02/02/23 07:00 AM EST

MAA 4Q22 RESULTS | MIXED BAG, BUT WE LEAN SLIGHT "MISS" ON FY23 GUIDE VS. EXPECTATIONS | (MAA)

Rob Simone, CFA

Takeaway: FY23 same store guide a little "weird;" pulling out the ( + )'s and ( - )'s as we see them

Hedgeye Cartoon of the Day: It'll Be Fine!

It is 2.2.23, and Active Short MPW is overvalued by approximately... whatever the current share price is. Believe us yet?

Ticker: MAA

Company Name: Mid-America Apartment Communities

Subsectors: Multifamily / Apartments

Headline: FY23 guide probably coming up short vs. buyside expectations

MAA guided FY23 Core FFO to a range of $8.88 to $9.28 ($9.08 at the midpoint) vs. Hedgeye at $9.05 and FactSet at $9.17 coming into the print. Some observations on the quarter:

FY23 Same-store guidance is a little "weird" in the sense that we hit the low-end of the SSRev range (Hedgeye at +5.3% vs. guided +5.25% to +7.25%) and split the SSExp range right down the middle (Hedgeye at +6.2% vs. +5.15% to +7.15%), yet our +4.8% FY23 SSNOI growth assumption falls outside of MAA's +5.3% to +7.3% range. We've seen this before with other companies and its not unique to MAA, but is nonetheless frustrating ( - ). We think it would have made sense for MAA to set the SSNOI growth range "wider" coming out of the gate, which all else the same would make things look less certain but at the same time would lower the probability of a future SSNOI range reduction if SSRev trends towards the bottom-end. We and Hedgeye's Macro team obviously think the bias is towards the bottom-end.
Just a huge -1,150bp seq. deceleration in new lease growth at +2.2% y/y ( - ), following five straight quarters of mid-teens or higher spreads and a +13.7% print in 3Q22. We understand the seasonality of 4Q, but you can't promote "strong pricing and occupancy trends" in 4Q21 when new lease pricing was +17.6% (+20.4% in 3Q21), and then a year later attribute it to seasonality. We call that a RoC deceleration amidst slowing underlying market rent growth and tough base effects ( - ).
Also, last year MAA commented on January in the 4Q21 release with: "Strong pricing and occupancy trends for the Same Store Portfolio continued through the month ended January 31, 2022..." There was no January commentary in the 4Q22 release ( - ). We are not implying anything, just pointing out the deltas. From our experience at PGRE, it always made sense to start with last year's release and "build from there" by adding and subtracting items as they relate to the current quarter. This was clearly subtracted.
New lease growth is now trending materially below renewal spreads ( - ).
From a capital allocation standpoint, it might make sense given the cycle to slow acquisition volume for a time versus accelerating as implied by FY23 guidance ( - ). We think that no REITs should make the assumption at this point that any planned dispositions for match-funding will close for sure. Pulled deals will likely result in increased leverage on the margin if acquisitions have already closed.
We want to know the bad debt assumptions embedded within SSRev growth.

The Positives ( + ):

We have said this before, but MAA's relatively low in-place absolute dollar rents ($1,646 avg. effective as of 4Q) provide relative cushion in a severe economic downturn. Said another way, there is much more potential downside to an INVH, for example, from similar tenant cohorts in essentially the same submarkets needing to trade down should the recession be severe.
The balance sheet looks great.
~$437 million of remaining development spend is small relative to the overall size of the balance sheet and would be easily funded.

Figure 1: MAA 4Q22 Variances vs. Hedgeye