Mid-America Apartment Communities, Inc.

and Director of Capital Markets of MAA for opening comments.

Thank you, Regina, and good morning, everyone. This is Andrew Schaefer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning with prepared comments are Eric Bolton, Brad Hill, Tim Argo, and Clay Holder. Rob DelFrori and Joe Frocky are also participating and available for questions as well. Before we begin with 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 an audio recording of this call will also 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 performance trends in the first quarter were in line with our expectations, and we enter the summer leasing season well positioned. Pricing trends for new resident move-ins continue to reflect the impact from new supply delivering in several of our markets. Our renewal pricing remains strong. Encouragingly, blended lease over lease pricing in the first quarter captured 100 basis points improvement as compared to the prior quarter, followed by April pricing that was ahead of the first quarter performance. While the bulk of the leasing year is still in front of us, we do like our early positioning as we head into the summer leasing season. We continue to believe that our high-growth markets are producing solid demand sufficient to absorb the new supply in a steady manner that will enable continued stable occupancy, strong renewal pricing, strong collections, and overall revenue results that are aligned with the outlook that we provided in our prior guidance. Our leasing traffic remains strong and record low resident turnover, favorable net migration trends, and stable employment conditions across our diversified portfolio and markets continue to drive solid demand. While we expect leasing conditions will remain pressured by new supply deliveries through the year, Our on-site teams actively supported by our asset management group are doing a terrific job. Superior resident services as reflected by our sector leading Google ratings and record high resident retention rates along with several new technology capabilities introduced over the past couple of years are making a meaningful difference in this competitive environment. With new supply deliveries poised to begin tapering later this year, demand trends remaining stable and occupancy remaining strong, we remain optimistic that leasing conditions should recover quickly and begin improving in early 2025. While the transaction market remains slow, we are seeing more acquisition opportunities for new lease-up projects, which Brad will touch on in his comments, and we remain comfortable with our transaction expectation for the year. I continue to be optimistic about our ability to work through the current supply cycle with our high-growth markets and our high-growth markets' ability to absorb new supply. With a 30-year performance record focused on these high-growth markets, we've operated through prior supply cycles. Today, we believe our diversified and higher-quality portfolio, our stronger operating platform, our stronger balance sheet have its position to compete at an even higher level We're excited about the outlook over the next few years. Our high growth markets continue to offer attractive long-term appeal for employers, households, and real estate investors. We have meaningful future growth on the horizon as new supply deliveries decline and leasing conditions strengthen. Several new technology initiatives will drive further efficiencies and higher operating margins from our existing portfolio And a pipeline of redevelopment opportunities will also drive higher rent growth from our existing properties. And finally, our external growth pipeline continues to expand, setting the stage for meaningful additional NOI growth. I'd like to send my appreciation to our MAA team for a solid start to 2024. And with that, I'll turn the call over to Brad.

Thank you, Eric. And good morning, everyone. In preparation for what we believe will be a stronger leasing environment in 2025 through at least 2028, we continue to make progress in putting our balance sheet capacity to work to deliver future earnings growth. Subsequent to quarter end, we started construction on a 302 unit pre-purchase development in Charlotte, North Carolina. And we expect to start construction this quarter on a 345 unit project under our pre-purchase development platform in the Phoenix, Arizona MSA. Both projects are expected to deliver first units by mid-2026 and deliver stabilized NOI yields in the mid-6% range, consistent with what we are achieving on our current developments that are leasing. With the addition of these two projects, our active development pipeline represents 2,617 units at a total cost of approximately $866 million. With continued interest rate volatility and tight credit conditions, transaction volume remains low, But we have seen cap rates firm up a bit from fourth quarter, with market cap rates on deals we tracked that closed in the first quarter averaging approximately 5.1%, 30 basis points lower than the previous quarter. Despite the low transaction volume, our team continues to find compelling select acquisition opportunities. We currently have an off-market 306-unit suburban property in Raleigh under contract to acquire for approximately $81 million that we expect to close this month. This newly constructed property is currently in its initial lease up at 49% occupancy and is expected to stabilize in mid to late 2025. At this point, we believe our forecasted acquisition volume of $400 million is achievable. Despite the increased pressure from new supply, our four developments that are actively leasing, three of which are under construction and one that has completed and is in lease up, continue to deliver good performance. While new lease rates are facing slightly more pressure at the moment with concessions on select units up from four weeks to six weeks, we continue to achieve rents on average approximately 18% above our original expectations, driving higher than originally projected NOIs and earnings and creating additional long-term shareholder value. For these four projects, we expect to achieve an average stabilized NOI yield of 6.5%, exceeding our original expectations by 70 basis points. We continue to make progress on the pre-development work for a number of projects. In addition to the two second quarter development starts I mentioned a moment ago, we expect to start construction on one to two more projects later this year. While we have not seen a broad reduction in construction costs, encouragingly, we have achieved some level of reduction on our recent pricings. supporting our ability to start construction on these projects. We have seen better subcontractor bid participation, which we expect to lead to better execution with stronger subs throughout the construction process for our new starts. We are hopeful that the significant drop in construction starts that we've seen in our region will lead to more substantial construction cost declines as we progress through the year, allowing us to start construction on additional opportunities in our development pipeline. which today consists of 10 well-located sites that we either own or control, representing additional growth of nearly 2,800 units. We maintain optionality on when we start these projects, allowing us to remain patient and disciplined in our execution timing. Any project we start this year will deliver first units in 2026 and 2027, aligning with what is likely to be a strong leasing environment supported by significantly lower supply. Our development team continues to evaluate land sites as well as additional pre-purchase development opportunities. In this liquidity constrained environment, it's possible we could add additional in-house and pre-purchase development opportunities to our current and future pipeline. While we continue to pursue numerous external growth opportunities, our existing portfolio remains in a good position heading into the busier leasing season. Our broad diversification provides support during times of higher supply with a number of our mid-tier markets currently outperforming. As Tim will outline further, despite the high level of new supply, we continue to see solid demand and absorption, leading to improved current occupancy with future exposure better than this time last year. Our collections are strong at near pre-COVID levels at 99.6% of billed rents. Our resident base is stable, with more residents choosing to live with us longer, supported by our focus on customer service, coupled with high single-family housing costs. Before I turn the call over to Tim, to all of our associates at the properties and our corporate and regional offices, I want to say thank you for all you do to improve our business and serve our residents and those around you while exceeding expectations of those that depend on us. With that, I'll turn the call over to Tim.

