There are several real estate investment trusts, or REITs, that specialize in multifamily residential properties, but the best-known examples are those that focus on high-cost urban apartment buildings. Mid-America Apartment Communities (NYSE: MAA), on the other hand, is one of the largest players in the segment, but it isn't quite as well known as some of its peers. Instead of focusing on Class A trophy apartment properties in expensive markets, Mid-America Apartments chooses to focus on high-quality but affordable apartments located in some of the fastest-growing markets in the United States.
In this article, we'll take a closer look at what Mid-America Apartments does, the company's recent developments, and how the company has performed for investors over the years.
Mid-America Apartment Communities company profile
First of all, the company's official name is now MAA. It was known as Mid-America Apartments for most of its history but recently made the change official. However, for our purposes, you'll hear it primarily referred to as Mid-America Apartments, since that's how most investors know it.
Mid-America Apartment Communities was founded in 1977 and officially became classified as a REIT in 1993. The company completed its initial public offering (IPO) in February 2004 and since that time has grown dramatically through a combination of organic growth and acquisitions.
As the name implies, Mid-America Apartment Communities is an apartment REIT, with most of its properties concentrated in the Sun Belt region. But that description doesn't do the company justice -- MAA is the largest operator of apartments in the United States. As of June 2021, the company operated about 300 apartment communities with more than 100,000 units. Top markets by rental income include:
One key point to know is that these are markets where there is generally above-average population growth, job growth, and wage growth. And these factors lead to above-average rent growth. According to Yardi Matrix Bulletin, rent in MAA's markets is expected to grow by 15.8% from 2021 through 2025, compared with 13.2% for non-MAA markets.
Another key point is that unlike some of the other largest apartment REITs, such as AvalonBay Communities (NYSE: AVB) and Equity Residential (NYSE: EQR), Mid-America offers apartments at a variety of price ranges, and its communities are generally more affordable. For example, the average rent on one of its Atlanta apartments (the company's largest market) is $1,473, just 21.5% of the average resident's income, a relatively low level of housing expenses.
MAA grows through a variety of strategies. These include acquisitions, both of individual properties and entire companies. For example, in 2013 MAA acquired Colonial Properties, and in 2016, MAA completed the acquisition of fellow apartment REIT Post Properties, a move that catapulted the company onto the S&P 500 index.
MAA also grows through development, both by building new properties from the ground up and by adding value to its existing properties. As of mid-2021, MAA sees an opportunity to redevelop 12,000 of its apartment properties to maximize their income potential. The company is investing heavily in smart home technology and internet infrastructure that should add significant value to its properties.
Additionally, MAA is currently developing seven new apartment communities that will add a total of 2,259 new apartment units to its portfolio. And the company is expected to start several more projects this year, including one in Salt Lake City, a new market for MAA.
Mid-America Apartments has a rock-solid balance sheet and an investment-grade credit rating. Its debt level is very low for a REIT, with more than 78% of its total capitalization in the form of equity. And with nearly $750 million of available liquidity, the company has the flexibility to pursue new opportunities as they arise.
Mid-America Apartment Communities news
By far, the biggest news item affecting most real estate stocks recently is the COVID-19 pandemic. But it didn't have as much impact on MAA’s business as you might expect.
In fact, in the second quarter of 2020 -- the height of the pandemic lockdowns -- MAA's core funds from operations (FFO) increased by about 4% year over year, and same-store property revenue was more than 2% higher than in the same quarter in 2019. Second-quarter rent collection and agreed deferments accounted for 99.4% of billed second-quarter rent, and occupancy remained strong. In a nutshell, there were quite a few REITs that took a hit as the pandemic started, including several apartment REITs, but MAA wasn't one of them.
Over the past few years, MAA has done a great job of growing its business. FFO (the REIT version of "earnings") has grown very steadily for the past five years, including in 2020. And the company has done a good job of growing the dividend over time, with the current payout nearly double the level in 1995, the REIT's first full year as a public company.
Mid-America Apartment Communities stock price
Mid-America Apartments was founded in 1977 and went public in 1994, so we have quite a bit of history to look at. The short version is that the stock has been a very strong performer over the years.
Since its IPO, Mid-America's stock price has gained 770%, but this doesn't even tell the full story. Keep in mind that REITs are designed to be total return investments, with long-term returns coming from a combination of dividends and stock price appreciation. And throughout its history, Mid-America has been a pretty solid dividend stock -- it currently yields about 2.2% -- but has yielded significantly more throughout most of its history.
So, when we look at total returns, Mid-America's performance has been very impressive for long-term investors. Since the early 1994 IPO, Mid-America Apartments has returned a staggering 4,220%, handily outperforming the 1,530% total return of the S&P 500 during the same period. This is about 15% on an annualized basis, and it means that investors who were fortunate enough to invest at the time of the IPO would have turned a $10,000 investment into more than $430,000.
With that in mind, here's a look at how Mid-America Apartments has performed versus the S&P 500 over certain time periods: