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. As of the third quarter of 2020, occupancy was 95.6%, rental collections were 99.1%, and funds from operations (FFO) remained at the same level as Q3 2019. While year-to-date revenues and net operating income is slightly lower than 2019 levels, maintaining relatively the same operating capacity during such a volatile period is a significant 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. Share prices are still 15% below their pre-coronavirus high. The company has maintained 106 consecutive quarters of dividends, 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. It acquires, develops, owns, and manages 52,464 properties in select markets across 22 states. The company focuses a large portion of their portfolio on ground-up development featuring built-to-rent homes near highly desirable suburban areas.
The current shift in tenant preference to more spacious rental homes in less populated areas has been very profitable for the company. October 2020 achieved a record high-occupancy level of 97.2%, a 4.9% increase in rental rates, and a 96.3% collection rate. 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.
Which is the better buy today?
I really think American Homes 4 Rent shines when it comes to long-term growth opportunity and strength in the given market.
American Homes 4 Rent share prices have rebounded back to pre-coronavirus levels, meaning investors aren't getting discounts when it comes to buying, while achieving a return of less than 1%. Dividend increases aren't common for American Homes 4 Rent, despite their extremely low payout ratio. The company instead is focused on continued expansion, meaning patient investors looking for long-term growth should look to American Homes 4 Rent.
Mid-America Apartment Communities is somewhat of a value buy, as it hasn't fully recovered from the mid-March market crash, but there's still uncertainty for the future of apartments, which adds a layer of volatility in the short term. But in honesty, I believe both companies are worth buying right now, as they have great portfolios, solid financials, and operate in markets that are relatively resistant to the changing residential market.