Mid-America Apartment Communities, Inc.

Good morning, ladies and gentlemen, and welcome to the MAA third quarter 2022 earnings conference call. During the presentation, all participants will be in the listen-only mode. Afterward, the company will conduct a question and answer session. As a reminder, this conference call is being recorded today, October 27, 2022. I will now turn the call over to Andrew Schaefer, Senior Vice President, Treasurer, and Director of Capital Markets of MAA for opening comments.

Thank you, Raisa, and good morning, everyone. This is Andrew Schaefer, Treasurer and Director of Capital Markets for MAA. Members of the management team also participating on the call with me this morning are Eric Bolton, Tim Argo, Al Campbell, Rob DelPriori, Joe Fracchia, Tom Grimes, and Brad Hill. Before we begin with our prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statement section in yesterday's earnings release and our 34-act filings with the SEC, which describe risk factors that may impact future results. During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures, as well as reconciliations of the differences between non-GAAP and comparable GAAP measures, can be found in our earnings release and supplemental financial data. Our earnings release and supplement are currently available on the For Investors page of our website at www.maac.com. A copy of our prepared comments and audio recording of this call will be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. I will now turn the call over to Eric.

Thanks, Andrew, and good morning. MAA posted solid results for the third quarter. A strong demand for apartment housing across our portfolio drove a 16% increase in leasing traffic volume as compared to last year's third quarter. The higher leasing traffic supported continued solid occupancy and rent growth, as was detailed in our earnings release. While, as expected, we are seeing a return to more normal seasonal leasing patterns, with slower leasing velocity that is typical during the coming holiday season, it's clear that leasing conditions have held up stronger than expected over the back half of this year. We are carrying solid momentum into calendar year 2023. We will have more details to share about our expectations for next year when we provide earnings guidance for 2023 as part of our fourth quarter earnings release. But absent a severe recession taking place with resulting weakness in the employment markets, we expect the demand for apartment housing across our portfolio to continue to be strong. At this point, we've not seen any evidence of weakness in the drivers of demand for apartment housing as it applies to our Sunbelt portfolio. Of the leases written in the third quarter, 15% of our new residents were relocating to the Sunbelt from coastal markets This is comparable to the trends we saw last year. It's also worth noting that of the moveouts we had in the third quarter, only 5% were moving out of the Sun Belt. This is also consistent with last year's trends. As noted earlier, leasing traffic is high and resident turnover or moveouts remain well below long-term trends. And importantly, we are seeing no signs of stress in terms of affordability with rent to income ratios on the leases completed in Q3 remaining consistent to Q3 of last year in the 22% range and resident payment practices remaining very strong with over 99% of bills rent being collected. As detailed in the earnings release, we are nearing full completion on several of our new development projects, and we have recently started construction on a new property located in Tampa, Florida. In addition, we expect to start construction during the fourth quarter on a new property located in the Research Triangle Park in Raleigh, North Carolina. During the third quarter, we also closed on two acquisitions where we had initiated negotiations and due diligence earlier in the year. The transaction market has become increasingly choppy as rising interest rates and economic uncertainty have presented more challenges. And as a result, seller activity has slowed. We are actively monitoring conditions but are not currently under contract at the moment with any additional acquisitions. Before turning the call over to Tim to recap more details associated with our property operations, I did want to acknowledge the announcement that we made last week concerning the planned retirement of Tom Grimes, who has been with our company for the past 28 years. Tom has played a large part in supporting MAA's long and established record of strong performance and steady growth. I'm grateful for Tom's contributions to our company, and we all wish him well. As outlined in last week's release, we have a strong team of leaders at our company with extensive experience, expertise, and a record of strong performance, and we are well positioned for continued progress as we move forward into 2023. That's all I have in the way of prepared comments, and we'll now turn the call over to Tim.

Thank you, Eric, and good morning, everyone. Same store performance for the quarter was once again strong and ahead of our expectations. We saw broad-based strength in pricing performance across the portfolio during the third quarter, with blended lease-over-lease pricing achieved up 13.9%. As a result, effective rent growth, or the growth on all in-place leases for the third quarter, was 16.7% versus the prior year and 5.6% sequentially from the prior quarter. Based on our forecast for in-place rents at the end of 2022, we expect our earned-in or baked-in rent growth for 2023 to be in the 6% range before considering any new rent growth that may occur in 2023. Alongside the robust pricing performance, average daily occupancy for the quarter remains strong at 95.8%. We have continued to achieve pricing better than our previous expectations in the early part of the fourth quarter, with blended lease or release pricing for October to date at a very seasonally strong 8.3%. Average physical occupancy for October to date is in line with expectations at 95.7%. Additionally, on average, we are achieving growth rates on signed renewals of around 10% for the fourth quarter. Despite projections that supply will likely remain elevated in 2023, though we think at similar levels to 2022, Various demand indicators remain strong, and we expect our region of the country to continue to benefit from population, household, and job growth. During the quarter, we continued our various product upgrade initiatives. This includes our interior unit redevelopment program and our installation of smart home technology that includes mobile control of lights, thermostat, and door locks, as well as leak detection monitoring. In addition, our broader amenity-based and more extensive property repositioning program continues to make great progress. The value to residents provided by these programs can be particularly impactful when new supply is being delivered into the market. On average, we are seeing new development being delivered in our markets with monthly rents that are $350 or about 22% higher than the average rent of our current portfolio. This helps drive the value opportunity associated with our repositioning programs. For the third quarter, we completed 2,305 interior unit upgrades and installed 652 smart home packages. In 2022, we plan to complete over 6,000 interior unit upgrades and approximately 23,000 smart home packages. By the end of the year, we expect our total number of smart units to approach 70,000. For our repositioning program, leases have been repriced at the first eight properties in the program that are now complete, and the results have exceeded our expectations. We have another eight projects that are currently in various stages of construction and unit repricing. Those are all my prepared comments, so now I'll turn the call over to Brad.

Thank you, Tim, and good morning, everyone. Despite the challenges in the transaction market, the team continues to make good progress in executing our disposition plan for the year. In addition to the two Fort Worth properties we sold in the second quarter, we closed on the sale of a 396-unit community in Maryland earlier this month. We have one more disposition property located in the Austin market that we expect to close in the fourth quarter. Total expected proceeds for all four disposition remains at the midpoint of our guidance of $325 million, with an NOI yield of 4.3%, generating a total expected IRR for these 25-year-old assets of 17.8%. The slowdown in transaction volume that started in the second quarter continued in the third quarter, as dislocation in the capital markets increased over the quarter. Most buyers remain on the sidelines, and with only a limited number of properties coming to market, price discovery will take some time. However, as we've seen in previous cycles, when deals begin to come to market, the evaluation of counterparty risk will drive decisions, with buyer financial strength and speed of execution being attractive key differentiators. During the third quarter, we were able to opportunistically use those strengths to close on two compelling newly constructed properties for a total of $213 million, generating an initial stabilized NOI yield of 4.7%, which we expect to increase further through our operating platform capabilities. These investments not only provide a higher immediate NOI yield than what we are selling, but they also give us more scale and higher demand, higher growth markets where we expect to generate higher organic growth over the long term, especially on an After Cap Ex basis. Due to their locations near other MAA communities, both investments also provide additional margin expansion opportunities that we will fully harvest over the next few years. We continue to make progress in building out our development pipeline, while our under construction pipeline remained at $444 million at the end of the third quarter. Earlier this month, we started construction on a $197 million, 495 unit project in Tampa, bringing our total active under construction projects today to $641 million, representing 2,254 units. Predevelopment work is nearly complete on our Raleigh project, and we expect to start construction this quarter. With the scheduled completion of our Windmill Hill property in Austin during the fourth quarter, we expect to end 2022 with approximately 2,310 units under construction at a total cost of $723 million. Also during the third quarter, we purchased a land parcel for a potential late 2023 start of a 500-unit development in the Denver MSA. We now own seven and control five development sites with total entitlements in place for approximately 3,700 units. As we've indicated in previous quarters, the timing of planned construction starts can change as we work through the local approval and the construction bidding processes, but we are hopeful we can start a number of these projects over the next 18 months. Having said that, our balance sheet strength gives us the option to be patient in our construction timing if it's warranted. Our disciplined approach to asset allocation, including site selection and land valuation, will continue to be an integral part of our capital deployment decision process. Our construction management team continues to do a tremendous job actively managing our projects and working with our contractors to keep the inflationary pressure surrounding labor and material costs from causing a meaningful increase to our overall development costs or our schedules. to help mitigate some of the potential cost escalation and schedule expansion that is prevalent in the market today. We are working with our contractors to make commitments to purchase materials much earlier in the process. Today, our biggest challenges involve securing labor, obtaining cabinets and electrical components, and securing building permits. Our team has been able to work around these issues on the majority of our projects to stay on schedule. In line with the performance of our overall portfolio, operating performance at our development communities in their initial lease-up is strong, with results at each community well ahead of our pro forma expectations. Demand remains strong, and the competition from other new supply is not impacting our lease-up performance. During the third quarter, our Jefferson Sand Lake community in Orlando reached stabilization And due predominantly to the strong rent performance, we expect our stabilized NOI yield to be between 7.8% and 8%, exceeding our original expectation by over 25%. That's all I have in the way of prepared comments, so I'll turn it over to Al.

Thank you, Brad, and good morning, everyone. Reported core FFO per share of 219 was 12 cents above the midpoint of our guidance for the quarter, and about three quarters or nine cents of the outperformance came from revenues. Stronger than expected rental pricing trends continued into the quarter, producing 14.6% same store revenue growth, which was over 200 basis points above our expectation. Remaining core FFO crochet outperformance primarily came from overhead and other non-operating items during the quarter, which were slightly favorable to expectations. Sanctuary operating expense growth for the third quarter was impacted by continued inflationary pressures as well as a challenging prior year comparison. If you recall, operating expenses grew only 1.5% during the third quarter last year. Real estate taxes made up the biggest portion of the variance from our expectation for the third quarter this year. We received a significant amount of information during the quarter, particularly in Florida, reflecting some pressure in both values and millage rates as compared to our expectations. We will continue to aggressively challenge values where we can, but we now expect our real estate tax expense to be at the higher end of our previous range. The revised guidance for the year, discussed more in a moment, reflects these expense pressures, but they continue to be more than offset by the strong revenue performance. Our balance sheet remains stronger than ever, providing both protection and opportunity as we move through this volatile market environment. In August, we received an upgrade from S&P to an A- credit rating. We're now rated A- by both S&P and Fitch and continue to have positive discussions with Moody's, which we believe will eventually lead to an upgrade. We also completed an early renewal of our unsecured credit facility at very attractive pricing levels during the quarter and upsized the facility from $1 billion to $1.25 billion, despite a challenging financing market. In addition, we expanded the size of our commercial paper program from $500 to $625 million to reflect the increase in our credit facilities. These two programs provide significant low-cost and flexible capital to fund our development program and our future capital needs. At the end of the quarter, we had over $1.2 billion of combined cash and borrowing capacity available. Our leverage remained historically low, and that debt adjusted EBITRE of only 3.97 times. Our debt balances also have significant protection from rising interest rates, as over 97% of our debt is fixed at an average interest rate of 3.4%, and with an average maturity of eight years. Finally, given the third quarter outperformance and expectations for the remainder of the year, we are increasing both our core FFO and same store guidance for the full year. We increased our full year range for core FFO by 20 cents per share at the midpoint to a range of 837 to 853 per share, or 845 at the midpoint, which now represents a 21% growth over the prior year. This increase is primarily a result of higher revenue growth as the strong pricing trends continued into the third quarter, with the projected impact of prior year comparisons and seasonal trends coming later than originally projected. We now expect same-store revenue growth for the year to be 13.5% at the midpoint, primarily driven by 125 basis points increase in our effective rent growth expectation for the year over our previous guidance. Our revenue projection for the year continues to be built on strong pricing, performance, and stable occupancy with growing impact from prior year comps and normal seasonal trends during the fourth quarter. We're now seeing the beginning of this impact, albeit a few months later than originally projected. We expect average blended lease pricing to be in the 7% to 8% range for the fourth quarter, which for context is on top of a record high 16% growth captured in the fourth quarter of last year. We also narrowed the expected range for same-store operating expenses for the full year, effectively increasing the midpoint by 25 basis points from last quarter's guidance, primarily reflecting the pressures from real estate taxes that I mentioned earlier. Thereby, all impact of these changes is an increase to our same-store NMI growth guidance for the year by 200 basis points to a midpoint of 17%. So that's all we have in the way of prepared comments, Raysa. We'll now turn the call back over to you for questions.

We will now open the call up for questions. If you would like to ask a question, please press the star, then 1 on your touchtone phone. If you would like to withdraw your question, you may press pound. And we'll take our first question from Nick Joseph with Citi. Your line is open.

Thanks. Good morning. Just given your experience recently in the transaction market, particularly on the sales, but as you look to acquire maybe if there's interesting opportunities and kind of the positives you mentioned in terms of being a certainty of buyer, how are you thinking cap rates have trended and then how are you changing your underwriting standards for any future potential opportunities?

