Three decades on from its listing as a public company, MAA (NYSE: MAA) remains committed to its original focus on the Sun Belt, a region that has propelled the REIT’s growth over the years. And while supply pressures have emerged, they are nothing new, says CEO Eric Bolton, who sees a range of factors combining to support steady demand for apartment housing in the years ahead.
Underpinned by its Sun Belt exposure, Tennessee-based MAA has grown from its IPO value of nearly $91 million in 1994 to an equity market capitalization of approximately $16 billion today. The company, a member of the S&P 500, owns 102,662 units across 16 states and the District of Columbia, making it the largest publicly traded apartment REIT in the U.S. based on the number of units.
For the past 30 years, MAA’s approach has been to stay a pure-play apartment REIT with strategic diversity in large and secondary markets primarily across the high-growth Sun Belt region. “We were in the Sun Belt before it became cool, and we’re in more markets across the region than any of our peers,” Bolton says.
While many other operators and investors were targeting coastal markets, MAA was locked in on high growth markets, giving the company a leg up on impending competition. “More recently, everybody has begun to appreciate the growth dynamics of this region, and we’ve seen a lot more competitors,” he adds.
Growth from Mergers
MAA’s strong performance and geographic focus has not gone unnoticed.
“Twenty years ago, the multiples that the Sun Belt apartment REITs commanded versus the coastal apartment REITs were about half,” says Alexander Goldfarb, senior REIT equity research analyst at Piper Sandler. “Over the past two decades, the Sun Belt apartment REITs have not only closed that gap, but sometimes will trade at a premium to the coastal apartment companies. That’s truly incredible, and it’s a testament to MAA for demonstrating that NOI growth, dividend growth, and NAV growth are independent of whether you’re located in Texas or California. It’s driven by your competitive position.”
MAA started as The Cates Co. in 1977, founded by the late George Cates. He took the company public under the name Mid-America Apartment Communities, raising $175 million from shareholders. Bolton joined MAA shortly after the IPO as vice president of development and then COO. He became CEO when Cates retired in 2001.
Bolton led two large-scale mergers to continue fueling growth. In 2013, MAA acquired competitor Birmingham, Alabama-based Colonial Properties Trust for $2.2 billion. The acquisition boosted MAA’s portfolio to 85,000 units in 285 properties across the Sun Belt.
Then in 2016, MAA acquired another competitor, Atlanta-based Post Properties Inc., in an all-stock deal valued at $3.8 billion. The combined portfolios boasted 317 properties totaling 105,000 units across the Sun Belt, creating an apartment dynamo. The deal further boosted MAA’s balance sheet, expanded its portfolio diversification, and brought development expertise in-house.
Delivery Pressure
While the Sun Belt market was red-hot for the past several years, it’s been cooling as record-high deliveries impact rent growth. However, demand drivers remain, says Brad Hill, MAA’s president and chief investment officer. MAA, he notes, is well-positioned to compete and fundamentals are expected to improve later this year, leading to enhanced rent growth and value.
“We’re seeing the demand side hold up well, whether it’s job growth, migration trends, low resident turnover, or new household formations renting apartments,” Hill explains. “Our strategy is to allocate our capital where we believe the highest demand will be over the long term.”
Periodically, Hill says, supply pressure can outpace demand, which typically lasts a few quarters.
“We saw new construction starts because of record levels of capital made available at very low interest rates,” Hill says. “We saw supply deliveries increase in the fourth quarter of 2023, and we’re still at that elevated level. We think that continues until mid-year, and then we should start to trend down the back half of this year into 2025 and 2026.”
Increased competition, meanwhile, resulted in a decline in new lease pricing. MAA’s new lease rates dropped 5.5% as of February. However, renewals were up 5.2%. Also, the portfolio saw record-low move-outs. Hill expects new lease pricing performance to improve as deliveries moderate. Renewals are expected to remain in the 4.5% to 5% range in 2024, at a time when MAA’s portfolio occupancy is 95.2%.
Mitigating Risk
For Bolton, supply issues are hardly a new speedbump.
“We’ve seen this supply story many times over the past 30 years,” Bolton says. “New supply is really just competition. As I tell investors and shareholders, I’ve never worried about supply pressure that comes from time to time. There are things that we can do to help mitigate that pressure for those few quarters when it weighs on performance.”
To mitigate risks, MAA intentionally bifurcates its portfolio between large-tier markets like Dallas and Atlanta and more mid-tier markets like Charleston and Greenville, South Carolina. Currently, 70% of its portfolio is in large markets and 30% is in mid-tier ones.
