Three decades after being listed as a public company, Mother (NYSE:MAA) remains committed to its core focus on the Sun Belt, a region that has driven the REIT’s growth for years. While supply pressures have emerged, they are nothing new, says CEO Eric Bolton, who sees a number of factors combining to support steady demand for apartment housing in the coming years.
Based on its Sun Belt exposure, Tennessee-based MAA has grown from its IPO price of approximately $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 in 16 states and the District of Columbia, making it the largest publicly traded apartment REIT in the US by number of units.
For the past 30 years, MAA’s approach has been to remain primarily a pure-play apartment REIT with strategic diversification into large and secondary markets in the high-growth Sun Belt region. “We were in the Sun Belt before it was cool, and we’re in more markets throughout the region than any of our peers,” says Bolton.
While many other operators and investors were targeting coastal markets, MAA was locked into high-growth markets, giving the company an edge over imminent competition. “Recently, everyone has started to appreciate the growth dynamics of this sector, and we have seen a lot more competitors,” he added.
growth by merger
MAA’s strong performance and geographic focus did not go unnoticed.
“Twenty years ago, Sun Belt apartment REITs had about half the amount of control compared to coastal apartment REITs,” says Alexander Goldfarb, senior REIT equity research analyst at Piper Sandler. “Over the past two decades, Sun Belt apartment REITs have not only closed that gap, but will sometimes trade at a premium to coastal apartment companies. This is truly incredible, and is a testament to the MAA to demonstrate that NOI growth, dividend growth, and NAV growth are independent of whether you are located in Texas or California. It’s driven by your competitive position.”
MAA began in 1977 as The Cates Company, founded by the late George Cates. He took the company public under the name Mid-America Apartment Communities and raised $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 massive mergers to accelerate growth. In 2013, MAA acquired competitor Birmingham, Alabama-based Colonial Properties Trust for $2.2 billion. The acquisition expanded MAA’s portfolio to 85,000 units across 285 properties in 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 portfolio comprised 317 properties totaling 105,000 units in 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 hot for the past several years, it has cooled as record-high deliveries impact rent growth. However, demand remains the driver, says Brad Hill, MAA president and chief investment officer. He says MAA is well-positioned to compete and expects fundamentals to improve later this year, which will lead to fare growth and value gains.
Hill explains, “We’re seeing that the demand side remains good, whether it’s job growth, migration trends, lower resident turnover, or new household formations moving into renting apartments.” “Our strategy is to allocate our capital where we believe there will be the greatest demand over the long term.”
Hill says that from time to time supply pressure may exceed demand, which usually lasts for a few quarters.
“We saw new construction starts thanks to record levels of capital being made available at very low interest rates,” says Hill. “We saw an increase in supply deliveries in the fourth quarter of 2023, and we are still at that high level. We believe this will continue through the middle of the year, and then we should start to lower the tail end of this year into 2025 and 2026.
Meanwhile, new lease pricing declined as a result of increased competition. MAA new lease rates declined 5.5% as of February. However, renewals increased by 5.2%. Additionally, the portfolio saw record-low move-outs. Hill expects new lease pricing performance to improve as deliveries moderate. Renewals in 2024 are expected to be in the range of 4.5% to 5%, at a time when MAA’s portfolio occupancy is at 95.2%.
reduce risk
For Bolton, supply issues are hardly a new dynamic.
“We’ve seen this supply story play out many times over the last 30 years,” Bolton says. New supply is really just competition. As I tell investors and shareholders, I have never worried about supply pressures that come from time to time. There are some things we can do to help alleviate that pressure for those few quarters when it impacts performance.”
To minimize risks, MAA intentionally divides its portfolio between larger-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% in mid-tier markets.
