Business Overview and History
Mid-America Apartment Communities, Inc. (NYSE:MAA) is a self-administered and self-managed 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 focus on high-growth markets and a diversified portfolio spanning 16 states and the District of Columbia, MAA has strategically positioned itself to capitalize on the robust demand for multifamily housing in the Sunbelt region.
Establishment and Growth
Established in 1977, MAA began as a small portfolio of apartment communities in Tennessee, steadily expanding its footprint across the Sunbelt over the past four decades. A key milestone for the company was its initial public offering on the New York Stock Exchange in 1994, which provided MAA with access to public capital markets to fund its growth initiatives. Throughout the 1990s and 2000s, the company continued to actively acquire and develop new apartment communities to expand its portfolio.
MAA has successfully navigated various challenges throughout its history. During the global financial crisis and recession in the late 2000s, the company faced softening apartment demand and occupancy levels. In response, MAA tightened its underwriting standards for acquisitions and new developments and enhanced its focus on operating efficiencies to weather the downturn. More recently, the company adapted quickly to the impacts of the COVID-19 pandemic by adjusting its operating procedures and resident engagement strategies, while also taking advantage of the low interest rate environment to refinance debt and strengthen its balance sheet.
Current Portfolio
Today, MAA owns and operates 293 apartment communities, comprising over 80,000 units, making it one of the largest publicly traded multifamily REITs in the country. This figure does not include development communities under construction as of September 30, 2024.
MAA's portfolio is diversified not only geographically, but also by asset type, with a mix of garden-style, mid-rise, and high-rise communities catering to a wide range of resident demographics and price points. This strategic diversification has been a key factor in the company's ability to weather market cycles and capitalize on evolving demand trends.
Financials
For the fiscal year ended December 31, 2023, MAA reported total revenue of $2.15 billion and net income of $567.83 million. The company's strong financial position is reflected in its investment-grade credit ratings and a comfortable debt-to-EBITDA ratio of 3.6x as of the end of 2023.
In the third quarter of 2024, MAA reported total revenue of $551.13 million, representing a year-over-year growth of 1.7%. Net income available for MAA common shareholders for the quarter was $114.27 million, an increase of 4.1% compared to the prior year period. The company's core funds from operations (FFO) for the quarter was $2.21 per share, surpassing the consensus estimate of $2.18 per share and exceeding the midpoint of their third quarter guidance by $0.05 per share.
MAA operates in two reportable segments: Same Store and Non-Same Store and Other. The Same Store segment, which represents apartment communities owned and stabilized for at least 12 months, generated $523.53 million in revenues for the third quarter of 2024, remaining flat compared to the prior year period. Net operating income (NOI) for this segment was $327.27 million, a decrease of 1.7% year-over-year. The relatively flat revenue performance was driven by a 0.4% decrease in average effective rent per unit, while average physical occupancy remained steady at 95.7%.
The Non-Same Store and Other segment, which includes recently acquired communities, developments, and other non-core assets, saw significant growth. This segment generated $27.59 million in revenues for the third quarter, a 48.9% increase from the prior year, with NOI growing by 24.8% to $12.30 million. This growth was primarily attributed to contributions from completed development projects and recently acquired properties.
On the expense side, total property operating expenses, excluding depreciation and amortization, increased by 6.2% to $211.56 million in the third quarter. Interest expense rose by 16.6% to $42.73 million, reflecting higher average debt balances and interest rates.
Looking ahead, MAA has reaffirmed its full-year 2024 core FFO guidance of $8.88 per share at the midpoint, while narrowing the range to $8.80 to $8.96 per share. The company has revised its same-store revenue growth projection to 0.5% at the midpoint and property operating expense growth to 3.75% at the midpoint. These adjustments maintain the original expectation for same-store NOI decline of 1.3%. The 2024 guidance includes an estimated $0.08 to $0.09 of storm clean-up costs, compared to the initial $0.01 included.
Liquidity
MAA maintains a strong liquidity position, which allows it to pursue growth opportunities and navigate market uncertainties. As of the most recent quarter, the company had $50.2 million in cash and cash equivalents and $755.5 million available under its revolving credit facility. The debt-to-equity ratio stood at 0.82, indicating a balanced capital structure. MAA's current ratio and quick ratio were both 0.06, reflecting the company's ability to meet its short-term obligations.
The company's investment-grade credit ratings provide access to favorable debt financing terms. Additionally, MAA has a well-laddered debt maturity schedule, which helps manage refinancing risk and provides flexibility in capital allocation decisions.
Development and Acquisitions
In addition to its robust operating portfolio, MAA has an active development pipeline, with eight projects currently under construction, totaling 2,762 units at an expected cost of $978 million. The company's development strategy focuses on high-growth Sunbelt markets, where it can leverage its local expertise and operational capabilities to drive strong returns.
MAA has also been selectively acquiring stabilized properties, with $270 million in acquisitions completed so far in 2024 at an average stabilized NOI yield of 5.9%. These acquisitions, typically off-market deals with merchant developers, allow the company to expand its presence in target markets and capitalize on its operational efficiencies.
Risks and Challenges
While MAA's diversified portfolio and disciplined approach have served it well, the company is not immune to the challenges facing the multifamily sector. Elevated new supply deliveries, particularly in certain high-growth markets, have put pressure on rental rates and occupancy. Additionally, rising interest rates and construction costs could impact the company's development activities and acquisition opportunities.
MAA also faces potential risks from extreme weather events, which can result in property damage and increased operating expenses. The company's concentration in the Sunbelt region, while a strength in terms of long-term demand trends, also exposes it to the effects of hurricanes and other natural disasters. This is reflected in the increased allocation for storm clean-up costs in the 2024 guidance.
Conclusion
Mid-America Apartment Communities' diversified portfolio, strategic market presence, and disciplined approach to operations and capital allocation have positioned the company well to navigate the current multifamily market environment. The company's ability to outperform its guidance in the third quarter of 2024 and maintain its full-year FFO projections demonstrates its resilience in the face of industry headwinds.
MAA's segmented approach, with its Same Store and Non-Same Store segments, allows for targeted growth strategies and efficient capital allocation. The strong performance of the Non-Same Store segment, driven by successful development and acquisition activities, highlights the company's ability to create value through strategic expansion.
While challenges persist, including pressure on same-store NOI and increased operating expenses, MAA's track record of resilience and its focus on high-growth Sunbelt markets make it a compelling investment opportunity for investors seeking exposure to the multifamily REIT sector. The company's strong liquidity position, coupled with its investment-grade credit ratings, provides a solid foundation for future growth and the ability to weather potential market uncertainties.