Mid-America Apartment Communities, Inc. (NYSE: MAA) is a self-administered real estate investment trust (REIT) that owns, operates, acquires, and selectively develops apartment communities primarily located in the Southeast, Southwest, and Mid-Atlantic regions of the United States. With a strong focus on high-growth Sun Belt markets, MAA has built a diversified portfolio of 290 apartment communities, including five development communities under construction, as of March 31, 2023.
Business Overview
MAA's portfolio spans 16 states and the District of Columbia, providing exposure to a range of markets with favorable long-term demographic and economic trends. The company's apartment communities include a mix of garden-style, mid-rise, and high-rise properties, catering to a diverse resident base across various price points. This diversification helps mitigate exposure to economic issues in any one geographic market or area.
MAA's strategy centers on maintaining a well-balanced portfolio that includes both urban and suburban locations, allowing the company to capitalize on the strong demand for apartments in its markets. The company's high-growth Sun Belt markets, such as the Washington, D.C. metro area, Houston, and Nashville, have continued to demonstrate resilience, while several of MAA's mid-tier markets, including Savannah, Richmond, Charleston, and Greenville, have also outperformed the broader portfolio.
Financials
For the full year 2023, MAA reported annual net income of $552.8 million, annual revenue of $2.15 billion, annual operating cash flow of $1.14 billion, and annual free cash flow of $597.8 million. In the first quarter of 2024, the company achieved net income available for MAA common shareholders of $142.8 million, a 5.8% increase compared to the first quarter of 2023, and total revenue growth of $14.6 million, representing a 2.8% increase in property revenues.
The company's Same Store segment generated a 1.4% increase in revenues for the first quarter of 2024, primarily driven by average effective rent per unit growth of 1.5% compared to the first quarter of 2023, partially offset by lower average physical occupancy. The increase in property revenues from the Non-Same Store and Other segment was primarily the result of increased revenues from completed development communities and recently acquired communities.
Property operating expenses, excluding depreciation and amortization, increased by 8.2% in the first quarter of 2024 compared to the first quarter of 2023, driven by a 5.4% increase in the Same Store segment. This increase was primarily driven by higher real estate tax expense, personnel expense, office operations expense, insurance expense, and utilities expense.
Guidance and Outlook
MAA is reaffirming the midpoint of its core FFO guidance for the year, while slightly tightening the full-year range to $8.70 to $9.06 per share. The company is also maintaining its same-store as well as other key guidance ranges for the year.
Management remains optimistic about the company's ability to navigate the current supply cycle within its high-growth markets, which they believe have the ability to absorb new supply in a steady manner. With new supply deliveries expected to begin tapering later this year, and demand trends remaining stable, the company is confident that leasing conditions should recover quickly and begin improving in early 2025.
Geographic Breakdown
MAA's apartment communities are located across 16 states and the District of Columbia, providing geographic diversification and exposure to high-growth Sun Belt markets. The company's larger markets, such as the Washington, D.C. metro area and Houston, continue to perform well, while several of its mid-tier markets, including Savannah, Richmond, Charleston, and Greenville, have also outperformed the broader portfolio.
The company's diversification between larger and mid-tier markets helps balance performance through the cycle. For example, the improving performance of a market like Nashville, which is receiving a significant amount of new supply, demonstrates the benefit of submarket diversification along with market diversification.
Liquidity
As of March 31, 2023, MAA had a strong balance sheet with $1.1 billion of combined cash and available capacity under its unsecured revolving credit facility. The company's leverage remains low, with a net debt-to-EBITDA ratio of 3.6x. Approximately 95% of the company's outstanding debt was fixed-rate as of the end of the first quarter, with an average maturity of 7.2 years and an effective rate of 3.6%.
During the first quarter of 2024, MAA issued $350 million of 10-year public bonds at an effective rate of 5.1%, using the proceeds to pay down its outstanding commercial paper. The company has an upcoming $400 million debt maturity in June 2024 with an effective rate of 4%, and the next scheduled bond maturity is in the fourth quarter of 2025.
Development and Redevelopment
MAA continues to make progress on its development pipeline, with five active development communities under construction as of March 31, 2023, totaling 1,970 apartment units once complete. The company expects to complete three of these developments in the second half of 2024 and the remaining two in 2025.
In addition to its active development projects, MAA has a pipeline of 10 well-located sites that it either owns or controls, representing the potential for an additional 2,800 units. The company remains disciplined in its approach, maintaining optionality on when to start these projects to align with the expected strong leasing environment supported by lower supply.
MAA also continues to invest in its redevelopment, repositioning, and smart home installation programs, which are expected to produce solid returns and enhance the quality of the company's existing portfolio.
Risks and Challenges
While MAA's diversified portfolio and strong operating platform position the company well to navigate the current supply cycle, the company faces several risks and challenges:
- Elevated supply levels in certain markets, which could continue to pressure new lease pricing and occupancy.
- Competition from various housing alternatives, such as manufactured housing, condominiums, and the new and existing home markets.
- Supply chain constraints and inflationary pressures, which could lead to cost overruns and lease-up concerns for the company's development projects.
- Rising interest rates, which could impact the company's ability to acquire or develop real estate and increase its borrowing costs.
Conclusion
Mid-America Apartment Communities, Inc. is a well-positioned REIT with a diversified portfolio of apartment communities in high-growth Sun Belt markets. The company's strong operating platform, healthy balance sheet, and strategic development and redevelopment initiatives position it for continued growth and value creation. While the company faces some near-term challenges from elevated supply levels and rising interest rates, its long-term outlook remains positive, supported by favorable demographic and economic trends in its target markets.