Mid-America Apartment Communities, Inc.

Thank you, Julianne, 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 are Eric Bolton, Brad Hill, Tim Argo, Clay Holder, and Rob DelPriori. 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. 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 on 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 good morning. Third quarter results for core FFO were ahead of our expectations as same store NOI came in better than our forecast. Based on our analysis, we believe that peak deliveries of new supply that is impacting our submarkets and properties occurred this past third quarter. Despite this record high supply pressure in Q3, we were able to capture solid performance in occupancy, record low resident turnover, strong collections, and better than expected performance with operating expenses, which all contributed to the third quarter NOI results. In addition, as Tim will detail in his comments, we are beginning to see early trends with new lease pricing that support our position that the worst of the pressures on pricing for new supply are likely behind us. As we have been discussing for the past year or so, we are now poised to see moderating trends in the amount of new supply deliveries that are impacting our portfolio as we head into 2025. We expect to see normal seasonal leasing patterns for the next couple of quarters and remain convinced that the spring leasing season will usher in the start of a recovery cycle with more favorable leasing conditions as demand and absorption trends across our markets remain strong and the volume of new supply deliveries steadily declines. With strengthening leasing conditions, significant redevelopment opportunity in our existing portfolio and meaningful efficiency gains from various new technology initiatives, We are excited about the upside outlook from our existing asset base. This momentum, coupled with the significant expansion of our external growth pipeline from our in-house new development projects, our pre-purchase joint venture program, and our recent new property acquisitions all combine for what we believe is a positive outlook for meaningful value growth. Before turning the call over to Brad, I'd like to send my appreciation out to our MAA associates for their tremendous work and great results over this very busy third quarter. Now I'll turn the call over to Brad. Thank you, Eric, and good morning, everyone. MAA's long-term strategy of focusing on high-growth markets and diversifying within those markets uniquely positions our portfolio to benefit from the continued strong demand in our footprint. As an attractive, more affordable alternative to much of the higher-priced new multifamily supply being delivered, as well as the available single-family housing options, our residents are choosing to stay with us longer, with only 11.5% of our move-outs occurring due to residents buying a home. Our customer service is reflected in our Google Scores, which continues to lead the sector, supports our strong renewals, and record low turnover rate. With our 60-day exposure, which represents all current vacancies and notices over the next 60 days, 30 basis points better than last year, and new deliveries poised to decline, our communities are well positioned for the seasonally slower months and for what we believe will be a stronger leasing environment in the spring and summer of 2025. Throughout this year, we've continued to make progress using our balance sheet capacity to support future earnings growth. In the third quarter, we added two new projects to our under construction development pipeline, bringing our total under construction developments to eight projects representing 2,762 units at a cost of approximately $978 million, a record level of development for MAA. In addition to the previously disclosed 239 unit Charlotte project, where we provided financing to take out the equity partner on an under construction community, We also closed and started construction on a 360, excuse me, 306 unit community in Richmond, Virginia in the third quarter. The Richmond project was a fully entitled shovel ready development that we took over from a developer who was unable to obtain financing. The Charlotte project should deliver first units in the third quarter of 2025. And we expect the Richmond project to deliver first units in first quarter of 2027. We expect to start construction on one more project during the fourth quarter, bringing our total development starts for the year to five at a cost of $508 million, exceeding our original guidance for the year. We expect these projects to deliver an average expected stabilized NOI yield of 6.3%. With our development pipeline approaching $1 billion, our focus turns to maintaining our pipeline at this level going forward. Pre-development work continues on a number of projects in our pipeline, which now includes 10 projects representing future growth of over 2,800 units at an expected cost of $1.1 billion. We have seen some construction cost declines in a few markets and remain hopeful that as the total under-construction pipeline in our markets continues its steep decline, we could see further improvement in construction costs and schedules as well as we get into 2025, supporting our ability to start construction on additional opportunities at compelling yields. In the transaction market, volume remains relatively low with cap rates trending down into the high 4% range. Our team continues to find select but compelling acquisition opportunities at pricing the market cap rates, generally in lease up and often on an off-market basis. In the third quarter, we closed on a 310-unit suburban property in Orlando for approximately $84 million, approximately 10% below replacement costs. This newly constructed property is nearly stabilized at just under 90% occupancy. Subsequent to quarter end, we closed on a 386-unit mid-rise property in the Knox-Henderson area of Dallas at pricing 15% below current replacement costs. This property just wrapped up construction and is in its initial lease up. This brings our total acquisition volume for the year to just over $270 million at an average stabilized NOI yield of 5.9%. Our team is actively evaluating other acquisition opportunities, and we are hopeful we'll close another compelling acquisition before year-end. Subsequent to quarter-end, we sold a 216-unit property in Charlotte, North Carolina for $39 million. And we have an additional property in Richmond, Virginia, under