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MAA Q3 FFO Tops Estimates, Revenues Miss, Outlook Raised

Mid-America Apartment Communities, Inc. MAA, commonly referred as MAA, reported third-quarter 2017 funds from operations (FFO) of $1.50 per share, beating the Zacks Consensus Estimate of $1.47. The figure also came in 2% higher than the prior-year quarter tally.

This residential REIT’s quarterly results reflected growth in same-store property net operating income (NOI) and rise in average effective rent per unit for the same-store portfolio.

Total operating revenues came in at $384.6 million in third-quarter 2017, higher than the prior-year quarter tally by 38.9%. However, the figure missed the Zacks Consensus estimate of $386.6 million.

Mid-America Apartment Communities, Inc. Price, Consensus and EPS Surprise

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share.

Quarter in Detail

During the reported quarter, combined adjusted same-store NOI inched up 0.8% compared with the prior-year quarter due to 1.7% growth in revenues and a 3.2% rise in operating expenses. However, excluding the expenses related to hurricanes, combined adjusted same-store NOI was up 1.8% compared with the year-ago quarter.

In the large market, 1.4% growth in revenues and a 2.6% increase in expenses resulted in the company’s NOI to be up 0.7%. Again, in the secondary market, a 2.4% rise in revenues and 4.8% increase in expenses led to 1% growth in NOI.

The quarter witnessed 2.1% year-over-year increase in average effective rent per unit. Further, during the quarter, average physical occupancy for the same-store portfolio was 96.1%, lesser than the year-earlier quarter figure of 96.3%.

As of Sep 30, 2017, MAA held cash and cash equivalent of $47.9 million, up from $33.5 million as of Dec 31, 2016. Furthermore, as of the same date, around $795.4 million of combined cash and capacity was available under its unsecured revolving credit facility.

The Post Properties Merger

MAA incurred merger costs of $0.1 million for the company’s merger with Post Properties, Inc., which primarily comprised severance, legal, professional and advisory costs.

Other Portfolio Activities

During the third quarter, the company did not go for any property acquisitions. As of Sep 30, 2017, MAA had five development projects underway.

However, during the reported quarter, MAA sold three wholly owned communities for an aggregate price of $88.4 million, realizing a net gain of $59 million on the sale. Following the dispositions in Montgomery, AL, and Lakeland, FL, MAA exited these two markets.

2017 Outlook

MAA projects 2017 FFO per share to be in the range of $5.84-$5.94, up from its prior guidance. Currently, the Zacks Consensus Estimate for the 2017 FFO is $5.92. For fourth-quarter 2017, the FFO per share is anticipated to be in the band of $1.4-$1.5. At present, the Zacks Consensus Estimate for the fourth-quarter FFO is $1.51.

Our Viewpoint

MAA’s well-diversified portfolio and focus on the Sunbelt region enables the company to maintain a dynamic mix of properties. This cushions the company from economic downturn in any particular market. Nonetheless, new supply in higher price-point locations is expected to dampen rent growth. 

Currently, MAA carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of the company have gained 6.5% year to date, outperforming 6.6% growth registered by the industry it belongs to.

We now look forward to the earnings releases of other real estate investment trusts (REITs) like Ventas, Inc. VTR, Boston properties, Inc. BXP and Essex Property Trust, Inc.ESS. While Ventas will release earnings on Oct 27, Boston Properties and Essex Property are slated to report their numbers on Nov 1.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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