Job And Population Growth Will Drive Apartment Demand In Austin, Atlanta, And Jacksonville Into 2027

Key Takeaways

• Declining new supply and high demand drivers like job growth and housing costs boost market rent growth and revenue potential.
  
• Technological enhancements and a robust growth pipeline promise improved operating margins and future earnings.
  
• External pressures from market competition, leadership changes, and high supply levels pose challenges to growth, earnings stability, and investment returns amid rising borrowing costs.

Catalysts

MAA, an S&P 500 company, is a real estate investment trust (REIT) focused on delivering full-cycle and superior investment performance for shareholders through the ownership, management, acquisition, development and redevelopment of quality apartment communities primarily in the Southeast, Southwest and Mid-Atlantic regions of the United States.

• MAA anticipates a significant decline in new supply deliveries starting this year, which should relieve leasing pressure and positively impact market rent growth across the portfolio into 2026 and 2027. This could lead to increased revenue.
  
• Job growth, population growth, and high single-family housing costs are expected to boost apartment demand, allowing MAA to capture higher market rents in its strategically chosen, high-demand markets. This should improve revenue growth.
  
• New technology initiatives aimed at enhancing resident services and operational efficiency are expected to improve operating margins and accelerate earnings over the next few years.
  
• MAA's external growth pipeline, which is larger than ever, serves as a catalyst for future earnings growth with developments expected to deliver NOI yields at stabilization significantly above current levels.
  
• Management expects that moderating supply pressure, combined with strong demand drivers and operational investments, will compound revenue performance, especially post-2025, thereby positively impacting earnings.

Mid-America Apartment Communities Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mid-America Apartment Communities's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 23.9% today to 20.2% in 3 years time.
• Analysts expect earnings to reach $501.9 million (and earnings per share of $4.71) by about March 2028, down from $523.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $576.4 million in earnings, and the most bearish expecting $447.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.9x on those 2028 earnings, up from 36.2x today. This future PE is greater than the current PE for the US Residential REITs industry at 46.0x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.75%, as per the Simply Wall St company report.

Mid-America Apartment Communities Future Earnings Per Share Growth

Risks

• The company faces ongoing pressure from record high levels of new supply in the apartment market, which may continue to impact leasing conditions and suppress revenue growth.
  
• There is uncertainty around the transition in leadership with the CEO succession, which could potentially lead to strategic shifts or execution challenges impacting overall earnings performance.
  
• The high level of competition in key markets, such as Austin, Atlanta, and Jacksonville, could continue to put pressure on rental pricing, potentially affecting revenue and net margins negatively.
  
• The reliance on external growth initiatives, like acquisitions and developments, which are subject to market conditions and integration risks, could impact the company's return on investment and earnings stability.
  
• Rising interest rates may increase borrowing costs for funding developments and acquisitions, potentially impacting net earnings if the cost of capital erodes margins on new projects.

Valuation

• The analysts have a consensus price target of $168.192 for Mid-America Apartment Communities based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $190.0, and the most bearish reporting a price target of just $149.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $501.9 million, and it would be trading on a PE ratio of 48.9x, assuming you use a discount rate of 6.8%.
• Given the current share price of $162.32, the analyst price target of $168.19 is 3.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.