Yeah, hey, Nick, this is Brad. You know, I'd say we've certainly seen cap rates come up here in the third quarter as we've seen interest rates really rise very quickly. Now, interest rates are regularly over 6%. We don't have a whole lot of data points, frankly, in the third quarter. Second quarter, we commented we saw cap rates in the 3.7 range. For what we did see close in the third quarter, call it 4.5% is really where we saw cap rates. But again, not a whole lot of trades there. And I would say that what we've seen... for what has traded is there's been some characteristic about the property really that has allowed the buyer really to take advantage frequently of previous debt rates through loan assumptions while taking advantage of the rent profile today. So I would say that what has traded so far, in my opinion, is not reflective of where the market is going. Most of what we're hearing today is new assets that are being priced. BOVs are going out today, you know, 5% or more in terms of a cap rate. So I would expect to see cap rates rise from where they are today. Where they shake out, you know, that's hard to say. But given where interest rates are, over 6%, given where You know, we are starting to see seasonality come back into play, which we didn't last year. The appetite for a significant level of negative leverage from a buyer's perspective, I think that appetite is dissipating a bit. So my sense is that we'll continue to see cap rates rise a bit next year. But I think it'll be mid-next year before we really start to see Some transactions come to market and transactions to clear. So I think it's going to take some time to really get visibility into what that looks like.

That's very helpful. Thank you. And then maybe just tying that environment to the new starts and any plans for starts. How do you think about kind of underwriting or starting a project today, given maybe the uncertainty of where the acquisition cap rate and trying to price in that risk premium on development?

Yeah, I mean, I'll back up and just start with, we have purposefully sat out of the acquisition market over the last couple of years. The last deal we purchased was in 2019 because Really, the spreads between development yields and acquisition cap rates had gotten really large over the last few years, so we have purposefully focused our capital on development. Where we sit today with cap rates of 4.5%, perhaps moving up to 5%, I think you're going to get back to a more normal 100, 125, 150 basis point spread between cap rates and development yields today. So I think there'll need to be some movement going forward, and all that is really dependent upon the quality of the development that you have, where it's located, what the rent trajectory looks like on that asset. But clearly, I think for starts going into next year on the development side, I think you're likely to see a drop-off in the construction starts. Developers, you know, we obviously are active in the JV Market partnering with developers. We are certainly hearing that equity partners on deals are backing out some of the pipeline, I think, is shrinking as you go forward from here because those yields do need to go up a bit. So, you know, we're hopeful at this point that some of that starts to manifest itself through construction costs. But as you know, just like land costs, it's a little sticky. It takes time for that to manifest itself down into the costs. But we are certainly hopeful that yields expand a bit on the development pipeline.

Thank you very much.

Our next question will come from Neil Balkan with Capital One. Your line is open.

Good morning, everyone. Great quarter. Congrats. First, high-level Eric, good to talk with you. I think last quarter, last two quarters, you kind of started your comments by saying you expect, given the favorable demand trends, that rent growth or same-store top-line trends will continue to be, you know, nicely above trend for, I don't know if it was like 23 or the foreseeable future, but maybe can you just comment on if you still think that's the case and if, I guess, a more uncertain macro cloud over the general U.S. and global economy maybe has changed that in the near term? Thanks.

Well, thanks, Neil. What I would tell you is that as we start to think about the next year, 2023, I'm pretty encouraged still about our ability to continue to drive top-line performance that's going to be well above our long-term averages. As Tim alluded to, based on where we sit today, we think the earn-in to next year, based on the rent trajectories that we've captured over the last number of months is baked in next year is going to be 6%. And then you start to think about what sort of market rent growth we're going to get on top of that next year. And as we sit here today and think about the drivers of demand surrounding the employment markets, the stress of single family affordability, and these net continued positive migration trends that we see across our markets, We continue to see an expectation, at least I have, of positive rent growth next year on top of the earn-in that we're getting. Now, there is more discussion surrounding the prospects for a recession. I think generally the thought at the moment is that if it happens, it tends to be, it will likely be not particularly severe and not particularly prolonged. Certainly that's the hope we have. And we also, you know, are hearing that the idea that it's going to have a huge negative effect on the labor market and the employment market general is not likely to occur. So, you know, who knows exactly what's going to happen. But as we sit here today, you know, we continue to feel pretty positive about the outlook going into next year. And we are, a lot of things that we're doing to prepare for the potential for a more negative outlooks, particularly pushing rent growth is something that we always do as we think we may be heading into a downturn. Of course, the balance sheet is in really great shape and we're keeping a lot of capacity available to deal with opportunities that might emerge in a more recessionary environment. And, you know, we think that we're going to be well positioned for whatever, you know, we likely are going to see next year. But to your question, I mean, as we sit here today, it's hard to see anything at the moment that suggests to us that any meaningful pullback on the demand trends that we're seeing is likely to take place.

Okay, great. And then real quick, did you guys give your lot to Lisa? Apologize if I missed it.

Well, Neil, this is Tim. We talked about the 6% sort of earned in that we think we have next year. If you look at, you know, kind of, I think the question you're probably asking is sort of where our rents sit today here in September compared to all in-place rents, it's roughly 3.5% from where we sit today.

Okay. And then the other last one for me is, Maybe, Brad, you think about the elevated supply or delivery environment over the next 12 months plus. You look at the much more difficult permanent financing environment, LTV terms, et cetera. And then you also layer on sort of what you expect to be rising cap rates. I mean, you know, maybe just give a sense for, like, how your capital allocation priorities or playbook looks. heading into 23, particularly given the current cost of, or your current share price? Thanks.

Yeah, well, I'll certainly talk about the external piece of that. You know, as we sit here today, as I mentioned in my comments, we have really spent a lot of time developing our ability to deploy capital externally, both through acquisitions and development. And we are in a really good spot for that. We control, as I mentioned, 3,700 units both owned and sites that we just have under contract. So in the land basis of those, as I mentioned, we've been very disciplined in picking sites and we've lost out on sites because one, the location wasn't the best location in a market and ones that are likely to stress more if things get a little bit shaky in the in the economy or the land price was too high so we feel really good about where we stand today in that regard and so we have optionality on those those projects given the size of our balance sheet you know it's not a problem for us to continue to work those sites get to a point where we're ready to pull permits and if the financing environment is such that it doesn't make sense for us to pull on those or our capital is better used in the acquisition market, we'll certainly lean into that. You know, just for perspective in the acquisition side of things, After the last recession, for a three-year period, 2010 to 12, we executed on almost 10,000 units, single transactions, 9,500 units. And if we were able, that similar type environment plays out over the next year, two years, three years. That's 10,000 units, and at today's pricing, even at a discount, that's $3 to $4 billion. And so that's what we're really preparing for is for an environment where we're able to execute on opportunities. It may or may not be that size of opportunities, but to your point, the amount of construction that started in 2020, 2021 in our region of the country was significant. And as you mentioned, the cost to refinance that, the cost to extend loans, Banks are not going to be willing to do that. They want to clear these loans off their books at this point. So I think you will see as you get into next year, a number of these merchant developers will need to transact. And I also think the basis of these developments that went under construction in 2020, 2021 still have profit in them. So I do think a market will be made on these assets and there'll be an opportunity for us to step in and execute in that area.