contract to sell with an expected closing during the fourth quarter. We have two more properties in Columbia, South Carolina, on the market with a likely closing in early 2025. Before I turn the call over to Tim, I want to echo Eric's comments to our associates. Thank you for your hard work and dedication during this busy third quarter. With that, I'll turn it over to Tim. Thanks, Brad, and good morning, everyone. As noted by both Eric and Brad, various demand metrics we track remain strong, partially mitigating the impact of new supply deliveries that we believe peaked in the third quarter. Sixty-day exposure is better than at any point over the last five years. The seasonal deceleration of new lease pricing is less than the prior year and pre-COVID periods, and absorption remains strong. However, pricing growth, particularly on new leases, continues to be impacted by elevated new supply deliveries, but as noted, showed less seasonal deceleration than we typically see this time of the year. For the third quarter, new lease pricing on a lease-over-lease basis was minus 5.4%, just a 30 basis point decline from the second quarter compared to a 270 basis point decline over the same period last year. In fact, 10 of our top 15 highest concentration markets showed new lease-over-lease growth acceleration from the second to third quarter. Renewal rates for the quarter stayed strong, growing for lease-over-lease basis. These two components resulted in lease-over-lease pricing on a blended basis of minus 0.2%, also a 30 basis point decline from the second quarter and compared to a 220 basis point decline over the same period last year. Average physical occupancy was 95.7%, up 20 basis points from the second quarter, demonstrating the strong absorption in our markets. Collections continued to outperform expectations, with net delinquency representing just 0.4% of billed rents. All these factors drove the resulting same-store revenue that was in line with the third quarter of 2023. Along with the demand metrics noted, Our unique market diversification strategy that Brad mentioned continues to benefit overall portfolio results. As we have mentioned previously, several of our mid-tier markets are holding up better in this higher supply environment. Savannah, Richmond, Charleston, Greenville, and our Fredericksburg and our other northern Virginia properties are all outperforming the broader portfolio from a blended lease-over-lease pricing standpoint. Particularly in a down cycle, our portfolio balance between large and mid-tier markets helps strengthen overall portfolio performance. Also, as has been the case all year, Austin, Atlanta, and Jacksonville are markets that continue to be more negatively impacted by the absolute level of supply being delivered into those markets, with Austin being the toughest challenge of all the markets. We continue to execute on our various redevelopment and repositioning initiatives where it makes sense in this elevated supply environment. with the expectation of starting to re-accelerate next year. For the third quarter of 2024, we completed over 1,700 interior unit upgrades, achieving rent increases of $108 above non-upgraded units. We are encouraged by the strength of this program in this competitive environment, demonstrated by the fact that these units lease quicker on average than a non-renovated unit when adjusted for the additional turn time. For our repositioning program, we have two active projects that are in the repricing phase with NOI yields approaching 10%. We have an additional six projects underway with a plan to complete construction and begin repricing in the spring of 2025 in what we believe will be an improving leasing environment. As we wrap up October, we are seeing normal seasonal moderation but are encouraged by demand that should continue to keep the sequential seasonal pricing deceleration better than historical trends. Our 60-day exposure of 6.3% should serve to keep occupancy stable and allow for more pricing power than last year, as we also start to lap new lease pricing that weakened significantly during the fourth quarter of last year. Absorption remains strong in our markets, with the third quarter representing the first time since the first quarter of 2022 that units absorbed exceeded units delivered. Therefore, there's not a significant backlog of inventory needing to be absorbed. Accordingly, October new lease pricing is within 10 basis points of September new lease pricing, demonstrating this demand and our expectation of less seasonal moderation in the fourth quarter than we normally experience. Furthermore, lease over lease rates on accepted renewals for November and December are in the four and a quarter range. And we will only reprice approximately 16% of our leases in the fourth quarter, which minimizes the impact of this moderation on the portfolio. As we have discussed over the last few quarters, new supply deliveries continue to be a headwind in many of our markets. However, we still believe the near-term outlook is in line with what we have discussed the last few quarters. That is, we expect this new supply will begin to moderate and that we have likely already seen the maximum impact of new lease over lease pricing growth and that the supply-demand balance continues to improve from here, subject to normal seasonality. At a portfolio level, construction starts in our footprint peaked in mid-2022, and we have seen historically that the maximum pressure on leasing is typically about two years after construction starts. That's all I have in the way of prepared comments. I'll now turn the call over to Clay. Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.21 per share, which was $0.05 per share above the midpoint of our third quarter guidance. Just under $0.03 of the favorability was related to favorable same-store expenses, with an additional $0.02 driven by a combination of favorable overhead costs, interest expense, and non-operating income. Our same-store revenue results for the quarter were relatively in line with expectations. As Tim mentioned, same-store revenues benefited from strong pockets during the quarter. Our same-store expense performance, particularly real estate taxes, was favorable compared to our guidance for the quarter. We received property valuations for our quarter portfolio, which were lower than our expectations. Repairs and maintenance costs continue to show moderation, growing at 2% compared to third quarter last year.

