Mid-America on Acquisition Spree - Analyst Blog

Mid-America Apartment Communities Inc. (MAA), an apartment-only real estate investment trust (REIT), has recently acquired Alamo Ranch apartment community in San Antonio, Texas, for an undisclosed amount. The acquisition is part of the long-term strategy of the company to own assets in premium markets that are driven by solid employment growth opportunities. San Antonio’s employment growth rate has surpassed the U.S. average over the last 5 years and is projected to have positive population growth in the near future. Consequently the acquisition offers excellent investment proposition for the company.

Developed in 2009, the 340-unit apartment community is the largest retail development on the West side of San Antonio. The project is part of a newly developed mixed-use master-planned community spanning 114 acres with over 900,000 square feet of retail space. The leading anchors of Alamo Ranch include J. C. Penney Company, Inc. (JCP) and Lowe’s Companies Inc. (LOW).

The apartment community is located in close proximity to major highways and offers easy commute across major employment centers in the region. Alamo Ranch also offers its residents various amenities such as open design kitchens with granite countertops, attached garages and a resort-style pool. Mid-America utilized available capacity under its existing credit facilities and cash from equity issuance to fund the acquisition.

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 generates a stable earnings platform for the company. The weak 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’ recommendation on Mid-America, which currently has a Zacks #2 Rank that translates into a short-term ‘Buy’ rating.