. The company has a substantial debt burden, and its total debt, as of Dec. 31, 2024, was $5 billion.Shares of this Zacks Rank #4 (Sell) company have risen 5% over the past month compared with the industry’s increase of 2.6%. However, the estimate revision trend for 2025 FFO per share does not indicate an upbeat outlook for this company, with estimates moving southward over the past week. Given the downward estimate revision, the stock has limited upside potential in the near term.Image Source: Zacks Investment ResearchStocks to ConsiderSome better-ranked stocks from the residential REIT sector are UMH Properties, Inc. UMH and Veris Residential VRE, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.The Zacks Consensus Estimate for UMH Properties’ 2024 FFO per share of 93 cents suggests an increase of 8.1% year over year.The Zacks Consensus Estimate for Veris Residential’s 2024 FFO per share has risen 7% over the past two months to 61 cents.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.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Mid-America Apartment Communities, Inc. (MAA): Free Stock Analysis Report UMH Properties, Inc. (UMH): Free Stock Analysis Report Veris Residential, Inc. (VRE): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks