REIT Stocks

Mid-America Apartment Communities Inc Valuation – June 2018 $MAA

Company Profile (excerpt from Reuters): Mid-America Apartment Communities, Inc. (MAA), incorporated on September 22, 1993, is a multifamily focused, self-administered and self-managed real estate investment trust (REIT). The Company owns, operates, acquires and develops apartment communities primarily located in the Southeast and Southwest regions of the United States. It operates through three segments: Large market same store, Secondary market same store and Non-Same Store and Other. Its Large market same store communities are communities in markets with a population of at least one million and at least 1% of the total public multifamily REIT units that it has owned and that have been stabilized for at least a full 12 months. Its Secondary market same store communities are communities in markets with populations of more than one million but less than 1% of the total public multifamily REIT units or markets with populations of less than one million that it has owned and that have been stabilized for at least a full 12 months. Its Non-same store communities and other includes recent acquisitions and communities in development or lease-up communities.

MAA Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MAA – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,843,184,325 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.23 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 172.79% Pass
6. Moderate PEmg Ratio PEmg < 20 36.05 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.66 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.23 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -14.92 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.64
MG Growth Estimate 5.02%
MG Value $49.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $38.33
MG Value based on 0% Growth $22.47
Market Implied Growth Rate 13.77%
Current Price $95.29
% of Intrinsic Value 194.47%

Mid-America Apartment Communities Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.98 in 2014 to an estimated $2.64 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.77% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Mid-America Apartment Communities Inc revealed the company was trading above its Graham Number of $48.45. The company pays a dividend of $3.48 per share, for a yield of 3.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 36.05, which was below the industry average of 49.08, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-42.36.

Mid-America Apartment Communities Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$42.36
Graham Number $48.45
PEmg 36.05
Current Ratio 0.23
PB Ratio 1.66
Current Dividend $3.48
Dividend Yield 3.65%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $88,810,000
Total Current Liabilities $390,380,000
Long-Term Debt $4,498,851,000
Total Assets $11,417,376,000
Intangible Assets $0
Total Liabilities $4,897,013,000
Shares Outstanding (Diluted Average) 113,507,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.87
Dec2017 $2.86
Dec2016 $2.69
Dec2015 $4.41
Dec2014 $1.97
Dec2013 $2.25
Dec2012 $2.56
Dec2011 $1.31
Dec2010 $0.56
Dec2009 $0.85
Dec2008 $0.64
Dec2007 $1.01
Dec2006 $0.29
Dec2005 $0.25
Dec2004 $0.50
Dec2003 -$0.07
Dec2002 -$0.11
Dec2001 $0.72
Dec2000 $0.78
Dec1999 $0.93
Dec1998 $0.82

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.64
Dec2017 $2.97
Dec2016 $2.94
Dec2015 $2.87
Dec2014 $1.98
Dec2013 $1.83
Dec2012 $1.47
Dec2011 $0.91
Dec2010 $0.70
Dec2009 $0.71
Dec2008 $0.61
Dec2007 $0.53
Dec2006 $0.25
Dec2005 $0.24
Dec2004 $0.27
Dec2003 $0.26
Dec2002 $0.49

Recommended Reading:

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Mid-America Apartment Communities Inc Valuation – Initial Coverage $MAA

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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