During the quarter, we funded nearly $167 million of development costs of the current $978 million pipeline, leaving an expected $368 million to be funded on this pipeline over the next two to three years.

We also invested approximately $13 million of capital through our redevelopment and repositioning programs during the quarter, which we expect to produce solid returns and continue to enhance the quality of our portfolio.

Our balance sheet remains solid.

We ended the quarter with just over $800 million 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 3.9 times, At the quarter end, our outstanding debt was approximately 90% fixed, with an average maturity of seven years at an effective rate of 3.8%. Finally, we are reaffirming the midpoint of our same-store NOI and core FFO guidance for the year, while revising other areas of our detailed guidance that we've previously provided. Given our operating results achieved through the third quarter, we are slightly adjusting the midpoint of effective rate growth guidance by 15 basis points to 0.35%, and revising total same-store revenue guidance for the year to 0.5% at the midpoint. With property valuations for our Florida portfolio now known, we have more insight into our overall real estate tax expense for 2024 and are lowering the midpoint of our guidance to 2%. This results in the lowering of our property operating expense growth projections for the year to 3.75% at the midpoint. The changes to our property operating expense projections, combined with our updated same-store revenue expectations, results in reaffirming our original midpoint expectation for same-store NOI at minus 1.3%. In addition to updating our same-store operating projections, we are revising our 2024 guidance to reflect favorable trends in G&A and interest expense. These adjustments, combined with the two to three cents of estimated impact of cleanup costs related to storms in the fourth quarter, resulted in us maintaining the midpoint of our four-year core FFO guidance at $8.88 per share, while narrowing the range to $8.80 to $8.96 per share. Including the fourth quarter, we estimate our 2024 results will include approximately 8 to 9 cents of total storm cleanup costs compared to 1 cent of cost included in our initial 2024 guidance. That is all that we have in the way of prepared comments. Julianne, we will now turn the call back to you for questions.

Thank you. We will now open the call for questions. If you would like to ask a question, please press star then 1 on your touchtone phone. If you would like to withdraw your question, you may press star 1 again. Our first question comes from Jamie Feldman from Wells Fargo. Please go ahead. Your line is open.

Great. Thanks, and good morning, and thanks for taking the call. Sorry, the question. I guess just to start, can you talk about your 4Q expectations for blended rent growth and occupancy? You may have run through them, but I think it went kind of quickly. I don't know that I got it all. But I guess just trying to figure out, you know, if you think about year-end occupancy, you sounded pretty positive on demand and on renewals. So just what are you thinking at year-end and how 4Q looks for occupancy and blends?

