Is Mid-America Apartment Communities a Millionaire-Maker REIT?
If you’re looking to build a seven-figure portfolio, adding good income-producing real estate investment trusts (REITs) can help. The key is to find those who combine a strong portfolio with opportunities for growth. Many people are talking about the coronavirus pandemic Central American apartment communities (NYSE: MAA) on this point. That’s fair, but don’t think of it as a COVID-19 game, as the IPF was well positioned even before the fear of global health.
What he does
The name of Mid-America Apartment Communities speaks volumes about its business. For starters, it’s an apartment-focused REIT. Second, it focuses primarily on the US Sun Belt, not the big coastal cities that are the main real estate markets for many of its peers. This combination has proven to be perfect for the coronavirus, which tends to spread easily in places with a lot of people (such as large cities).
Indeed, as people sought to move away from places like New York, Boston and Los Angeles, they moved to more rural areas served by Central America. This is no small feat and deserves a comparison.
AvalonBay Communities (NYSE: AVB), one of the best coast-focused apartment owners, saw their net operating income (NOI) drop 6.4% year-over-year in 2020. Every big region in which it operates has declined, with particular weakness in California and New York. This is not surprising given the context of the pandemic. Central America, on the other hand, saw its NOI increase by 1.2% last year.
Mid-America’s portfolio includes approximately 100,000 apartments in 16 states and the District of Columbia. It mainly focuses on the Southeast, Southwest and Central Atlantic regions. In other words, there is good diversification in the mix here, so it doesn’t depend on a single market.
The key, however, is that most of its properties are in the Sun Belt region, which has experienced population growth for many years as people migrate to low cost areas with pleasant weather. These areas benefited from the pandemic, but what was really happening was the amplification of a trend that had been in play for a long time.
That said, investors seeking mid-Central American apartment communities today should probably be prepared for a lull in demand. Yes, during the pandemic people moved to areas served by the FPI. However, this has likely resulted in an artificial bump that will reverse a bit as the vaccines lead to the reopening of coastal towns. In other words, Mid-America’s performance stood out in 2020, but it could end up looking lagging in a year or two as big cities come back to life. But that doesn’t mean the long-term shifts that management strives to capitalize on are over.
This is where the story gets more interesting. Currently, Mid-America Apartment Communities offers a dividend yield of approximately 2.6%. This happens to be close to the lowest levels in the history of the company. Considering the company’s performance during the pandemic, this is hardly surprising. But it also means that now might not be the best time to buy the stock, as it looks expensive, using yield as a rough measure of valuation.
Plus, if coastal cities start to come back to life, making apartment communities across Mid-America seem like they’re lagging behind, the stock could cool down. But that doesn’t mean its main markets will necessarily be struggling, just big cities are making a comeback. So it’s likely that there is a continuing underlying strength that investors might miss here as their focus turns to rebound in other areas. And that could possibly make Mid-America Apartment Communities a relative boon.
In other words, this REIT could be a millionaire stock, but you need to make sure you buy it at the right price.
Mid-America is a well-run apartment REIT that took advantage of being in the right places at the right times. Investors have bid on the stocks accordingly, and anyone with even a slight focus on value is likely to want to put that name on their wishlist, not the buy list. But given the long-term tendency for people to relocate to the Sun Belt areas served by Central America, you shouldn’t just ignore it. It could very well help you build a million dollar portfolio – if you wait a long time to buy it. On this point, a yield closer to 4% space would probably represent a solid buying opportunity.