Mid-America Apartment Communities (MAA)

Total return at 5 years: 9.8%/year = 5.0% appreciation + 4.7% dividend. The target price ($164) is ex-dividend; the $33 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $199 · Multiples $161) exceeds the market price ($128).

Today — fairly valued: at $128 trades ~20.3% below its value discounted to today (~$161); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($164) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$104.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($128) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-6.3%/year) than we project (3.1%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.7 bn of owner earnings in year 5 (vs ~$1.1 bn of our base case). It recalculates if the DCF assumptions are edited.

A REIT is valued on price/Core-FFO (not P/E: the accounting depreciation of the property is not an economic cost). ⚠️ The real cash is AFFO (owner earnings), substantially lower than Core FFO —it subtracts recurring capex and non-cash straight-line rent—, and the dividend consumes almost all of the AFFO. It returns capital via dividend; it may issue equity to fund development. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 (TTM as of Jun 30, 2026) is re-based by levels from the Q2'26 results 8-K (Jul 29, 2026, Item 2.02), as the triage directive requires: TTM = FY2025 + 6M-2026 cumulative − 6M-2025 cumulative. With that: TTM revenue ≈ $2.219bn, TTM aggregate Core FFO ≈ $1.029bn ($8.86/share on 116.2M diluted shares, implied from each quarter's diluted EPS), TTM aggregate Core AFFO ≈ $0.902bn ($7.77/share). Gross debt and balance-sheet cash were also taken from the 8-K (Consolidated Balance Sheets as of Jun 30, 2026), not from the lagging quarterly XBRL: debt $5.692bn (unsecured $5.331bn + secured $0.360bn, cross-foots exactly with the supplement's debt table) and cash $0.0518bn. Second triage directive: EBIT and capex from XBRL hung off tags abandoned since 2011-2013 (OperatingIncomeLoss and PaymentsToAcquireOtherPropertyPlantAndEquipment), so ownerEarnings.ebit/da/capexMaint/capexGrowth were derived from the release's own FFO↔Core FFO↔Core AFFO reconciliation (Core FFO − Core AFFO = recurring maintenance capex; FFO − net income to common + gain on sale = D&A) rather than from those tags. Year 1 starts from current fiscal-year-2026 guidance (Core FFO $8.41-8.65/share, midpoint $8.53; Same Store revenue +0.10% and Same Store NOI −0.90% at the midpoint) — with that, year 1 models a continuation of the already-guided weakness (Core FFO/share $8.65, slightly below the guided midpoint because the year-1 window runs six months later and incorporates the start of the recovery management itself describes). This is a valley-and-recovery path declared under R3's rebound exception (§5): excess new supply in MAA's Sun Belt markets (Atlanta, Dallas, Austin, Charlotte) keeps pressuring rent growth through 2026, and management itself describes an 'accelerating recovery' as supply decelerates toward 2027 — which is why years 2 through 5 resume ~4-4.5% annual Core FFO growth, ending at 4.1% (year 5), within the durable growth band of a mature REIT (3-6%). AFFO is derived from Core FFO using the recurring-capex ratio implicit in guidance (Core AFFO/Core FFO ≈ 87.9% in 2026, improving slightly with scale). Shares are modeled flat across all three scenarios (116.2M): MAA's net buyback activity is immaterial (0.2M shares / $27.2M in all of FY2025; 0.4M shares / $50M in Q2'26 alone, well below the 1%/year threshold that would trigger a share-count path), and as a REIT in an active development phase ($932M pipeline) the typical pattern is to fund growth with a combination of debt and equity issuance via operating-partnership units, not sustained net buybacks. The dividend starts at the current rate declared in the 8-K ($6.12/share annualized, the 130th consecutive quarterly distribution) and grows by policy, slower in year 1 (payout already high on a falling AFFO) and accelerating toward 4% annually by year 5, in line with Core FFO. The bear stresses year 1 (Core FFO/share −5.7% vs. TTM, against −2.4% in the base) assuming the rent recovery is delayed until year 3; the bull pulls forward the recovery (Core FFO/share +0.5% already in year 1) assuming new supply runs out sooner than guided.

Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $164 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $128, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $164 in 5 years plus $33 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $161. Against the current market price ($128), the margin of safety is 20.3% (trades below the maximum → there is margin) and the total return at that price would be 9.8% annually.

• Entry multiple vs. archetype band. The current entry multiple (~14.5x TTM Core FFO) trades near the floor of the REIT band (15-20x), consistent with the unfavorable supply cycle and not with an unjustified premium.
• Dividend as a return floor. The current dividend yield (4.8%) on a policy of sustained growth (130 consecutive quarterly distributions) provides a relatively stable return floor independent of any multiple re-rating.
• Sensitivity to the recovery scenario. The 5-year total return depends materially on whether the rent recovery management guides for 2027+ actually occurs; if it drags on (adverse scenario), the return falls to +10% annually.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (200%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Predictable cash generation. Core AFFO (the REIT's owner earnings) is predictable quarter to quarter, with variations tied to the rent and occupancy cycle, not to discretionary events.
• Return on capital vs. the 10% bar. Return on capital employed measured with Core FFO (~9.2%) sits just below the 10% bar — neither clearly above nor clearly below, consistent with a mature REIT at the trough of its cycle.
• Reinvestment runway. The development pipeline ($932 million, 2,522 units) offers a concrete, quantified reinvestment runway, with development returns historically above buying an already-stabilized asset.
• Accounting distortions. GAAP net income is heavily distorted by non-economic depreciation and gains/losses on asset sales; Core FFO and Core AFFO are the metrics that truly measure dividend-paying capacity.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