Yeah, Jamie, this is Tim. Yeah, I think in terms of occupancy, pretty consistent with where we are right now. We're 95.4% currently. I think 95 to 4, 95.5% for Q4 is a range we're comfortable with, particularly with where we see exposure right now. As I mentioned in my comments, the renewal rates we're getting for November and December in the four and a quarter range, so call it four to four and a half for the fourth quarter in terms of renewals. And then on new lease pricing, you know, we mentioned the new lease pricing for October moderated only about 10 basis points from September. It was 6-9 in September, 7 in October. I think you see a little bit of moderation from here, but not much, and see less deceleration than we typically do as we commented in the call.

Okay. Thank you for that. And then, I mean, guidance, you know, full-year guidance, now seem conservative when you first gave it. Um, as we think about 25, I mean, is there still a lot of juice to get on the expense side that you, that could help you, um, you know, with, with efficiencies or anything else, or do you think you get back to more of a normalized growth rate?

Yeah. I think just kind of thinking through the expense structure, I mean, starting with, with real estate tax expenses and insurance and, you know, the, the, The growth that we've seen in real estate tax expenses of 2%, I believe that will be a little tough to repeat that level at next year. I would think that that would get to more of a normalized growth rate, call it somewhere between 3% and 4%. but I believe that that would be appropriate for real estate taxes. Insurance, we had the slight decrease in our premium renewal this past July, and so we'll get that for the first half of next year, and then we'll have to reprice in July of next year. It's hard to say at this point where that's going to ultimately end up. I don't think it gets back to the levels of increases that we saw over the past couple of years, but I also don't think it's going to be flat either. So somewhere in the 5% to 10% range, keeping in mind that insurance is just a small piece of our overall expense debt. And in regards to personnel costs, you know, I think that that continues to moderate a little bit. And as we get some of these inflationary impacts behind us, similar things for repair and maintenance. We've talked about some of the moderation we've seen this past year in repair and maintenance. I don't know that we'll be back at that level in 2025, but I think it will also be more of a reasonable growth rate, you know, something around 3 to 3.5%. You know, marketing expenses, I think, would be the other one to call out that continue to may run a little high in the first half of the year, but I would expect that to come back down as we cop some of these increases that we've seen this past year.

Okay, great. Yeah, that was super helpful. Thank you.

Our next question comes from Josh Dennerlein from Bank of America. Please go ahead. Your line is open.

Yeah. Hey, guys. Thanks for the time. I'm just kind of curious, is there any way to kind of quantify, like, the impact of, like, the deliveries on that new lease rate growth? Like, are there any good examples of markets where you didn't really have supply pressure and maybe just how the new lease rate growth trended in those markets versus more supply-heavy markets?

Yeah, I mean, there are a couple markets. Austin, as we've talked about all year, continues to be, you know, our most challenging market, and we saw new lease rates in Austin. pick up in a negative way quite a bit from Q2 to Q3. We saw a little bit in Raleigh, but I think the point as far as Q3 is concerned, it was pretty targeted to a couple of markets. I made the comment in the prepared comments that out of our 15 highest concentration markets, we actually saw 10 of those 15 new lease rates accelerate And so actually, if you pull out, if you focus on just Austin and pull the new lease rates in Austin out of both the Q2 and Q3 numbers, we actually would have seen new lease rate from Q2 to Q3 accelerate about 10 basis points as opposed to a 30 basis point decline. Certainly, Austin was a big driver. Atlanta continues to be a struggle. But, you know, obviously, we feel really good about Austin long-term. It's just working through a lot of supply. But it did have an outsized impact on what we saw with new lease rates.

Okay, interesting. And then in those higher supply markets, were those also skewing renewal rates down as well? Because you have, like, a similar staff for renewal. Do you, like, strip out Austin for the high supply markets?

Yeah, I mean, it impacts renewals in some extent. If you think about for the third quarter, renewals were somewhere in the 4% range, 4.1%. Austin was 1.5%. I'll give you some perspective on that. So it does tend to impact renewal rates a little bit, but we certainly see much stronger renewal spreads than we do even for some of those more challenging markets.

Cool. Appreciate the color. Thank you.

Our next question comes from Nick Ulico from Scotiabank. Please go ahead. Your line is open.