Yeah, that's awesome. Thank you very much.

And our next question is with Piper Sandler. Your line is open.

Hey, good morning. Good morning down there. Just going back to Nick Joseph's question on underwriting, I think you guys quoted a 17% levered IRR on the transactions in the quarter. So one is curious what the unlevered IRR is. And then second, more importantly, you know, you guys Sunbelt over the past decade or so has benefited big time from cap rate compression. Certainly, you know, as your comments just said, you know, everyone expects cap rates to come up. So how do you think IRRs are going to, how are you underwriting IRRs, you know, over the next, you know, sort of five years of investing, given that the past decade has just been this incredible, you know, dual tailwind to both cap rate compression and rent growth. So first, you know, what the unlevered IRRs were on the deals sold in the quarter, and then two, you know, the latter part, how you're underwriting new deals without the benefit of the compression tailwind.

I'll start with that, and Eric can jump in if he needs to. The unlevered IRR on what we expect to sell this year is just under 13%, so still a really good IRR generated on those assets, which I'll also mention just by the way are 25-year-old assets to generate those IRRs. In terms of cap rate compression, yes, we've benefited from that over the last few years. And that will not obviously be the case going forward. But I think that indicates really a healthy environment where we get back to the point where location of assets really matters. And that will drive the value of an asset. And I think that benefits us long term because I think we've got some of the best located assets in the best markets today. in our region of the country, and I think that differentiation between cap rates based on location and markets will absolutely benefit us as we go forward from here. Alex, this is Eric, and I'll add to what Brad is saying there that You know, cap rates in a given market and cap rates across this region, you know, it's a function of two things. It's a function of obviously what's happening with interest rates and how asset pricing is being reconfigured, if you will. But to some degree, cap rates are also a function of sort of the demand-supply dynamic for capital, investment capital, wanting to deploy in apartment real estate. And you get a lot of buyers in a market trying to chase a few sale opportunities. It's going to have downward pressure more so on cap rates. And what I would tell you is this region of the country that we do business in, these markets continue to show very strong demand dynamics relating to job growth, population growth, household formation trends. Those variables were present before COVID and they were strong during COVID. And so as a consequence of that, I think that as you begin to think about how cap rates may change, I would argue that we may not see cap rates move up as much across a number of our markets. As you might think, and I would argue that they're not going to move up as much as you might see in other markets or other regions of the country because of the rent growth prospects and the demand dynamics that we are seeing. They're so positive across this region of the country. And then to your other point about IRR, candidly, it's not something that we spend a lot of energy focusing on. Most of the modeling that we do is built on kind of a 10-year model. And to try to think about what an exit cap rate would be appropriate 10 years from now is, who knows? And what we're really looking to do is compare the opportunity to deploy capital, create a stabilized yield on that capital that is complementary to the existing yield. We're getting off the existing asset base and then also obviously look at it on an after capex basis. So as we think about the opportunity to continue to grow the dividend. And as we look at an opportunity in front of us at the moment, certainly the development continues to make a lot of sense. We're going to be very thoughtful and careful with that. As we talked about in the past, we're not going to see our development pipeline get more than about 3% or so of our enterprise value. So we're going to keep it at a very manageable level. But we have a lot of dry powder that we're keeping available at the moment because should the opportunity on the acquisition front really start to pick up and present itself in a big way, we'll be ready to jump on that. And we've demonstrated in the past that, you know, a lot of value opportunity in that sort of focus.

Eric, that's helpful. The second question plays into that. A lot of markets talk about concern about supply in the Sun Belt. It seems that over time the Sun Belt has handily, you know, handled supply, you know, maybe with the exception of like a Houston, for example. So maybe you could just talk a little bit more about some of the supply that you're seeing in the market. Do you see it, you know, just sort of dispersed across your markets? Do you see it more concentrated in certain submarkets? And are there any areas where you, you know, could see yourself maybe next summer going, yeah, this market or that market, we have felt supply impact?

Well, you know, broadly speaking on the supply picture, I mean, what we see right now based on the data that we're looking at suggests that 2023 deliveries are going to be very comparable to what we saw in 2022. And actually, when you do an NOI weighted analysis against our portfolio, it's actually down just slightly in 23 versus 22. So I don't think that, you know, we're not sitting here today looking at numbers that suggest to us that we're going to see a big lift in supply deliveries next year relative to what we've been experiencing for the last year or two, particularly last year or 22, I should say. So because of some of the challenges that we've seen with construction labor and materials and permitting and all that goes into pre-development, we just don't see supply likely picking up, broadly speaking, in a huge way next year in 23 as compared to what we've experienced in 22. The other thing that I will tell you to your point, Alex, is Yeah, I mean, I've heard about new supply worries for 28 years since I've been here. And I will tell you, it's never been a problem. It can create some moderation here and there across the portfolio, given markets, given submarkets from time to time. But it's never been such an issue for us that we haven't been able to work through it. And one of the things that we've always done with our strategy is we work very hard to to do what we can to mitigate some of the supply pressure that does occur from time to time. That's one of the reasons why we are diversified the way we are in both secondary as well as in large markets. We have a very affordable price point broadly in our portfolio. The new product coming in to the market is generally running 25%, 30% higher risk than what we are charging. That creates some room for us, if you will, in terms of being able to weather that pressure. Not only that, but it also creates a tremendous opportunity on the redevelopment front. So, you know, as we sit here today, we are not particularly nervous about supply levels next year as we go into 2023. Thank you.

And we will take our next question today from Austin Werschmitt with KeyBank Capital. Your line is open.

Great, thanks and good morning everyone. Eric, you and the team have referenced being open to large transactions. I think probably over a year now and have been historically. And I'm just curious what you think the benefits of additional scale are to the company. at this point and what really would you be trying to achieve strategically from a portfolio allocation standpoint through a potentially larger deal?

It's hard to put a number on or quantify what additional you know, financial benefits may come from scale. We feel like, frankly, at the point we are at the moment, that we're fairly efficient in terms of what we're able to do. Certainly, you put more assets against this existing platform, there's going to be at the margin some additional opportunity that comes from that, but it's not something that we're candidly actively trying to initiate, if you will, right now. For us, our focus really is the opportunity to drive increasing scale in a very disciplined fashion through the development effort that we have and through emerging opportunity for one-off acquisitions that we've done a lot of over the years. And we think that with our development pipeline headed towards $700 billion of active construction with emerging opportunities surrounding acquisitions that we think are likely to pick up more so next year, it puts us in a position to put together fairly meaningful levels of external growth that we think we can capture just through those processes that we have without the need to go out and do something more strategic in nature. We're always open to those ideas, and we'll continue to monitor it, but it's not something that we feel a compelling need to do in any way right now.

Got it. And then I'm curious, where do you guys expect market rent growth across your portfolio to end the year? And just to be clear, I'm more focused on sort of your broader submarkets, not the MAA portfolio specifically. And then do you think next year, you know, should be higher, lower, or sort of in line with 2022? Awesome.

This is Tim. You know, the market rent growth we've seen to date is about 7% or so when you strip out sort of the baked in and everything else. You know, it's hard to say that we expect rent growth next year to be at the level that we've seen this year, which certainly has been, you know, between this year and 21 been record levels. But as Eric laid out a little bit ago, you know, we don't see in the near term anything changing too much from the demand standpoint. Supply kind of is what it is, like we've talked about. So we think we're still in a period where we can see some growth. you know, better than average, if you will, but, you know, likely not to the extent we're seeing, you know, the last 12 months or so.

That's fair. And then just last quick clarification, what's embedded in the 8.3% blended lease rate for October, you know, between new and renewal? And then presumably, should we assume, I think you said seven to eight for all of 4Q that you don't expect a lot of movement there through the balance of the year?

So the October new lease is 5.7. Renewal is 10.7. And the comment we did make around the rest of the year is we're seeing on the renewal side somewhere around that 10% for what we've signed so far.

Yeah, I'll just follow up. The forecast that we put out does imply that 7% to 8% blended for the fourth quarter. You're right. We don't expect it to move much, number one. And remember, most of the leases have been signed in the second and third quarter already anyway. Awesome.

Yeah, of course. No, that's great. Thanks, guys.

And we will take our next question today from Nick Ulico with Scotiabank. Your line is open.

Oh, thanks. Good morning, everyone. I wanted to go back to the 15% of move-ins or relocations from the coast. I think it's surprising to hear. People wouldn't expect that the numbers are still as strong on that versus a year ago. And so I guess... What I'm wondering is if you have any insight on whether certain markets are benefiting more within your portfolio, and then from a relocation standpoint, what you've learned from where, which coastal regions people are moving, and also maybe you could talk about if you have any insight on the job profile of the people who are moving.

Hey, Nick, this is Tim. Yeah, we're at the 15% for Q3 for sort of move-ins from non-MA states. That's been pretty consistent. It's kind of ranged from that 14% to 16%, you know, sort of ranged back to the beginning of 2021 or so. And so we're seeing it consistent. You know, it's coming primarily from New York and California, some of that makes sense given they're the largest states. But particularly some of the markets that are benefiting are Dallas, Tampa, Nashville, Charleston, Phoenix, Savannah, those are the largest ones, and that's been pretty consistent. And we are seeing, you know, the quality of resident, if you will, and the income levels have been pretty strong. Our rent-to-income ratio has stayed consistent now for the last couple years, around 22%. So we are seeing, you know, more sort of professionals in finance and tech and that sort of thing coming into our markets.

And is there any insight on that? That's helpful, Tim. Any insight on whether these people are working remotely or in physical, in-person jobs in your cities?

It's hard to say. We haven't seen any big, significant changes that we've noticed at the property level. It's a little bit hard to tell, but I think there's certainly some, but probably not quite to the level we saw like a year or so ago.

Okay, thanks. And just following up on some of the supply questions, as you look across your markets over the next year, maybe you could just point out which markets you do see some incremental supply pressure that could be meaningful versus some other larger markets where the supply impact looks pretty manageable.

Yeah, to point out a couple we think will be on the higher side likely are Austin and Charlotte would be a couple. And, you know, Austin's a pretty interesting test case. It's had high supply now for a few years in a row. Expect that to continue. But it also ranks at the top in terms of job growth, in migration, household formation, population. So I think to the extent that demand side stays where it is, you know, we don't, despite that supply, we don't think it'll have a significant impact on Dallas is one where supply has been pretty light, and we've seen that market come on pretty strong over the last few months. We think Dallas is one that can perform pretty well. The rest of the markets, it's pretty evenly spread, but, you know, Austin and Charlotte being the two that will probably keep our eye on a little more. All right. Thanks, Tim.

Sure.

And we will go next to John Kim with BMO Capital Markets. Your line is open.

Thank you. Good morning. I wanted to understand this dynamic. You had the strongest lease over lease growth rate this quarter among your peers when you entered the quarter with the lowest loss to lease. And that same dynamic has continued so far this quarter, low loss to lease, highest rent growth. I'm just wondering if there's a unique way that you calculate loss to lease, or maybe there's a timing difference. And if the loss leaves today, it's roughly 3%. Is that roughly where your lease growth will be going forward?

So the loss leaves are 3.5%. The way that is calculated is basically just looking at the rents we did in September that went into effect in September as compared to all in-place rents right now. And that's 3.5%. And so we typically see that number. That's calculated in that way. It's going to be the highest in the summer when rents are strongest and the seasonality is is the strongest. It'll come down a little bit as you get into the fall and likely into the winter, assuming you're seeing that normal seasonality. So that, in my opinion, that number is pretty volatile, and it's going to move around. And that's why one of the points we're making is, you know, with where we expect December to be and all of our in-place rents that'll be there in December, if you just carry that through to 2023 and assume we don't get any more rent growth, you get the 6%. To me, in terms of trying to figure out what it's going to do to impact 2023, that's kind of why we focus on that 6%.

Okay, so it's in-place rents versus what you sign versus the market, which may or may not be the same number. My second question is the concept of rent control has almost been an overnight potential risk in Orlando, one of your top five markets. And I'm wondering if you're concerned that this may actually pass, just given it was just put on the ballot a few weeks ago, and you may not have enough time to educate voters on the downfalls of rent control.

Hey, John. This is Rob. Yeah, I think if it gets on the ballot, I think it's okay. The one court that's actually looked at the – The ordinance itself effectively said that they consider that it violates Florida law. So even if it passes, ultimately don't think that it will be upheld as an effective ordinance. And then if you look at it for us, we've got nine properties in Orange County, seven in same store. And it's about 4.4% of our total. third quarter, same store NOI. And we went back and looked at it as if it were in place in 2022. And it would really only have an 18 basis point impact on same store revenue and about a 17 basis point impact on total revenue. So overall, not that material to us as we think about it. So we think it probably doesn't pass and we think it's not material to us overall anyway. And also that was in some of the the highest growth rate rent increases that we've had over this period in Orange County compared to, until recently, a relatively low CPI.

Regardless if it passes or not, does it change the way that you look at how much you push renewal rates?

I mean, if it passes, we'll be guarded in how much we push renewal rates until there's a court decision that says that it's invalid.

And John, as I think you know, if it passes, it's only good for one year, and then they have to go through the process again. So, again, you know, we think that the downside risk to us is, frankly, fairly small on this topic.

Got it.

Thank you.

We will take our next question today from Brad Heffern with RBC Capital Markets. Your line is open.

Hey, good morning, everybody. Thanks. So there's been a big divergence in how single-family home prices have been trending. You know, you have some areas in the southeast that have been holding up well, but then you have markets like Austin and Phoenix where they're dropping significantly. Obviously, multifamily is different than single-family, but I'm curious if you're seeing any differences in apartment demand in areas where you're seeing home prices show more weakness.

Hey, this is Tim. Not necessarily. I mean, we look obviously at the move outs to home buying and that sort of thing, and it's become a much smaller piece of our turnover, and that's pretty consistent across the market. So, you know, with the recent move up in interest rates, I think, you know, that probably continues. You know, even if with prices have gone down, interest rates have gone up, so the total cost is not any less than it really was before. So, Right now, we're not seeing any change from what we've been seeing.

Okay. What I was sort of getting at is, is there any sort of, like, underlying, you know, demand weakness in general for housing in a market like Austin or Phoenix that looks somewhat new?

Yeah, we're not seeing it. Traffic has been up across the board in pretty much all of our markets. We're not seeing any of the kind of doubling up. Our average occupant per unit is the same, whether you're looking at efficiencies, one bedrooms, two bedrooms, three bedrooms. We're not seeing that phenomenon of people trying to double up or anything like that. So as of right now, all the trends that we look at for that kind of thing have been pretty consistent.

Okay, got it. Thanks for that. And then on the development starts that you mentioned for this quarter, can you talk about what the expected yield is on those?

Yeah, this is Brad. Both of those are a five and a half, which is what we have been consistently underwriting recently. But I will say for both of these deals, we feel really, really good, one, about the location of of those assets. And then two, just about our ability to outperform that. As I indicated in my comments, the outperformance on our recent Jefferson Sand Lake project, certainly that's a little bit different because of the cost basis, but there are some characteristics there that I think carry over to all of our developments. And number one is that we're very conservative in our rent growth projections on these assets, significantly below what the market rent growth projections are over the first three or four years, which gives us a level of conservatism. Number two, I would say that as we expect over the next year or so, costs could come down on the construction side, which means we are less likely to dip into contingency and things of that nature on our projects. If we're able to save those expenses on these projects, that's a We call it a 40 basis points improvement in yields on that. And then I would say the third thing is that our taxes that we have underwritten on these projects are reflective of today's valuation. So to the extent we get some relief in that area, it's a lagging, kind of a lagging item. But if we get some relief in that area, we also will see some relief on our expense pressure on the tax side. So we feel really good about where we've underwritten those assets and our ability to really improve the yields from the conservative numbers that we underwrote.

Okay, appreciate it.

We will take our next question today from Rich Anderson with SMBC. Your line is open. And Rich Anderson, your line is open. Please check the mute function on your phone.

Sorry about that. My headset never works anymore. First of all, congrats to Tom. You know, as I get older, I get increasingly envious when I hear retirement. So, Congratulations. I also hate you. My first question is somewhat related to loss to lease, but not entirely. We did kind of a quick analysis of the multifamily space some point between second and third quarter to compare your rent versus the average rent within your markets, including all competitors and so on. and you sit at about 7% above the average market rent. I don't know if you agree or disagree with that, but that's where we came on MAA. I'm wondering if you think that in a recession, being above the market average is a comfortable place to be if people start to reduce their cost structure in a recessionary environment, and they might dial down to lower quality and so on. so that they can continue to have their own apartment. Is that a pressure that you're worried about at all, you're seeing at all, where you guys are operating perhaps at cream of the crop level versus some of your competition, but could put you in a vulnerable spot if we do get into a deeper type of recession?

Rich, this is Eric, and I would tell you, I mean, frankly, we think that our price point in the markets where we do business is exactly where we want to be. I wouldn't, you know, 7% above average, I wouldn't call it cream of the crop. Cream of the crop is going to be all the new stuff that's been built in the last two or three years, which is going to be 20% to 30% higher than the market average. If we had a portfolio of nothing but that, yeah, I'd be more nervous about it. But what we typically see is a trade down from, you know, the really high end product to our more affordable product, you know, to then go significantly, you know, below the market average. You start to get into a different sub market and you start to get into less amenities and you start to get into a product that, that is going to, I think, not be as appealing, if you will, to a lot of the resident profile that we serve. And I think that what we are likely to see if we find ourselves in a recession where people are really starting to think about how to lower their housing costs is you're going to see people in the very top end of the market doubling up in our properties. And I think that that's what we've seen in the past and what we would likely see again if we found ourselves in a deep recession.

Okay, good enough. And then the second question is early in the call is mentioned, you know, new rents to, you know, tier point, new developments coming in at 22%, rents 22% above where you guys are. which invites the opportunity to do upgrades to your portfolio. But that strategy only works if that 22% higher rent is actually working. In other words, those developments that are happening and coming to market are leasing up effectively and quickly. Are you still seeing that, whether it's you or somebody else? Are developments... you know, meeting expectations or is that starting to wane a little bit? And then if that is the case, maybe, you know, the idea of this being an opportunity for you to upgrade your existing portfolio maybe takes a bit of a backseat.

Rich, this is Brad. I'll address the part of that which is the current lease-up dynamics in the market. You know, we're certainly not seeing pressure and struggles from the development community in terms of the lease-up performance of assets that are in lease-up. I mean, the five properties that we have right now that are in lease-up, if they're an example, the lease-up velocity continues to be very, very strong. And those are the products, by the way, that are competing directly with the new supply in the market. Velocities are strong. Traffic is still very good in our markets. And then the rents on those assets continue to outperform. So if that's a proxy for what we're seeing in the market, You know, we're just not seeing in our region of the country struggling fundamentals yet, even on the new development side. So, you know, we're not seeing developers under pressure, fire selling or leasing their properties and, you know, offering, you know, multiple months concessions. We're not seeing that at this point. Everybody is pretty disciplined. The fundamentals still appear to be very, very strong in the lease of properties.

Rich, I'll add one point to that. The areas we're actually doing some unit interior renovates this year and the ones we're looking at for next year, it's actually a little bit wider gap. It's kind of in that 25% to 27% range on the comps we're looking at, and we're not looking to get to that range. As you know, we're kind of usually getting in that 9% to 10% range, so it still creates that gap that we think we can execute on.

Yep. Okay, fair enough. Thanks very much.

And we will go next to Chandri Luthra with Goldman Sachs. Your line is open.

Hi, good morning. Thank you for taking my question. I just have one. How do you think about the outlook for real estate taxes next year? I mean, you talked about, you know, Florida a little bit, but last quarter you'd spoken about expectation of rollbacks in Texas. So what are you seeing there right now and how do you think about real estate taxes going into 2023? Thank you.

Yeah, this is Alec. I can touch on that. So as we talked about, really, in our portfolio, Texas, Florida, and even Georgia, they're the primary areas of our taxes and our pressure that we've been seeing. Together, they're somewhere around probably a little bit over two-thirds of our tax costs, and the primary pressure comes from Texas and Florida that you just mentioned. And so for the full year, that's certainly what we're looking at. Texas is probably a little over half of that two-thirds, so you can see the significance there. Spent a lot of time working on challenging the values as we talked about and went from informal to formal, so put a lot of pressure on that. I think as, and so the change this quarter though was really about information coming in in Florida. We got a lot of information late and they typically do that and it caused us to believe that the values were a little higher than we thought they were gonna be in Florida and that millage rates, though we're seeing rollbacks, not quite what we're expecting. So I would say that in general across the portfolio we talked about high assessments, With rollbacks, that's still occurring, and we are seeing that occur. Not quite what we'd expected that caused that increase that we put in the guidance. As we look into next year, I think it's important to think about there's two main components you've got to look at. One, it's obviously a backward-looking process, and so you're going to have one positive impact, maybe the changing cap rate environment that we talked about that Brad touched on this morning. But the other side is they're looking at a really strong top line revenue growth this year when they set the values. And so both of those coming together, what we would say is, as we look forward, next year probably looks a lot like this year with maybe a little bit of upward bias because of that strong revenue performance. But as we move into 2024, and pass some of the comments Brad was saying on the acquisitions and development, you would expect that things settle down and we may see a little bit of moderation at that point because of the stabilized cap rate and rent growth environments.

Got it. Thank you.

We will take our next question today from Rob Stevenson with Jannie. Your line is open.

Good morning, guys. Al, why the 16 cent range for fourth quarter FFO per share? Seems wide sitting here basically November 1st with a limited number of leases rolling through year end. What drives you towards the low and high end of that range?

I think we narrowed that, Rob. We certainly do that each quarter as we look at it. And just really, I think it would be something significant on occupancy really at this point, I mean, I think, or some unforeseen item that we didn't anticipate. So I think it's your point that the rent pricing that is the biggest piece is pretty certain, and depending on, excuse me, performance is pretty certain, even if the pricing moves around from that expectation range. on the tip of the spear, there's few releases in the fourth quarter, so that would have less impact. It would have to be something in occupancy or in significant surprise and expenses. We don't expect that. And we did continue to narrow our range, showing that there's a little more certainty, but just felt that was prudent to leave that at that level.

Okay. And in terms of the expenses, are you having any material hurricane expenses here in the fourth quarter?

You saw in the release, we had in the third quarter, we incurred about $1.6 million of expenses for that. We were very fortunate that our portfolio there, I think, had minimal impact from that. We'll have some cleanup costs and some water intrusion, some roofing. things, but expense incurred 1.6 million, which you saw, but it's in operating expenses outside of the same store. You see that disclosed in the press release. We'll have a little bit more capital items, but together the cost is going to be pretty insignificant. We're very fortunate.

All right. And are you seeing any uptick in the last 30, 60 days in either bad debt or delinquencies in the portfolio?

We're not. I'll let Rob talk about the details if he wants to. But we have very good performance, really going all the way back to COVID. The biggest spread was, you know, worst point, about 200 basis points of delinquency. We have been, for the last several quarters, very good, though. Almost our normal long-term range was just, what, 40 to 50 basis points. We're calling it 60 to 70 basis points now. So we've been performing very well. Not quite to where we were pre-COVID, but certainly performing very well.

One point there, Rob, too, is just our current resident receivable balance is about September 30 is about $5 million compared to $5.3 million at June 30. So kind of, as Al said, I mean, trending down in the right direction.

All right. And then last one for me. Why only 658 smart homes in the third quarter versus more than 9,000 in the second quarter and 2,000 to 3,000 expected in the fourth quarter? Was it a supply of the devices issue? Was it something else that sort of drove the sort of lull in the third quarter on that?

Yeah, there was a little bit of supply chain issues there and getting – there's a couple different models out there and kind of getting some of the newer ones in that we think will happen in the fourth quarter. We had pre-planned everything we did in the first couple of quarters, which is why it was skewed that way. But we expect to get to a little more normal timeline here in the fourth quarter and then certainly in the 2023 as well.

All right. Tom, you'll be missed. Wish you all the best. Thanks, guys.

Thank you, Rob. We will move next to Ellen Peterson with Green Street. Your line is open.

Hey guys, thanks for the time. I was just hoping to follow up on Eric's comments on the trade down dynamic. Tim, based on the conversations you're having with your field level personnel, are you starting to notice that trade down occur in your portfolio and any given market?

Not necessarily. I mean, I will say, actually, if you look at our blended pricing for Q3, you know, more of our B-style assets or what you might consider the B assets in our portfolio actually did a little bit better in terms of blended pricing. So we're not seeing our existing portfolio increase. The turnover was a little higher in some of our secondary markets that have some B assets, but we're also replacing those with residents where the rent-to-income ratio has not changed. So I think to the extent we are seeing it here and there, we're able to quickly replace it with residents that have that strong affordability.

Awesome. And then in regards to the price sensitivity, what markets are you seeing the most price sensitivity? Would it be those secondary markets that are seeing a little bit higher turnover versus the rest of the portfolio? Or are there any other primary markets that are flashing maybe a yellow versus a red right now?

Now, like I said, in the secondary markets, the pricing performance has been pretty strong, and the B-type asset's been pretty strong. I mean, we are seeing some moderation. Most of it's driven by seasonality. Phoenix is one that's moderated a little bit, but it has had really strong rent growth now for two to three years straight. But, you know, the demand fundamentals, as we talked about, are really strong. Supplies kind of is what it is at a similar level. But, you know, outside of Houston and D.C., which we talked about, have been a little bit weaker markets. All the other ones are hanging in pretty consistently with what they've been doing.

Understood. Well, appreciate the time, guys.

We will take our next question today from Wes Galladay with Baird. Your line is open.

Hey, good morning, everyone, and congratulations, Tom. I just have a quick question on more of the private developer. What are they saying today? You know, yields have been quite volatile, but if rates were to stay where they're at today, what do you think your required yield would be for a new development? And when I look at, you know, mid-America, I think, you know, best-in-class balance sheet operations, you know, you try to have an implied six cap, cost of capital maybe around 7%. I mean, at a high level, I'm thinking if things stay where they're at, it has to be in the high single digits. Would you agree with that?

You know, this is Brad. I would say that's probably a little higher. I mean, I think what developers are generally trying to solve for is a return on cost, a year one return on cost on their development, similar to what we're looking at on a stabilized yield. Those are trending up to over 6% at this point. I think aside from construction costs, really what the developers have been hit with is interest rates have gone from call it three and a half, four percent, and now they're probably double that. So their interest expense have gone up tremendously on their projects. Really, from the underwriting perspective, because of the seasonality we're seeing that we didn't see earlier this year, I suspect when they go back at this point and get construction cost price updates, They may not increase quite as much as they have been, but their rent growth when they update those at this point is showing seasonality. So their yields are probably under pressure from that, and then also just the interest expense line items. So developments, I was at a conference last week with quite a few developers, and their is a general sense that most projects at this point that are not kicked off really are being pushed out. Land timing is being pushed out. Projects are being shelled at this point. So I think there's just a broad recalibration going on in the market, and it's hard to say what developers are looking for in the private side, but it's definitely higher than what it has been, and it's going to be somewhere return on cost in the six to mid-six range, I suspect.

Great, thank you for that.

We will go now to Barry Lou from Mizuho Group. Your line is open.

Good morning, this is Barry. I'm on for Handel. First of all, congratulations on an impressive quarter. I just wanted to get some clarity on the renewal rates you cited. Did I know correctly that it was 5.7% in October, but expecting 10% in the fourth quarter overall?

No, the 5.7 was the new lease rate in October. Renewals were 10.6. Got it.

Okay, thank you. And on the typical seasonality being pushed back, do you see weaker demand and the recent traffic kind of being a potential headwind in Q1 and Q2?

We have not seen any lag or any, you know, reduction in leasing traffic. We talked about our traffic in Q3 was up. Our leads are up. So, you know, the seasonality will just be, you know, relative to Q2 and Q3. Yeah, traffic will be lower and leads will be lower than what we see in those quarters. But, you know, no different than we, you know, typically expect to see in the winter seasons. So there's, you know, nothing to indicate anything different other than, as we've talked about, you know, I do think the seasonal or the normal seasonality returns more so this year, certainly that we did not see last year.

Got it. Thanks. And my second question is on just that trend. We've seen some of your coastal peers report an uptick. Is that kind of what you're saying?

What trend? You kind of cut out there for a second.

Just a trend in your bad debt portfolio.

Bad debt.

Oh, bad debt.

Yeah, I think we just talked about a moment ago. I think we've had very good performance in our bad debts, our delinquencies for really the last year, year and a half. So I think we're a little above in delinquency, our long-term rate, which is really low, 40 to 50 basis points of rents historically. We're calling it 60, 70 basis points range, but still very strong. Don't see any indications that says that's changing today or expect that change as we move into fourth quarter next year.

Okay, thank you.

And we will go now to Aaron Hecht from J&P Securities. Your line is open.

Yes, thanks for taking my question. Trends relocating from the coast, are those renters typically more transient, and do they typically move out to buy a home more quickly, or is there a trend in terms of those coastal renters coming in?

We haven't seen any indications that they're more transient. I mean, or certainly more transient to move back out of our footprint. You know, we've talked about the move-ins from out of footprint being in that 15% range now for a while. The move back out of our footprint is 5%. It's been that way for a long time. So, you know, so we don't see any trends that they're moving back to where they came from, so to speak, and haven't seen any significant trends and types of turnover or anything like that. So, No indications of it.

Okay. Yeah. I was saying being more wealthy renter that's, you know, entering the market to looking for a home and purchase, but, um, doesn't sound like it. Um, how does that 15%, um, rate the, uh, this quarter compared to like pre pandemic, uh, over the last couple of quarters, that increased significantly.

It was, it, I would say pre COVID at range in that nine to 10% range. So we have seen it pick up some, but it has now remained consistent, like we said, for the last two or three years. And you're talking about just of our move in. So when you think about the number of units with turnover and all that, it's a relatively, it's significant in terms of it's picked up, but it's still, it's not driving the bulk of our demand or the bulk of our outperformance.

Right. And then on the property management, technology savings initiatives. Just wondering, are you guys taking property managers off of the property? Are they responsible for more than one? So maybe there aren't managers there all the time. Some of these managers are changing to that format. I'm wondering if that's something you guys are looking at.

Yeah, we are testing and looking at some, you know, if you want to call it pods or whatever, where we have some oversight roles at managing multiple properties, particularly ones that are within close proximity. And with the new CRM we have in place, that's helped enable that. And there's some other things we're looking at that will help enable that. But, yes, and we talked about that a little bit on the last call. That's something that we're actively engaged in right now.

Appreciate it, guys. Thanks.

And we will take our final question today from Anthony Powell with Barclays. Your line is open.

Hi, good morning. Question on the multifamily redevelopment, I guess. One of your peers said that they're maybe pulling back on that next year due to some uncertainty and some timing. Just curious, are you going to keep your schedule in terms of redevelopments next year? And are you still seeing kind of the returns that you expect in that program?

Yeah, this is Brad. So we've got, as I mentioned earlier, a number of properties between four to six that we can start next year. Those will probably be weighted mid to late next year is my sense. So we've got a little bit of time on those really to kind of figure out where the market is and frankly, just to see if there's some reset on the construction cost side of these projects. So we've got some time under our belt from that, but as I mentioned in my comments, we have the ability to be patient on those. And the discipline that we use to help us find sites in really underwriting our deals will also be the same discipline that we use in determining when's the right time to start construction on these assets. So I'd say it's a little early right now to tell if that'll push off at all. We do have the ability, both from a timing perspective and then just also the balance sheet capacity to be able to hold those assets if we need to, those land assets.

Maybe one more for me in terms of what do you think in terms of land costs for new developments? And you talked about cap rates and how those are moving. How are land costs trending and how is that impacting your ability to do deals?

yeah i mean land is probably the last component to adjust uh if there if there's an adjustment on the development uh side uh construction cost that takes a little while to to manifest itself into the cost of the project and then land is the last thing uh that adjusts and at this point we're not really seeing uh you know any adjustment in land prices and it'll just take some time to really see if there's if there's anything to that great thank you

And we have no further questions at this time. I'll return the call to MAA for closing remarks.

No closing remarks. We appreciate everybody hanging with us this morning and look forward to seeing a lot of you over the next few weeks with upcoming conferences. Thanks a lot.

This concludes today's program. Thank you for your participation. You may disconnect at any time.