Mid-America Apartment Communities
Mid-America Apartment Communities acquires, develops, owns, and manages 102,105 apartment communities in 16 states including Washington, D.C., and in the Southeast, Southwest, and mid-Atlantic regions of the United States. The majority of their properties are Class A and B garden-style or mid-rise apartments focused on middle- and upper-working-class tenants in top-tier markets like Jacksonville, Atlanta, Dallas, Tampa, and Phoenix.
Unlike other high-density or urban apartment REITs, Mid-America Apartment Communities has fared rather well despite COVID-19 challenges, largely because of their asset locations, tenant base, and business model, which focuses on improving existing properties to improve revenues rather than acquiring or developing new properties.
As of November 2020, their average occupancy was 95.6% while rental collections were 97.3%. Lease rates grew slightly, up 1.2% for Q3 2020, but year-to-date revenues and net operating income was slightly lower than 2019 levels. Maintaining relatively the same operating capacity during such a volatile period is a notable achievement.
Mid-America Apartment Communities is well-positioned financially, with $980 million in cash and cash equivalents and a 4.66x debt-to-EBITDA ratio with 4.3% of their debt balance sheet maturing in 2021. The company recently increased their dividend by 2.5%, making it their 11th consecutive annual dividend increase, which, at the time of this writing, nets around a 3% return for investors.
American Homes 4 Rent
American Homes 4 Rent is the largest single-family rental REIT that acquires, develops, owns, and manages 53,229 properties in select markets across 22 states. The company is expanding rapidly with emphasis on ground-up development communities featuring built-to-rent homes near highly desirable suburban markets.
The current migration trends in housing have benefited the company. As of October 2020, the average occupancy was 97.2% and rental collections for month end were 94%. Despite most other residential REITs seeing a decrease in rental rates over the past year, American Homes 4 Rent has achieved a 4.9% average blended rental increase. Funds from operations increased year to date when compared to the same time last year while revenues and total operating income increased when compared to the same quarter last year.
The company has a low debt-to-EBITDA of 4.2x, $315.8 million of cash and cash equivalents, and no debt maturities, other than recurring principal amortization, until 2024. The company recently announced the acquisition of 55 acres for the development of a 198 single-family rental community in Canton, Georgia, and completion of Celery Cove community in Sanford, Florida, a suburb of Orlando, adding an additional 37 homes to their portfolio.
Which is the better buy today?
Both companies have high-quality portfolios and operate in industries and markets that are thriving right now. And both markets are benefiting from the shift in demand and limited supply of housing, which will drive rental rates up higher over the next few quarters. That said, which is the better buy today will really depend on what you're looking to get out of the investment.
If you're a patient investor looking for long-term growth over short-term returns today, American Homes 4 Rent is the best bet in the given market. Their low dividend return means shareholders are banking on future appreciation and stock growth, which I believe the company can achieve.
Mid-America Apartment Communities has more risk exposure in the market today with a portion of its portfolio being located in high-density urban markets, which are experiencing slight increases in supply deliveries, thus lowering its rental rates and demand. But it compensates for that risk exposure with its dividend return and its share price, which hasn't fully recovered from the initial pandemic market crash. Both companies have strong portfolios and ample liquidity, making them a good addition to a portfolio.