Thanks, Brad, and good morning, everyone. As Eric mentioned, new lease pricing in the first quarter continued to be impacted by elevated new supply deliveries in several of our markets. This, combined with typically slower traffic patterns that are evident this time of the year, attributed to new lease pricing on a lease-over-lease basis of negative 6.2%. Renewal rates for the quarter stayed strong, growing 5%. Because traffic tends to be relatively low as compared to the second and third quarters, we intentionally repriced less than 20% of our leases in the first quarter. The new lease and renewal pricing resulted in blended lease-over-lease pricing of negative 0.6% for the quarter, an improvement of 100 basis points from the fourth quarter. Average physical occupancy was 95.3%, and collections outperformed expectations with net delinquency representing less than 0.4% of billed rents. All these factors drove the resulting revenue growth to 1.4%. From a market perspective in the first quarter, larger markets such as the Washington, D.C. metro area and Houston continued to hold up well, and Nashville showed improvement. Many of our mid-tier metros also continue to be steady, with Savannah, Richmond, Charleston, and Greenville all outperforming the broader portfolio from a blended lease over lease pricing standpoint. Our diversification between larger and mid-tier markets helps balance performance through the cycle. The improving performance of a market like Nashville, which is getting a lot of new supply, demonstrates the benefit of sub-market diversification along with the market diversification. Austin and Jacksonville are two markets that continue to be more negatively impacted by the absolute level of supply being delivered into those markets. Touching on some other highlights during the quarter, we continued our various product upgrade and redevelopment initiatives. For the first quarter of 2024, we completed nearly 1,100 interior unit upgrades. Given the number of units in lease up across our portfolio currently, we expect to renovate fewer units in 2024 than we would in a typical year, but would expect to re-accelerate the program in 2025. We have now completed over 94,000 smart home upgrades since inception of the program, and we expect to complete the remaining few properties this year. For our repositioning program, we have four active projects that are in the repricing phase, and we have targeted an additional six projects to begin later in 2024 with a plan to complete construction and begin repricing in 2025. Regarding April metrics, we are encouraged by the accelerating trends for both the first quarter and March in both pricing and occupancy. April blended pricing is negative 0.4%, a 20 basis point improvement from the first quarter, and a 70 basis point improvement from March. This is comprised of new lease pricing of negative 6.1%, a 10 basis point improvement from the first quarter, and notably a 70 basis point improvement from March. and renewal pricing at 5.1%, slightly ahead of the first quarter, and an improvement of 50 basis points from March. Average physical I can see for April was 95.5%, also up from both the first quarter and March. And as Brad noted, 60-day exposure also remains lower than this time last year at 8.5% versus the prior year of 8.8%. As we've discussed, new supply being delivered continues to be a headwind in many of our markets. but we still believe the outlook is similar to what we discussed last quarter. While we do expect this new supply will continue to pressure pricing for much of 2024, with demand and leasing traffic expected to increase in the spring and summer, we believe we have likely already seen the maximum impact to new lease pricing and that the outlook is better for late 2024 and into 2025. It varies by market, but on average, new construction starts in our portfolio footprint peaked in early to mid-2022. And we've seen historically that the maximum pressure on leasing is typically about two years after construction start. While supply remains elevated, the strength of demand is evident as well. Absorption in the first quarter in our markets was the highest for any first quarter in the last two decades and the highest of any quarter since the third quarter of 2021. Job growth is still expected to moderate some in 2024 as compared to 2023. but has recently been revised upwards and growth still expected to be strongest in the Sunbelt region of the country. Job growth combined with continued in-migration accelerate the key demand factor of household formation. Additionally, we saw resident turnover continue to decline in the first quarter, and we expected to remain low with fewer residents moving out to buy a home. In fact, the 12.9% of move-outs in the first quarter that were due to a resident buying a home was the lowest ever for MAA. That's all I have in the way of prepared comments, so I'll turn the call over to Clay.

