Mid-America Apartments: 2024 Will Be Tough, But Things Should Improve Beyond

Core Viewpoint - Mid-America Apartment Communities (MAA) is a high-quality apartment REIT with a strong balance sheet and a history of dividend increases, but faces challenges due to oversupply in the Sunbelt market leading to declining rents and vacancies [1][2][3] Short to Medium-Term Prospects (2024-2025) - MAA's performance is closely tied to the Sunbelt market, which is experiencing high levels of new A-Class apartment supply, with new deliveries expected to be 5.5% of the current stock in 2024 compared to 2.1% in Coastal markets [5][6] - High tenant turnover and increased vacancies, particularly in Atlanta and Austin, have led to a nationwide apartment vacancy rate of 6.7%, with Austin experiencing a 5.7% year-over-year decline in rents [7][8] - Management has guided for a negative NOI growth of -1.3% in 2024, reflecting cautious expectations for the upcoming year [9][10] Long-Term Outlook (2025 and Beyond) - Post-2025, supply is expected to decline sharply as building permits have decreased significantly from their peak in 2021, indicating a slowdown in new residential developments [11][12] - Demand for rental properties is anticipated to remain strong due to wage growth outpacing rent growth and the rising unaffordability of homeownership, with the average new mortgage payment being over 50% higher than comparable rents [15][16] - Substantial rent growth of over 5% is expected to return to the Sunbelt after 2025, driven by reduced supply and sustained demand [18] Financial Projections - The consensus forecasts a 4.6% decline in FFO for 2024, followed by modest growth in 2025 and 2026, with potential for upside if conditions improve post-2025 [20] - The current implied cap rate is at 6.7%, with expectations for it to decline, potentially leading to a price upside of 27% over the next three years [21][23]