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Portfolio Update

Second-Quarter Lessons for the Second Half of the Year

By Roger S. Conrad, on Aug. 13, 2015

The apartment-focused REIT grew its core funds from operations 15 percent from year-ago levels, while net operating income from properties that the trust has owned for at least one year surged 7.5 percent, fueled by a 4.7 percent uptick in average rents.

In the spring, Mid-America Apartment Communities also acquired properties in Richmond, Virginia, and Scottsdale, Arizona, and completed construction on an expansion project in Nashville, Tennessee. The REIT also broke ground on new developments in Charleston, South Carolina, and Orland, Florida.

A policy of rigorous portfolio management resulted in the sale of 21 properties, transactions that raised $345.3 million in cash and generated a 14.1 percent return on invested capital. Renovations to 2,432 units also translated into an average rent increase of 10.2 percent.

These robust second-quarter results prompted management to lift its full-year target for core funds from operations to between $5.25 and $5.41 per share—a considerable increase from the previous range of $5.09 to $5.33.

Mid-America Apartment Communities earns an A quality grade because its low-risk portfolio of multi-unit residential properties generates steady returns, year in and year out. However, the REIT will need to find another acquisition target to keep the momentum going in the back half of the year.

With a premium multiple, strong balance sheet and BBB (positive) credit rating from Fitch Ratings, the company has no shortage of potential targets. Mid-America Apartment Communities could also find itself the subject of a takeover offer; the REIT’s $6.1 billion market capitalization is on the small side relative to the industry’s giants.

Mid-America Apartment Communities is a high-quality REIT; however, with the stock trading well above our buy target of $70 per share, conservative investors may want to consider taking a little money off the table.


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