Can Occupancy & Rental Growth Aid MAA's Q3 Earnings Numbers?

Mid-America Apartment Communities, Inc. (NYSE:MAA) is slated to report third-quarter 2017 results on Oct 25, after the market closes.

Last quarter, this Memphis, TN-based residential real estate investment trust (REIT) delivered a positive surprise with respect to funds from operations (FFO) per share of 2.1%. The quarterly results reflected growth in same-store property net operating income (NOI) and rise in average effective rent per unit for the same-store portfolio.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in three occasions and met in one, generating an average beat of around 1.03%. The graph below depicts this surprise history:

Mid-America Apartment Communities, Inc. Price and EPS Surprise

Further, MAA has outperformed the industry it belongs to, year to date, with its shares moving up 7.4% compared with 5.4% growth registered by the industry.

Note: All EPS numbers presented here represent funds from operations (FFO) per share.

Let’s see how things are shaping up for MAA prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that MAA is likely to beat estimates because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to beat estimates, and MAA has the right mix.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for MAA is +0.63%. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: MAA’s Zacks Rank #3, when combined with a positive ESP, makes us reasonably confident of a positive surprise this season.

What's Driving the Better-than-Expected Earnings?

MAA maintains a well-balanced portfolio with a strong presence in around 39 Metropolitan Statistical Areas (MSAs), located in the Southeast and Southwest regions of the United States. Further, strong job growth in target markets is anticipated to keep demand for MAA’s portfolio higher.

In addition, per a study by the real estate technology and analytics firm, RealPage, Inc. (NASDAQ:RP) , the U.S. apartment market reported stable rent growth, while occupancy remained healthy in the third quarter. For new leases, effective rents inched up 0.9% during the quarter and 2.6% annually. Furthermore, apartment occupancy came in at 95.5% for the third quarter across the country’s top 100 metros.

Amid these, MAA is expected to experience high occupancy and achieve stability.

For the third quarter, MAA projects FFO per share in the range of $1.39-$1.49 per share. The Zacks Consensus Estimate for the same inched up 0.7% to $1.48 over the past week.

For 2017, MAA projects FFO per share in the range of $5.77-$5.97, Also, over the past week, the Zacks Consensus Estimate for the current-year FFO per share inched up 0.2% to $5.92, reflecting analysts’ optimism on the stock.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Armada Hoffler Properties, Inc. (NYSE:AHH) , slated to release third-quarter results on Oct 31, has an Earnings ESP of +1.82% and a Zacks Rank #3. You can seethe complete list of today’s Zacks #1 Rank stocks here.

Independence Realty Trust, Inc. (NYSE:IRT) , scheduled to release earnings on Oct 31, has a Zacks Rank #3 and an Earnings ESP of +7.04%.

Spirit Realty Capital, Inc. (NYSE:SRC) , setto release earnings on Nov 2, has an Earnings ESP of +3.07% and a Zacks Rank #3.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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