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.22 per share, which was 2 cents per share above the midpoint of our first quarter guidance. About half of the favorability was related to the timing of real estate taxes, while the remaining outperformance is related to the collective timing of overhead costs, interest expense, and non-operating income. Our same-store operating performance for the quarter was essentially in line with expectations. Same-store revenues were slightly ahead of our expectations for the quarter, driven by strong rent collections. Excluding the favorable timing of real estate tax expenses, same-store operating expenses were slightly higher than our first quarter guidance, primarily due to one-time property costs. During the quarter, we funded approximately $44 million of development costs of the current expected $647 million pipeline, leaving nearly $202 million to be funded on this pipeline over the next two years. Although we expect to complete three projects in the second half of 2024, with the additional starts that Brad mentioned earlier, we expect to continue to grow our development pipeline over the remainder of the year, which our balance sheet is well positioned to support. During the quarter, we invested a total of $9.4 million in capital through our redevelopment, repositioning, and smart rent installation programs, which we expect to produce solid returns and continue to enhance the quality of our portfolio. Our balance sheet remains in great shape. We ended the quarter with nearly $1.1 billion in combined cash and borrowing capacity under our revolving credit facility, providing significant opportunity to fund future investments. Our leverage remains low with net debt to EBITDA at 3.6 times, and at quarter end, our outstanding debt was approximately 95% fixed with an average maturity of 7.2 years at an effective rate of 3.6%. During January, we issued $350 million of 10-year public bonds at an effective rate of 5.1%, using the proceeds to pay down our outstanding commercial paper. We have an upcoming $400 million maturity in June that has an effective rate of 4%. Following this maturity, the next scheduled bond maturity is in the fourth quarter of 2025. Finally, with the bulk of leasing season ahead of us, we are reaffirming the midpoint of our core FFO guidance for the year while slightly tightening the full year range to $8.70 to $9.06 per share. We are also maintaining our same store as well as other key guidance ranges for the year. That is all that we have in the way of prepared comments. So, Regina, we will now turn the call back to you for questions.

We will now open the call up for questions. If you'd like to ask a question, please press star then one on your touchtone phone. If you would like to withdraw your question, press star one again. In the interest of time, the company has requested a two-question limit. Our first question will come from the line of Austin Worshmuth with KeyBank. Please go ahead.

Thanks, and good morning, guys. Just want to hit a little bit on the operating side of the business and was hoping you could provide some detail on sort of the operating playbook in the next couple of months and how you're thinking about pushing on lease rate growth and occupancy and has the breakdown between new and renewal lease rate growth that you embedded in guidance changed at all at this point?

Hey, Austin. This is Tim. Yeah, I'll give you a little bit of an overview. I mean, I think we're, as I mentioned in my comments, with where we are in exposure, where we are with occupancy, we feel like we're in a good place there. So we'll continue as we get into certainly the busier part of the season now to push on new lease rent growth where we can and balance a little bit depending on property by property. It's not necessarily a portfolio-wide decision decision. We look at everything based on occupancy and exposure by property, but we're comfortable with where occupancy is, so we'll continue to push on pricing where we can. As far as the mix between new lease and renewal, first quarter was about where we expected it to be with renewals, probably 51% to 49% in terms of the total leases that we did in Q1. I would expect it to blend a little more towards renewals over the next couple quarters, so that's a key factor. Keep in mind as you think about pricing trajectory for the rest of the year that we do expect turnover to remain low and that the renewals to have a little bit heavier weight than the new leases.

That's helpful. And then the March data implies there was a pocket of softness, which I think you alluded to a little bit in your prepared remarks comparing the March versus April. I mean, anything from a comp issue or 60-day exposure perspective that caused you to pull back in March? to just position the portfolio better heading into April and May? Just looking for some additional detail there, if you could.

Yeah, I mean, there was a little bit more of a push towards occupancy, I would say, in late February and early March. It's kind of based, again, looking at it on a targeted basis where exposure was. And that late February, early March timeframe is always kind of the time of the year where you start to see lease expirations pick up, and you're kind of waiting on that demand to pick up as it has, and it starts to do in March. So there was a little bit of a lean towards occupancy during that period, and as you saw as we got into April, we saw acceleration both in pricing and in occupancy from where we were in March.

Very helpful. Thank you for the time.

Your next question will come from the line of Brad Heffern with RBC Capital Markets. Please go ahead.

Yeah, thanks, everybody. Just sticking with the leasing spreads, you know, typically you see a decent-sized uptick in April. Obviously, I know March was weak, and so there was an uptick, but it seems like it's not tremendously different than what you saw in January and February. So I guess, has traffic picked up a lot in April, and are you surprised that the leasing spreads didn't increase more sequentially?

To the first question, yeah, we have seen traffic pick up, leads, lead volume, and we look at it kind of going back to the exposure factor. We look at leads per exposed unit, and that's as good as what it was. You know, we've kind of talked about we haven't seen a quote normal year since probably 2018, 2019, so we're sort of exceeding those levels when you think about traffic volume and leads per exposed and all the things that we look at internally for demands. I mean, with the March new lease pricing, I mean, it's, you know, when you get into individual months, there can be volatility and there's not a ton of leases getting done in the first quarter. So it's going to ebb and flow from month to month. What we're looking to see is kind of quarter to quarter, see that general trajectory moving up, and we're seeing that. And, you know, it'll play out over the next three or four months. I mean, we will reprice about 50% of our lease. leases for the year between May, June, July, and August. Obviously, that'll be the biggest part of the impact of what it has on the year. And that's also when we start to see the traffic really pick up. So that's where it will really play out is over these next three to four months.

Okay, got it. And then in the prepared remarks, you said a stronger leasing environment through at least 2028 when the supply drops off. I think a lot of people would agree on 2026, but I'm curious why you would project strength that far out as the expectation that, you know, a low level of starts is just maintained indefinitely, and that's what's driving it, or if you could give your thinking there.

Hey, Brad. This is Brad. Yeah, I think relative to that comment, it's a realization that the A high level of supply that we are seeing today is partly a result of cheap financing that's been available over the last couple of years, and just realizing that in general, those times are behind us. And so getting back to a more normal supply environment going forward into the future, I do think over the next couple of years, the supply environment will be below long-term averages, but perhaps we get back closer to long-term averages as we get out a few years But then when you layer on top of that just the demand strength that we are seeing in our region of the country leads us to believe that the fundamentals could be very, very good for a number of years.

Okay, thank you.

Your next question will come from the line of Josh Dinnerling with the Bank of America. Please go ahead.

Hi, this is Stephen Song for Josh. Just a quick question on the concession usage. Wondering whether you can kind of comment on that across your markets, where you see the biggest concession and where you see maybe the improvements. Thanks.

Yeah, this is Tim. I mean, at a high level, concession usage is pretty similar to what we saw in Q4. We haven't seen it get materially worse or better. For us, the portfolio is about 0.5% of rents last quarter. It's about 0.4% of rents this quarter. At a market level, it obviously varies a little bit. I would say, again, not a lot of movement from last quarter. One market where we've seen it probably get a little bit heavier concession usage is in Charlotte, where we're seeing one and a half to two months there. Austin continues to be, obviously, a heavy concession market, but no No worse than really what we were saying before where you've got, you know, one to one and a half a month in most of the submarkets in Austin with probably closer to two if you think about central Austin. And then the other one we're keeping an eye on, I would say, is Atlanta. We're certainly in the midtown area. We've seen concession uses pick up a little bit. But broadly, you know, as I said, kind of stable and not seeing quite the usage from developers that we saw late last year.

Okay, great. Thanks. And then on a different subject, on the development yield, sorry if I missed that, but can you comment on what's the development yield you're underwriting for the new starts? And maybe also some comments on the construction costs you're seeing right now. Thanks.

Hey, this is Brad. Yeah, I would comment that the yields that we're expecting on our new starts for this year are in the mid-6% range, which is consistent with what we're delivering today on our existing development portfolio. So, you know, that is a pretty good spread from where current cap rates are. Call it low fives, as I mentioned in my comments. So we're still in that, call it 150 basis points spread or so range with current cap rates, which feels really good to us. And in terms of construction costs, You know, I mentioned it in my comments, you know, we haven't seen a broad reduction in construction costs. It's really market specific. There are some markets where the supply pipeline has really dropped faster and quicker and earlier than other markets. We're seeing some cost reduction in those markets. There are others, for example, you know, the two projects that we are starting, we have seen. Our partners have been able to get construction cost reductions. without scope reductions in those projects, which I think is a positive for both of those. But we're not seeing across the board construction cost reduction in our markets in general.

Oh, that's very helpful. Thank you.

Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. It seems like the quarter was generally in line with expectations, hit just about the midpoint, yet demand was unseasonably strong. So does that mean that demand needs to stay at unseasonably strong levels to kind of hit the high point of the guidance going forward?

I mean, I don't think it needs to necessarily stay at higher levels than what we expected. I think it needs to be at levels that we've seen pretty consistently now for a while. I mean, the demand has been there in our markets for a while. Job growth and migration continues. You know, the number of move-outs that we're seeing outside of our footprint has declined, so that net in-migration is pretty consistent with where it's been. So it's really just continuing to see the demand at a steady level, and then now as we get into a heavier traffic period, we would expect that to obviously benefit, which is what you didn't see in Q4 and Q1 is obviously the lower traffic patterns. But demand is there, and now we're getting into the heavier traffic season and heavier lease expirations, which will have a greater benefit. So I think mainly just seeing... seeing that demand at a high level, you know, it would take some sort of economic shock, I think, to move it to where it's something that is not attainable in terms of thinking about our guidance.

Thanks a lot for that. And my follow-up is what is your expectations of leasing threads during the peak leasing season and how much momentum can be picked up on the new lease side? And along with that, Can you hold renewals at 5% when new leases are down 6%? Does that lead to increased negotiation on renewals? Thanks.

Yeah, I mean, this time of the year, there's always a fairly wide spread when you're looking at new leases versus renewals. It's gapped out a little bit from where it typically is, but not hugely different. And I expect those spreads to narrow a little bit as we get into the spring and summer. Our expectation for renewals, I think we talked about a little bit last quarter, is kind of in that 4.5 to 5 range. We've been closer to 5 right now. We think somewhere in that 4.5, 4.7, 5 range is reasonable for the rest of the year. And keeping in mind, too, when you think about the lower turnover, those renewals are going to have an outsized impact on the blended leasing spreads. more so than new lease pricing. And our expectation for new lease pricing, while it is for it to accelerate from here over the next few months and then moderate back down as it gets to Q4, is still that it's going to be negative for the full year. We don't expect to see new lease pricing get to zero or get positive. I think it's probably well into the spring season, spring and summer of 2025 before we see that. But that's a high level how we're thinking about it.

And, Michael, this is Eric. Just to add on to what Tim is saying, I think another thing to keep in mind is when you look at that negative 6% on new lease pricing versus 5% on renewal in terms of the lease-over-lease comparison, that implies, I think, in some people's mind, a bigger dollar difference than what's at play, really. If you look at the actual rent amount that we're achieving on new leases and the actual rent amount that we're achieving on renewals, the spread is only about $150. And that, of course, as Tim mentioned, is kind of the biggest spread we see from a seasonal perspective. And then it tends to narrow a bit over the course of the spring and the summer. So the friction cost of moving and some of the other issues you run into moving suggests to us That spread is, and again, recognizing it's going, we think, narrow a bit over the spring and summer, we think yields an opportunity for us to continue to achieve the renewal pricing performance along the lines of what we've outlined, and we don't see any particular concerns about the spread in terms of what you're referring to.

Your next question will come from the line of Eric Wolf with Citigroup. Please go ahead.

Hey, thanks. Maybe just a follow-up on Michael's question there a second ago. You know, based on your guidance, it looks like you need around, you know, 1.7, 1.8 for blended growth to hit your blended spread guidance for the year. I mean, is that the right way to think about it? And I guess when do you think we'll hit that level?

When you say that, are you talking about blended spreads or new lease? I'm thinking about blended.

Blended spread. I mean, a blended spread, I mean, I think your guidance before was 1%. So if you're, you know, based on what you've done so far, we were calculating like 1.7, 1.8 for the rest of the year. And then I guess on the new lease side, right, if you assume 5% renewal for the rest of the year, you probably need like negative 2 on new lease. But I was just trying to understand sort of what's embedded for the rest of the year and sort of when you think we'll see those levels.

Yeah, I mean, I don't think it's quite to the level you said on new lease. I mean, a couple things to keep in mind that we sort of alluded to is, one, you know, the Q2 and Q3 will represent about, you know, 60%, 65% of all the leases, which is also the strongest period. So that will weight heavier into the full year blended. And then along with that, we tend to see the renewal portion of that mix pick up even more in Q2 and Q3 as well. So, you know, you have to, when you're thinking about it, dial in a heavier weighting on the renewals and dial in a heavier weighting on the lease spread throughout the year. So, yeah, I mean, I think, you know, we talked about kind of four and a half to five in the renewal range and new leases staying negative but certainly accelerating from where they are now and then. as you get into kind of September and beyond, would expect it to drop back down. Not quite to the level we saw in Q4 last year, but certainly a little bit further negative. But I think the main thing to keep in mind is just the weighting, both in terms of leases per quarter and then the weighting between new leases renewals.

Got it. That's helpful. There was a comment in the release, and you alluded to it in your remarks about a quick turnaround in rental performance later this year, next year. Sort of what markets do you think we'll see that turnaround the fastest? So based on your supply projections, where do you think we'll see that quicker turnaround?

Yeah, I would say that, you know, at a high level, the markets that have Been strong, continue to be strong, and I would expect to remain strong. And, you know, I'm thinking about D.C. and Houston and then some of the mid-tier markets like Charleston and Richmond and Savannah and Greenville to some extent. The ones I would keep an eye on that I think can start really helping is some of the Florida markets. Both Orlando and Tampa are starting to show some improvement and we're, I think, a little bit further along in that supply absorption, if you will, than some other markets. So those are a couple. And then I remarked about Nashville in the prepared comments as well. That's another one that I think. to see some benefit from. It's getting a lot of supply work into it, but where we are in that market is pretty well positioned. I would say those three beyond the ones that have been pretty steady for us right now.

Thanks for the detail.

Your next question comes from the line of Nick Ulico with Scotiabank. Please go ahead.

Hey, good morning. It's Daniel Tricarico. I'm with Nick. Maybe for Brad, can you expand on the confidence in the acquisition opportunity set you highlighted in your prepared remarks? And also, what is the initial and stabilized yield on the Raleigh lease-up deal?

Yeah, so the Raleigh lease-up deal is a 6% NOI yield is what we're expecting out of that. And I'm sorry, I missed the very first part of your question.

Just a general commentary you had in the prepared remarks on the confidence in the acquisition opportunity set.

Yeah, I mean, I think, you know, if you look at where we sit today, as we've said over the last few quarters, you know, the transaction market has been quiet for a couple of years, but the supply is up. So we just feel like the need to transact continues to build while we're not seeing transactions. I think the difficulty has been the volatility on interest rates has really slowed the market down from transactions occurring. But I'll tell you, Just looking at our underwriting deals that we've reviewed, the volume is up. There's more coming out. There's more in the market right now. I think first quarter what we underwrote was double what it was in fourth quarter. It's still not to where it was a couple of years ago. So we do believe that that volume just continues to grow from where we sit today. And I would say the other thing that gives us confidence really is just our history in the Sun Belt. Eric mentioned we've been focused exclusively on this region for 30 years, and we have a reputation of performance in our region of the country, whether it's on the operating side or the transaction side. So we get a lot of looks and opportunities that perhaps others do not get. The Raleigh opportunity... specifically was an off-market opportunity that we got, and I think we'll have other opportunities like that. Our relationships are pretty strong and deep in this region of the country, especially with the merchant developers who are the largest builders in this region. If you look at what we purchased over the last 10 years, almost $2 billion in Over 80% of that was from merchant developers. So we have a very good relationship with all of those folks, and we think that will lead to additional opportunities as we go through the year.

Great. Thanks for that. And then just going back to the revenue outlook, the job growth numbers you talked about in initial guidance obviously seem pretty conservative now four months into the year, but no change to the revenue components in guidance. How should we be interpreting that?

I think really just interpreting to the fact that we have the heavier leasing season ahead of us. Like I said, the first quarter leasing is about 19% of our leases, so we'll do 50% over the next four months. That's really what's driving it, just seeing how it plays out over the next few months. But certainly encourage where the demand side is.

Our next question will come from the line of Mandel St. Deuce with Mizuho. Please go ahead. Mandel, your line might be on mute.

Hey, guys. Good morning. Hi, can you hear me?

Yes.

Yes, hello? Okay, perfect. So I'm encouraged to hear that your development pipeline is leasing up better than expected and concessions are stabilizing. But my question is one, I guess more so on the private market. Are you tracking how the private market supply is getting leased up, their absorption? I'm thinking back to last summer when the private guys blinked and they dropped pricing late in the summer to achieve some target goals and end up obviously impacting demand and pricing on your end. I guess I'm curious if you're seeing anything in the data or behavior that can give you any insight into how their progress is coming along or if we could be facing the same risk later this summer.

This is Brad, and I'll start. Tim can add to it. We do have a little bit of insight in that just via a couple of avenues. One, the comp properties of all of our properties, we monitor specifically how our comps are performing. Then also, as I mentioned earlier, we just have relationships with all the developers in the market. I would say just in general, from the information that we have, we're seeing a more measured approach to concession usage this time this year than we did third, fourth quarter of last year. We're not seeing as much pressure from the developers at this point in terms of the pushing to get ahead of the supply wave. We're in the supply wave now. So now they're starting to look at potentially monetizing and transacting their properties and leaning too heavily into concessions at this point is going to severely impact their valuation. So they're being a bit more measured at this time of the year than they were last year from what we can see at this point.

Yeah, and I'll add to that. I mean, we do track properties in our markets that are in lease up and how quickly they're leasing up and that sort of thing. And nothing right now that would suggest any concerns for that point. I mean, certainly as we get later in this year and you get to the fourth quarter, You know, things can change quickly based on what they're doing, but we're not seeing it right now. But that is part of why we certainly dial in, particularly on the new lease side, that we think it'll, you know, moderate back down as you get into the fourth quarter. And even though we think supply will be less then than it is today, you know, it probably doesn't manifest itself in terms of seeing that in the numbers probably until you get into 2025.

Got it, got it. And can you remind us, you mentioned a number of your markets are hitting peak supply this quarter. Which markets are still left to hit peak supply amongst your larger markets?

Yeah, I mean, it's pretty consistent, to be honest, where, you know, again, we kind of look back to when construction starts and did a lot of looks at different markets and how long it takes to for that peak pressure to hit. And most of them are in sort of that Q2 timeframe. I would say Atlanta's probably one that's maybe a little bit behind that curve. Charlotte's one that's probably a little bit behind that curve. And then I would think of a market like Phoenix and Orlando and Tampa probably a little bit ahead of that curve. But at a high level, most are within that range and certainly within a quarter, give or take, of that same range.

Great. My second question is, I'm sorry if you've provided this, but what's the indicative pricing today for your June debt maturity? Curious what kind of rates you're seeing in the market right now and what we should assume.

Thanks. This is Clay. Right now, we're seeing anywhere between a 5.6 and a 5.7 as we look to that maturity.

Great. Thank you.

Your next question will come from the line of Adam Kramer with Morgan Stanley. Please go ahead.

Hey, thanks for the time. Just wondering where you've gone out for May, June, and maybe even July at this point for your renewals.

Yeah, for the next couple months, we're just wrapping up July now, but for the next couple months, we're kind of in the 4, 6, 4, 7, 4, 8 range.

Got it. That's helpful. And then just on the development starts, look, I really appreciate the disclosure and color on kind of the couple starts that you had in the last quarter and beginning of second quarter. And, look, I think given where your balance sheet is and given, I think, what you've described as a really compelling opportunity to deliver into much less supply in 26, 27, 28, What would kind of prevent you or what would encourage you, kind of drive you to do more development today? Again, given where the balance sheet is, I would think you have the capacity to start a bunch more. So maybe just walk us through kind of the puts and the takes and maybe just at a higher conceptual level, the thought process around whether to do more development, start more now to deliver into that kind of undersupply period in 26, 27, 28.

Yeah, hey, Adam, this is Brad. You know, certainly we have been building development as a capability and a tool for us to lean into over the last couple years. And as I mentioned in my comments, we have a pipeline of projects that we could start and really deliver value over the next couple of years. Really what's preventing us from doing that more broadly has just been, you know, hitting the returns that we need On our developments as I mentioned the two that we're starting in the second quarter You know we're able to get some construction cost reductions out of those to get the yields to where we think you know call it that hundred 150 basis point spread the cap rates puts us in that six to six and a half percent range and The two that we're starting are in that six and a half percent range so we feel really good about those developments where they're located and The markets, the ability to layer our platform onto those when they deliver and drive additional efficiencies long term. But we expect, as I mentioned, we'll start two here in the second quarter, another one to two by the end of this year. And then we have another three that we have approvals in place and ready to go if we're able to get construction costs down. far enough to make the numbers work at those hurdles that I mentioned. But aside from those, again, we are continuing to evaluate the land market. We're continuing to evaluate our pre-purchase opportunities. There could be opportunities that emerge in that area where A merchant developer that we have a relationship with perhaps has an equity partner that backs out or can't raise debt or something along those lines that provides us another opportunity to lean into that area. So development is an area that we continue to focus on and believe strongly in terms of creating long-term value through that avenue. So to the extent that we continue to get the returns that make sense, we'll continue to execute in that area.

Adam, this is Eric. Just to add on to what Brad is saying, you know, we spend a lot of time thinking about just, you know, how much development risk do we want to put on the platform? And one of the things that we sort of centered around is the idea that we'd like to keep our exposure If you afford funding obligations, if you will, at no more than around sort of 5% of enterprise value, which based on sort of where pricing is today for us, that would put it at around a billion dollars. But also recognizing that we've got a lot more of our development increasingly has been through this pre-purchase program where we're effectively partnering with merchant developers that we know quite well throughout this region And it enables us to share in some of the risk and some of the downside issues that you can sometimes run into with development. You know, taking our pipeline up a bit from where it is today is not something we would hesitate to do given both the approach that we're taking and just the capacity that we have on the balance sheet and in terms of all enterprise values. So we feel pretty good about pushing on this agenda as much as, you know, the numbers will support in terms of what Brad was discussing.

Great. Really appreciate all the callers. Thanks for the time.

Thank you.

Your next question will come from the line of John Kim with BMO Capital Markets. Please go ahead.

Good morning. I believe Adrian mentioned in his prepared remarks that acquisition cap rates have compressed to 5.1% despite the raise in interest rates. So I guess my question is, is it your view that the appetite for negative leverage has come back or were these transactions sort of one-off with below market debt?

