What happened

Shares of Mid-America Apartment Communities (MAA 0.64%) slumped 23.87% during the first half of 2022, according to data provided by S&P Global Market Intelligence. That was a slightly steeper slide than the S&P 500's 20.6% first-half decline. 

That downdraft came amid what was a strong first half for Mid-America. Here's a look at the factors affecting the real estate investment trust (REIT) this year.  

So what

Mid-America has reported excellent financial results so far this year. In February, the residential REIT reported its fourth-quarter results for 2021. The highlight was a 15.2% year-over-year increase in its core funds from operations (FFO) per share, driven by robust demand for apartments in the Sun Belt. 

Those strong market conditions continued in the first quarter, which the REIT reported in April. It delivered a 20.1% year-over-year increase in its core FFO, which was ahead of its expectations. The company continued to see strong demand for apartment housing, supporting solid rent growth, high occupancy, and low resident turnover. It expected those conditions to continue, leading it to boost its full-year expectations for core FFO. 

That outlook enabled the REIT to increase its dividend by 15% in mid-May. That followed a 6.1% dividend increase in December, marking the company's 12th consecutive annual dividend increase. 

Despite those strong financial results and market conditions, shares of Mid-America tumbled in the first half. That's mainly because of growing concerns that rent growth could slow due to the potential for a recession as the Federal Reserve raises interest rates to combat inflation.

Those worries led several analysts to reduce their price targets on Mid-America's stock in recent months. For example, in late June, Mizuho analyst Haendel St. Juste cut his target on the stock from $221 to $178 due to reduced expectations for rent growth next year. Meanwhile, Truist analyst Michel Lewis cut that bank's price target from $205 to $188 in June on concerns that a potential recession poses a risk to household formation, which could impact apartment demand. 

Now what

There's a lot of uncertainty in the market right now about what the future holds for the economy. If there's a recession, it could affect demand for apartments, likely cooling off red-hot rent growth.

However, the longer-term outlook for the apartment sector looks much brighter, especially in the Sun Belt, where Mid-America operates. More people continue to migrate to warmer and cheaper Sun Belt cities, which should keep occupancy levels high and rental rates rising, especially since there's still a significant housing shortage in the country.

Add to that Mid-America's development program, which will see the REIT complete five projects in the next few years and start four to six more in 2022, and it should be able to continue growing its core FFO at a healthy rate. With its shares now much cheaper, pushing its dividend yield up to 3%, the REIT looks even more attractive these days, given its long-term growth prospects.