Residential real estate is having a moment. Insane home price growth over the past two years has forced would-be homebuyers to stay in the rental market, which in turn has sent rental prices soaring. In 2021, rental prices increased 13.5%, the biggest gain on record and more than double any prior year. However, certain markets and regions of the country are experiencing growth rates even higher than the national average. The Sun Belt in particular is growing at a rapid pace, and rent in some cities in the region rose as much as 24%.
This is great news for Mid-America Apartment Communities (MAA -1.97%) one of the premier multifamily REITs, which owns 102,772 apartment units in 16 states, mostly in the Sun Belt. The company just released its full-year results for 2021, and it saw explosive growth. Is now the time to invest?
Finishing 2021 off strong
Mid-America Apartment Communities had a tremendous year. Unprecedented demand for rental housing in its primary markets helped the average rent per unit grow 10.7% for the full year. In turn, this pushed revenue up 5.5%, net operating income (NOI) rose 6.2%, and core funds from operations (FFO) increased 9%. This exceptional year prompted Mid-America to increase its dividend by 6%.
To really show how impressive these results are, AvalonBay (AVB -0.44%), one of the largest residential REITs by market cap, saw a decline in revenues, FFO, and average rental rate per unit for the full year of 2021. Rental demand is up across the board as occupancy levels for the two REITs remain identical, but it's clear the Sun Belt is leading the way, allowing Mid-America to achieve this stunning growth.
What's really impressive is that the company accomplished this with 1,165 fewer units in its portfolio than at year-end 2020. Over the past year, Mid-America sold seven properties in noncore markets for total gross proceeds of $285 million. It continued its redevelopment program, which improves existing units to generate higher market rents. This contributed to a 12% increase in rental rates for the 1,368 units completed in the fourth quarter of 2021. And it currently has six developments underway as we enter 2022. Its occupancy rate is strong at just over 96%.
Is now the time to buy?
Despite the strong performance, market volatility has pushed Mid-America shares down more than 7% year to date. This discount may seem like it's a prime time to buy, but it's important to note that the company's price is still 30 times FFO, which means it is rather richly valued.
Mid-America Apartment Communities was one of the hottest residential REITs to buy in 2021. Its emphasis on the Sun Belt and mix of urban and suburban apartments gives investors exposure to high-growth markets backed by high-quality assets, which helped drive the shares up 81% last year. That said, returns for investors and explosive growth are nowhere near done.
Rental demand in Mid-America's markets isn't showing signs of slowing as home prices continue to rise and the housing shortage lingers on. Until the market softens, I think investors should be prepared to pay a slight premium for a company like Mid-Atlantic. In that case, this minor price decline might be an ideal time to pick up shares at a slight discount, because I don't see the stock staying down for long.