Hey, good morning, guys. It's Daniel Tricarico. I'm with Nick. I wanted to clarify how you're thinking about this peaking of supply ultimately impacting market rent growth next year. I'm obviously not talking guidance, but there's obviously still a lot of units to absorb. So just curious how you'd see that relative change in supply impacting the seasonal curve in market rents in those higher supply markets.

Yeah, I mean, as we've talked about, supply definitely peaked sort of the mid to second, third quarter of 2022. And that's pretty consistent across all our markets. Some of them lagged or were ahead of that, maybe a quarter or so. pretty consistent. So as we talked about, we think about two years from start is when we see the maximum amount of pressure, which is kind of about right now and what we saw in Q3. I think we'll see a little bit of moderating pressure in Q4, won't necessarily show up with seasonal moderation and just less traffic, less leases expiring. So I think as we get into the spring and summer, I would expect we'll see normal seasonality just like we would any other period, but start to see some strength, particularly on the new lease side, as demand picks up seasonally and as the impact of the moderating supply, which we think, you know, we think in general supply is probably down 20% or so in 2025 as compared to 2024. So should start to see that strength as we get into the spring.

That's great. Thank you. And then can you just quantify what you'd expect the lost lease and revenue earning to be at the end of the year?

Yeah, I think in terms of earn-in, you know, if you think about our blended lease-over-lease expectations for full year 2024, it's somewhere in that negative 3% range. And, you know, half of that, if not a little more, carries over into 2025, which kind of drives the earn-in. So, you know, it's slightly negative, call it 20, 30 base points, somewhere in that range of where we sit right now in terms of earn-in.

Our next question comes from Michael Goldsmith from UBS. Please go ahead. Your line is open.

Good morning. Thanks a lot for taking my question. Absorption was clearly a positive in the quarter. Do you assume that elevated absorption levels continue through the remainder of the year, level of demand is baked into guidance, and have you seen traffic or conversion levels move or change as we've moved into the slower leasing season? Thanks.

I'm not sure I caught all of that, but I know you were asking about absorption initially. I mean, yeah, we don't see any reason for absorption to go backwards. I mean, if you look at absorption so far this year, Q1 was a record high for any first quarter since we've been tracking it. Q2 was the highest absorption since early 2021. And Q3, as I mentioned, saw us actually – absorb more units than were delivered for the first time since Q1 of 2022. So we don't see anything on the demand side that's moderating. I mean, you think about job growth, household formation, population growth, you know, move outs to buy a home. We expect turnover to continue to stay low. So I think demand will hold up strong, and as supply starts to moderate, which we think it will, I would expect absorption to be as good, if not better, as we look into 2025.

Got it. And as a follow-up, and I'll try to streamline my questions better, but just, you know, how are concession levels trending for merchant developer lease-up properties? Are you offering any concession at stabilized properties? And maybe just can you frame the price differential if there is any between the typical MAA property and the new developments?

Yeah, I mean, broadly, concessions in Q3 were pretty consistent with Q2. I mean, it's pretty standard in a lot of markets that you're seeing, you know, on a stabilized market. you know, in a stabilized sub-market, half a month, two months, something like that. Now we are seeing in lease-up areas a little more than that. And as, you know, the markets I've mentioned, particularly Austin and Atlanta, you know, in Austin you're seeing up to three months. When you think about central Austin and Round Rock, Georgetown area, and then particularly in midtown Atlanta, seeing up to three months. So I would call out those two kind of sub-market markets as the highest concessionary environment. but pretty consistent with what it's been in most of our other markets. But we are still seeing, if we look at the new supply being delivered on aggregate, it's about anywhere from $250 to $300 higher price point than our average portfolio.

Thank you very much.

Our next question comes from Brad Heffern from RBC Capital Markets. Please go ahead. Your line is open.

Yeah, thanks. Obviously, leverage is still well below the long-term target, and it seems like you're seeing a lot of opportunities both on the acquisition and development fronts. Does it make sense to grow at this point using mainly leverage to get metrics back into the target range, or do you want to save that capacity for something bigger?

Yeah, right now, that's kind of where we're leaning into. I mean, when we look at, you know, our cost of equity versus our cost of debt, right now we're actually trading at probably a slight So, you know, we're going to probably lean more into the debt side versus the equity side for the time being. But, you know, as things begin to change and, you know, we expect, you know, maybe still get a little bit more benefit there on the equity side at some point.