Hey, John, this is Brad. You know, I don't think that these cap rates are representative of below market debt. I mean, I don't think there's many loan assumptions that are in these numbers that I'm quoting. And some of these are reflective of very recent transactions as of just a few days ago where we've gotten the cap rate information. So these are very current numbers in terms of yields. Honestly, the spread of cap rates is wider than what it has been in the past. I mean, the spread that we're seeing right now is from 4.5 to call it 5.5, and really, again, averaging in that low 5% range. So in terms of where debt is today, the debt rates are in the high 5% range, almost 6%. So my assumption would be that these underwritings either are assuming a run-up in fundamentals or a refinance in a couple of years where they're able to take the interest rate back down.

And are you willing to transact at these levels because this is the market now?

Well, we're not. If you look at the Raleigh acquisition, for example, that's representative, and the two acquisitions that we had in the fourth quarter of last year, that's representative of where we're willing to transact, which from a yield perspective has been in the high fives, and then the Raleigh transaction was a six yield. That's where we are comfortable transacting, and we believe, again, based on our ability, our balance sheet strength, ability to close all cash, and things of that nature, focusing on properties that are in lease up that are hard to finance, that selectively we'll be able to find some opportunities to help us hit our $400 million forecast. But at a broad market level of a five or so cap rate, at this point, we're not active in that price range.

OK. My second question, if I could squeeze one in, is on your turnovers at a record low level. which is surprising given market dynamics. I realize a lot of residents are not moving out to buy a home, but is there anything else about the residents today that are different than maybe a few years ago, whether it's they're less mobile now or the cost of moving has gone up, so they're just more reluctant to move, or maybe they're more aware of the concession game than land was used?

This is Tim, John. I don't think there's anything essentially different in the resident. We look at all the sort of the resident demographics are pretty consistent with what they've been the last couple of years. So certainly, you know, it's much more difficult to buy a house. And if you look at our markets in particular, you know, where interest rates are now, it's about 70% more expensive a house note than it is our average rent. So that's a very significant difference. And then you consider cost of moving and all that. And so that plays into it. The other reason that's down is certainly move outs to a rent increase are down pretty significantly than what we've seen the last couple years as well. So, you know, I think those two things are driving it, but primarily just the cost of buying, which is, you know, that's always historically along with job transfer by house has been our highest reason for move outs. So I think that's driving it down combined with the move outs to rent increase.

That's helpful.

Thank you. Your next question comes from the line of Jamie Feldman with Wells Fargo. Please go ahead.

Great. Thanks for taking the question. I guess just shifting gear to the expense side, can you talk more about the kind of outsized expenses in the first quarter? And just as you're thinking about your guidance for the rest of the year, you know, has anything changed? Are there any areas where you're more or less confident on being able to hit the decline items? in your numbers or just things you may want to point out that we should be paying attention to?

Sure, Jamie. This is Clay. You know, just speaking to the first quarter and what we saw there, you know, the biggest slide on paper that we had there that we called out in the comments It was really around some one-time property costs around some storm damage that we had at a number of properties. Nothing significant, but it was a bit outside of what we were dialing in for the quarter. So we think about going forward through the rest of the year. We're still early on, and when you look to what our larger expense line items are, specifically real estate expenses, we've still got some need some more information there before we can really peg that number, but we still feel very confident about our guidance that we set forth on real estate tax expenses at about a 4.75% growth year over year. Also, insurance expenses, although a much smaller component of our operating expense stack, still some more information to come on it as well. When you think about personnel costs, repair and maintenance costs, and the other line items that are touching there, We feel confident about those, and those trended in line with what we were expecting for first quarter, and we expect those to, you know, continue in that same manner over the remainder of the year.

Okay. I mean, so it sounds like you kind of baked in some risk there on all those if you're not quite sure what the outcome looks like, but you're pretty comfortable.

Yeah, I'd say that's fair. I mean, again, you know, real estate taxes, we'll get the majority of the evaluations around that. And late second quarter, early third quarter, we'll probably have a little bit more to say about that in the second quarter call. Same for insurance expense as well. And again, the other expenses pretty much in line with what we've dialed in.

Okay, great. Thank you. And then I guess just thinking about where we are in the cycle and the opportunities you're seeing, if you think about where you may be buying, you've got your more supply-challenged markets or some of the larger MSAs in your footprint. You've also got exposure in markets like Kansas City, Birmingham, Fredericksburg. Do you think the opportunities this cycle are going to show up in those types of markets more? And when we look back in five years and think about the portfolio footprints, Maybe that's where you guys grow more, or no, you want to stick with, you know, the larger population, faster job growth market as you build out the portfolio and put your capital to work.

Hey, Jamie, this is Brad. You know, I think as we look at where we want to deploy capital, broadly speaking, you know, the high growth regions of where we're located is what we're targeting. And that's going to be both our larger markets as well as, some of our mid-tier markets that you mentioned. I mean, in Tim's prepared comments, he noted some of the mid-tier markets that are performing quite well right now, our larger markets. You know, we are committed to those. I think when we combine both of those components as part of our story, it's part of the diversification that we're looking for for our earning stream, and I think they perform well together. So I would say... You would see us focus on both components there in terms of growing. I would also just say that as we focus on buying new properties generally that are in lease up where the average age over the last 10 years that we purchased has been one year, so these are brand new properties, generally those are going to follow a little bit of where the supply is. That's where the opportunities are going to be. that we're going to find. But broadly speaking, both segments of our portfolio will be areas that we focus on.

Okay. And maybe just a quick follow-up on that. Like when you're underwriting acquisitions, what is your rank growth outlook? What are you guys modeling in 24, 25, 26 to pencil a deal?

Yeah, it's going to be different based on each market, but I would say in general, 24 is going to be flattish, but you also have to remember that on our deals that we're underwriting on an acquisition, the leases are predominantly new leases, which is different than our existing portfolio, but we're generally bringing all new leases into the portfolio, so it's going to be flattish year one. 2025 is going to have a positive uptick in 26 and 27 are going to be higher than long-term averages on average.

