As the supply/demand picture shifts the balance of power from tenants to landlords in the years ahead, MAA should have plenty of room to nudge up rents given the high cost of single family housing.
If long-term interest rates do come down in the years ahead, this will make mortgage rates lower, but it may also stimulate buying demand, which would tend to make home prices even higher.
A low interest rate environment may also lead to a favorable economic environment, lifting employment and wages.
Strong economic growth translates into higher demand from tenants, who will be in a better position to compete for rental units in desirable apartment communities like those owned and managed by MAA.
Our expectation is that a scenario of declining long-term interest rates would overall be a strong positive for the MAA share price. Investors in all REITs should benefit from a decline in rates, as they have historically.
On the other hand, to the extent long-term rates stay level or even climb, this would only exacerbate the affordability problem for people who may aspire to live in single family homes.
In the context of limited future supply, MAA will therefore have room to raise rents and drive operating income growth across its portfolio. This should ultimately translate into healthy dividend and share price growth.
The place to be long-term
While we find the medium-term supply/demand dynamic very encouraging, it is important to stay focused as well on the long-term outlook for these markets.
States like Texas and Florida are likely to continue to drive economic growth in the United States, in no small part because they are governed well.
As the technology sector comes to play an increasingly important role across the economy, it has moved well beyond Silicon Valley. We now see tech hubs sprouting up all over the country.
AI data centers require vast amounts of energy. Cities and states that have the willingness and ability to meet these energy requirements should outperform economically.
Consider MAA’s home state of Tennessee, where some 7% of its apartment units are located across the Nashville, Memphis and Chattanooga sub-markets.
Elon Musk is reportedly in talks with Tennessee officials, via The Boring Company, to build a five to ten mile tunnel that will connect the Nashville airport to downtown Nashville.
Last year, Musk, via xAI, launched the “Memphis Supercluster,” which he has described as the “most powerful AI training cluster in the world.” Also known as Colossus, the supercomputer is located in a converted Electrolux factory.
Earlier this year, Musk bought another one million square foot site in Memphis to expand Colossus, which is powered by natural gas plants owned by the Tennessee Valley Authority.
While New York’s likely next mayor lobbies for government-run grocery stores, in states like Tennessee, local leaders are laying the groundwork for the AI revolution and America’s industrial renaissance.
The contrast in political visions is almost startling.
Investing often comes down to common sense. Long-term investors should prioritize investments in jurisdictions where voters are focused on growth and opportunity.
MAA offers investors a relatively high dividend yield backed by a high quality collection of real estate assets in markets with attractive long-term prospects.
MAA shareholders also have the opportunity to participate in a gradually improving supply/demand dynamic that is likely to support solid financial performance over the next three to five years.
