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

Mid-America Apartment MAA is poised to gain from a well-diversified, Sun Belt-focused portfolio. 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.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. 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. Our projection for average physical occupancy in 2025 is 95.8%.MAA remains focused on its three internal investment initiatives: interior redevelopments, property repositioning projects and Smart Home installations. In 2024, it redeveloped 5,665 apartment homes. As of Dec. 31, 2024, the company has 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.As of Dec. 31, 2024, under its repositioning program, the company had two active projects that are almost through the repricing phase, with net operating income (NOI) yields nearing 10%. These programs will help the company capture the upside potential in rent growth, generate accretive returns and boost earnings from its existing asset base.MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Dec. 31, 2024, the company 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. In the fourth quarter of 2024, it generated 95.5% unencumbered NOI. Moreover, with long-term credit ratings of A- (Stable outlook) from Fitch Ratings and Standard & Poor’s Ratings Services and A3 (Stable outlook) from Moody’s, the company enjoys access to debt at favorable rates.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 is expected to create pressure on rent growth in the upcoming period.Despite the Federal Reserve announcing rate cuts late in 2024, the interest rate is still high and is a concern for MAA. It has a substantial debt burden, and its total debt, as of Dec. 31, 2024, was $5 billion. For 2025, our estimate indicates a 10.8% year-over-year increase in the company’s interest expenses.Shares of this Zacks Rank #3 (Hold) company have risen 6.1% over the past three months, outperforming the industry’s growth of 3%. However, the estimate revision trend for 2025 FFO per share does not indicate an upbeat outlook for this company, with estimates moving marginally southward over the past week to $8.81. 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 Modiv Industrial, Inc. MDV and Elme Communities ELME. While MDV sports a Zacks Rank #1 (Strong Buy) at present, ELME carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Modiv Industrial’s 2025 FFO per share stands at $1.36, implying year-over-year growth of 1.5%.The Zacks Consensus Estimate for Elme Communities’ 2025 FFO per share is pegged at 95 cents, suggesting year-over-year growth of 1.1%.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.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>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 Modiv Industrial, Inc. (MDV): Free Stock Analysis Report Elme Communities (ELME): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks