Mid-America Apartment Communities (MAA +0.11%), one of the premier real estate investment trusts (REITs) specializing in leasing apartments, has had an impressive run over the past year. Share prices are up 72% year over year, nearly triple the S&P 500's growth. The market is definitely paying attention to this stock, but it's not the only reason people are talking about MAA. Here's a closer look at what makes this company an exciting investment today.
Prime Sun Belt exposure
The pandemic has changed nearly every facet of life as we know it. But the ability to work from home remains one of the most significant changes we're navigating through. This newfound freedom of remote work has allowed countless families to reassess where and how they live, seeking alternative housing in warmer, more affordable climates. This migration toward the Sun Belt, which is the southern region of the United States, is a major reason Mid-America Apartment Communities is thriving.
Nearly all of Mid-America Apartments' portfolio is located in the Sun Belt, putting it in a prime position to profit from this inward migration. Blended rental growth in October 2021 was up over 16%, and occupancy is sitting at 95.6%. This strong performance is undoubtedly fueled by record demand from rental real estate in the markets MAA operates in, which isn't likely to subside any time soon.
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Unique growth opportunities
Besides its Sun Belt exposure, its business model makes MAA stand out. Unlike most other apartment REITs, MAA doesn't focus solely on ground-up development or operating exclusively in one setting (such as urban core or suburbs). Instead, it has a diversified portfolio of garden, mid-rise, and high-rise apartments in urban and suburban areas, primarily serving middle-income earners, a stable and high-demand demographic for rental units.
The company also focuses on improving its existing units to drive growth. Right now, it has around 15,000 units identified for renovations. Over the past three years, the company has completed improvements on 21,000 units, providing a 9%-10% increase in rental rates for those units. Additionally, the company does have a development program to help further expand its portfolio presence, which as of the third quarter of 2021, had eight active developments and one planned.
Apartment demand is through the roof right now as people attempt to combat the rapidly rising home prices. Its likely rates will cool in some areas in the future, but markets seeing increased migration, as the Sun Belt, should continue to heat up. The company is well-positioned financially with a strong balance sheet, having $29 million in cash and cash equivalents, a debt-to-EBITDA ratio of 4.6, which is well below the REIT sector average of 5.8, with its next major debt maturity coming due in 2023. More than 99% of the debt has a fixed interest rate, with the average cost of borrowing being 3.4%. Given the company's growth prospects and unique exposure to the booming Sun Belt, it's clear to see why everyone is talking about this REIT.
