Mid-America Apartment Communities Inc. (MAA), an apartment-only real estate investment trust (REIT), recently acquired Verandas at Sam Ridley – a 336-unit upscale property in Nashville MSA (Metropolitan Statistical Area) for $32 million. The purchase price of $95,238 per unit was significantly above the recent apartment transactions for older properties, thereby indicating the high quality of the apartment community and stabilization of market fundamentals.
Developed in 2009, Verandas at Sam Ridley features superior amenities such as garages, stainless finish appliances, crown molding, sunrooms and screen porches, along with media and business centers and a pool with an outdoor spa. The acquisition is an integral part of Mid-America’s long-term strategic plan to invest in high-growth Sunbelt markets and offers an upside potential for the company.
Mid-America utilized available capacity under its existing credit facilities and cash from equity issuance to fund the acquisition. Since the beginning of the year through the end of April 2010, Mid-America had raised $72.6 million at an average price of $52.14 per share under its continuous equity offering program.
Mid-America divides its portfolio in two tiers – larger primary markets and lower population secondary markets. Secondary markets often have stable fundamentals due to limited new supply. Having a diversified presence in different types of markets helps mitigate risk and decreases volatility in the event of a slowdown in any one product type.
Mid-America’s diversified market profile with its focus on solid employment markets of the Sunbelt region across both the high-growth primary markets and the less cyclical secondary markets generate a stable earnings platform for the company. The week for-sale housing market and the overall economy have further helped Mid-America maintain strong occupancy levels, as more people are opting to rent due to trouble in obtaining financing and continued housing price declines.
Furthermore, the company is witnessing a decrease in move-outs due to home purchases, which is a good sign as the battered housing market will continue to benefit residential REITs like Mid-America. We maintain our Neutral rating on Mid-America with a Zacks #3 Rank, which translates to a short-term ‘Hold’ recommendation.