A residential REIT's revenue breaks down into volume by price: occupied units (total units × physical occupancy) times average effective rent. At MAA, the volume component has been holding up or improving (occupancy stable at ~95.3-95.6%, total units growing via development and acquisitions), while the price component is compressed by excess new supply in the Sun Belt markets (average effective rent falling slightly since 2024). Resident turnover at historic lows (39.6%) is the clearest signal that the weakness is supply-driven (too many new units competing for the same tenant) and not demand-driven (residents are not leaving).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Organic growth (Same Store). Practically flat in 2025 (+0.1%) and guided barely positive for 2026 (+0.10% at the midpoint), reflecting excess new supply in the core markets.
• Growth via development and acquisitions. The Non-Same Store component grew 27.3% in 2025 off a small base (6% of revenue), supported by an active $932 million pipeline that keeps adding units regardless of the rent cycle.
• Guided recovery trajectory. Management itself projects an 'accelerating recovery' in pricing as new-supply deliveries decelerate toward 2027, with sequential rent growth already improving 100bp in Q2'26 vs. Q1'26.

• Demand recurrence and predictability. Residential rent is a non-discretionary expense with annual leases that renew predictably; occupancy has held steady (~95.5%) even at the trough of the supply cycle.
• Commodity product with low switching cost. The resident can move to a competing community, a single-family rental, or a home purchase once the annual lease expires — MAA has no way to retain the tenant beyond price and quality of service.
• Modest operating leverage. Same Store operating expenses (taxes, staff, utilities, insurance) grow in line with general inflation and do not compress easily when revenue decelerates, limiting upside operating leverage.
• Behavior in the current cycle. Occupancy and resident turnover remain healthy (95.3-95.6% occupancy, 39.6% turnover, a historic low) despite supply pressure on price — a sign that the weakness is supply-driven, not demand-driven.
• Pricing power. Pricing power is temporarily suspended by the excess supply: Same Store effective rent fell −0.5% per unit in 2025, and 2026 guidance barely reaches +0.10% at the midpoint.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Portfolio quality (occupancy + same-store NOI)Occupancy 95.3% · same-store NOI +126.5%
• ✓Dividend coverage (payout over AFFO)79% of AFFO

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Adjusted net debt/EBITDAre of 4.5x, within the stated 4.5x-5.5x target, and debt/adjusted total assets of 31.2% (target 30-36%).
• Debt structure. 86.6% of debt at fixed rates with an average 6.0 years to maturity and 93.7% unsecured, limiting immediate refinancing risk and preserving flexibility over the assets.
• Liquidity. $882.8 million of combined cash and available capacity under the revolving credit facility as of the Q2'26 close, plus an additional DDTL Facility of up to $350 million put in place during the quarter.
• Credit rating. An investment-grade balance sheet maintained consistently, which grants access to unsecured debt markets on more favorable terms than lower-rated competitors.

• Capital allocation. Prioritizes the dividend (~79% payout on AFFO) and in-house development over external M&A, with leverage sustained within its stated target throughout the recent rate cycle.
• Alignment and incentives. Insider ownership detail could not be reliably verified in the proxy; there is no evidence in the filings reviewed of a founder or problematic controlling shareholder, but also none of notable skin in the game.
• Candor in communication. Management explicitly acknowledges the guidance cut from excess supply in the same release where it reports results, rather than attributing the weakness to vague external factors.
• Buyback discipline. Buybacks are opportunistic and modest (0.2M shares in all of FY2025, accelerated to 0.4M in Q2'26 after the price fell to ~$130), consistent with buying more when the stock is cheaper rather than running a mechanical program.

• Sector cycle trough: new multifamily supply delivered in 2023-2025 in MAA's Sun Belt markets is pressuring rent growth across the entire sector, and the market extrapolates the current weakness without fully pricing in that new-supply deliveries are decelerating toward 2027, as management itself describes.
• Guidance cut in the quarter: MAA lowered its 2026 Core FFO per share guidance and its Same Store NOI guidance to −0.90% at the midpoint in the Jul 29, 2026 release, which depresses the entry multiple without the balance sheet or portfolio quality being impaired.
• Investment-grade balance sheet with leverage within target (adjusted net debt/EBITDAre 4.5x) that the market does not fully reward relative to residential REITs with weaker balance sheets in the same supply cycle.

The current discount is consistent with missing buyers from the Sun Belt multifamily supply cycle — a sector-wide phenomenon, verifiable in the cut guidance and in resident turnover at historic lows (healthy demand, excess supply) — and not with an idiosyncratic deterioration in portfolio quality, the balance sheet, or MAA's management.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +5%/year (+27% total): the margin of safety protects the downside. The bull (+15%/year, +97% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Sun Belt supply cycle. New multifamily supply deliveries in MAA's core markets have already forced two consecutive guidance cuts and are the dominant risk in the thesis.
• RealPage litigation. Partial settlements coexist with separate lawsuits from state regulators (District of Columbia, Kentucky) still pending, with the final exposure unquantified.
• Interest-rate sensitivity. 13.4% of debt at floating rates and ongoing refinancing of maturing fixed-rate debt expose Core AFFO to a higher-for-longer rate cycle.
• Geographic concentration. 41.2% of the portfolio concentrated in five markets (Atlanta, Dallas, Austin, Charlotte, Orlando), amplifying any market-specific regional shock.
• Insurance and tax costs. Litigation 'social inflation' and rising insurance premiums from extreme weather events can outpace general inflation without fully passing through to rent.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 9% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 3% at a multiple/growth of 5.3 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -6% vs our 3%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -0%/yr, bull-scenario ceiling +10%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: efficient scale, cost advantage, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -6%, within what we project (3%) — the story squares with the numbers.