Okay. All right. Thanks for the color. Appreciate it.

Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey. Good morning. Morning down there. Two questions. The first is, Jobs have definitely been stronger than everyone collectively has imagined. And my question is, were you guys just overly conservative in job expectations, or have the jobs truly been much better than anyone would have expected? Just trying to understand the difference, what's going on, because clearly it's allowing you guys and others to handle the supply much better than was originally believed to be the case.

We use a number of different sources to compile our view of what the demand horizon and the job growth is going to be. Obviously, a year or so ago, there was more nervousness surrounding the prospects of a more material slowdown in the economy. We have seen some moderation. and 24 as compared to certainly 23 and 22. But broadly speaking, we've long believed that these Sunbelt markets had underpinnings associated with them surrounding employer stability and job growth and new jobs coming, such that we felt pretty good about the job growth or about the employment markets broadly holding up. What has probably been, frankly, more surprising for us is just what's happening in terms of our resident behavior surrounding move outs to buying a home. The real decline in people leaving to go buy a home and resulting impact that has on demand has probably been the more surprising factor in our thinking about demand projections. We weren't, you know, really that surprised by the employment market, and the migration trends have continued to hold up very similar to what we've experienced the last few years. So I would say the home buying scenario has probably been the biggest surprise variable for us.

Okay. And then the second question is, you know, transaction market, clearly tough. But in fairness, it's I mean, the transaction market almost, I guess you'd have to go back to the RTC days for it to be, you know, sort of lucrative. And over the past decade or so since the credit crisis, you know, we've never seen assets sort of dumped onto the market. So was there a thinking that, I guess, what is your sense? Is it the bank regulators are just getting a lot more lenient with the banks? I mean, on the banks for them dealing with developers and saying, look, if the guy is sort of doing a good effort, don't force a foreclosure, don't force a sale, what do you think has changed? Because it sounds like it's more on the lending side that the owners or developers aren't being pushed to transact in assets that maybe 15, 20 years ago they would have been. So would you attribute that more to the regulators or to something else out there that's not forcing the deals that you would have otherwise expected to happen?

Yeah, this is Brad. I think there's really two components of that. I would say, number one, we have seen a number of loans specifically in 2023. The last number I saw was 85% of the loans that were coming due were pushed, were extended in 2023. So I do think there's a component of that that has occurred. I think relative to developers specifically, I think for them, Over the last couple of years, there's been a change in how they have approached their construction lending. And the term that they're able to get in their construction loans now is longer than what I have ever seen it before, where they're able to get four to five years in their term of their construction loans. And a lot of times they have the ability built in, if they're hitting certain coverage ratios, they're able to extend that six months, a year, two years. So there are certain components built into those loans that I think are allowing developers to be a little bit more runway before they're forced to sell on new construction loans. So I think those two components are really addressing that.

And Alex, this is Eric. I'll add on to what Brad's saying. A couple other things that I think I would point to as well when you try to contrast and compare the buying environment, the buying opportunity that we thought was going to be forthcoming, contrast that to historical cycles in the past, like coming out of the great financial recession, 2008, 2009, that two-year period following that fall off, we bought 9,000 apartments in two years. But a lot of that was a function of, if you will, real recession, real demands fell off considerably. And any time you have an environment where the demand is really negatively impacted, that can really create some distress. And we just haven't seen that play out this time. Demand has remained very strong. And I think that has bolstered confidence among a lot of merchant builders and banks to have the ability to sort of hang in there because the demand has been so strong. And then secondly, the thing that's at play here as compared to past cycles where buying opportunities were more plentiful is that there is so much capital on the sidelines now ready to pounce, and people know that. And so I think just the backdrop of strong demand, a lot of investor capital ready to jump into multifamily, particularly in the Sun Belt, has enabled the markets and pricing to hold up better than what I think some people thought was likely to happen.

Okay. Thank you.

Our next question comes from the line of Linda Sy with Jefferies. Please go ahead.

Yes, hi. Just wondering if you're doing anything differently on the marketing side to drive traffic in the higher supplied market?

Hey, this is Tim. I mean, probably not necessarily anything differently, you know, on a market-by-market basis, but we have done, we've actually updated our website back toward the end of February, which is intended to drive more traffic organically and through to our site as opposed to using some IOSs, which can be quite a bit more expensive. We're getting more involved in some social media things and that type of thing, but it's really just trying to drive people and traffic towards our website and really be able to experience what's there and have a better feel for the community and the neighborhood and We have everything you want to look at there with floor plans and unit types and all that sort of thing. So it's really just continuing to expand how we think about that and how we use technology there, as well as getting a little more involved in some of the social media channels.

And then along those lines, any automation or efficiency initiatives, any updates to highlight there?

Yeah, I mean, there's the website like we talked about is something that we think will not only drive down marketing costs but increase demand and the traffic coming in that way. There's a smart home initiative that we've been talking about that we're wrapping up this year. I mean, I think over the next two, three, four years, the biggest initiative in terms of what it can do for margin is continuing to sort of our ubiquitous or full property Wi-Fi. I mean, we have half of our property on a bulk Internet program now. We've been doing that for three or four years. But there's opportunities for the other half with this even enhanced version that's higher margin. You know, I think there's a $30 million or more opportunity there just on the part of the portfolio that's not on bulk. And then I think as we renegotiate some of those existing contracts, there's huge opportunities there as we look over the next several years.

Thanks. We have no further questions. I will return the call to MAA for closing remarks.

We appreciate everyone joining us this morning, and feel free to reach out for any other questions and see most of you at NAREAD, I'm sure. Thank you.

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