And, you know, we probably lean a little bit more in that direction when the time is right.

Okay, got it. And then I think I heard you say 3% gained a lease earlier in the call. Correct me if I'm wrong, but I would think that that would weigh on new lease spreads in 25. I'm just curious, big picture, when you think we might see those actually turn positive.

We didn't. Didn't say 3%. I think our gain to lease right now, if you look at where October rents or October leases compared to in-place rents, it's about 0.7 gain to lease, which is not too unusual this time of year. With seasonal, you know, pricing starts to decelerate some seasonally. So it's not a, you know... not a not a big number for us right now i think what we did talk about was just kind of the earn and being slightly negative headed into 2025 and then i would expect we see better new lease pricing in 2025 as compared to what we saw in 2024. okay thank you our next question comes from alexander goldfarb from piper sandler please go ahead your line is open

Hey, good morning. Thank you. Two questions here. First, just based on your responses to a lot of the other analysts, it sounds like one, Atlanta and Austin are the only two markets of supply concern. And then two, it sounds like your comments around strengthening 25 and being in a better leasing position is predicated on the current run rate of absorption Meaning, like, even though you expect absorption rates to improve, your comments around expectations of leasing for 25 aren't predicated on improving absorptions based on the current trend.

Yeah, I would say your second point is right. I mean, we're, you know, we would expect to see Consistent demands, certainly consistent, if not a little bit better absorption, but where we think and would like to see that play out is more on rates and more on new lease rates as opposed to trying to get occupancy to 96 or 96.5 or something like that. We would prefer to focus on rates. To your first point, I mean, I wouldn't say those are the only ones feeling supply pressure. Those are certainly feeling more supply pressure. I mean, Most of our markets are getting more supply than what we would call a typical market, but, you know, holding up a little better given where the supply is occurring relative to our markets and demand and all that. So we're certainly in a more elevated supply picture, but also in Atlanta are ones that stand out a little bit. But I think those start to get better next year as do most of our other markets. You know, I think it's – Alex, this is Eric. I think it's important to just recap what Tim said earlier, is that, you know, of our 15 largest markets, 10 of those actually saw new lease-over-lease pricing improve in the third quarter as compared to the second quarter. And if you take just Austin out of the mix and just exclude Austin from our Q2 and Q3 performance trends on new lease pricing, Our new lease pricing in Q3 would have been up 10 basis points from where it was in Q2. So Austin clearly is having an outsized impact on the portfolio right now. We feel great about that market long term, but certainly in 2024, you know, it's weighing on the performance of the portfolio as a whole, given just the absolute level of supply that came into that one market.

Okay. The second question just revolves around the hurricane situation. obviously some big storms. As you guys assess your portfolio, because it's incredible, the REITs never really seem to have any major damage. Is it a matter of either one, you guys really only buy properties or invest in properties that are away from rivers, are away from shorelines, are elevated? Or is it some of the steps you're taking? Or why is it that we see some devastation, but then when the REITs report like you guys, the damage is minimum? Just trying to understand if that's active management on your part as far as how you select the properties and where geographically you're keeping or if there's something else at work?

It's Rob. I think it's really a combination of factors. I think part of it is the selection of the sites and what we're building, but ultimately it's the ongoing repair and maintenance that we're spending on the properties, making sure that the roofs are relatively new, they're intact, and the preparation we do before that it really is only cleanup that we're stuck with and kind of some landscaping and other smaller things.

Thank you.

Our next question comes from Handel St. Juice from Mizuho. Please go ahead. Your line is open.

Hey, guys. Thanks for taking the question. Can you talk a bit about the transaction market and the opportunities coming across your desk? It seems like More sellers willing to engage with cap rates down to five, even sub-five, as you noted. So as you guys look at the opportunities coming across your desk, what are the key items or non-negotiables you're seeking? Is it newer assets with operational upside, as you talked about previously? And then maybe some color on the compelling, I think is the word used, opportunities that you're looking at here, potentially closing by year-end. Is that a comment on the size, value creation, IRR potential? What's so compelling? Some color would be appreciated. Thanks.

Hey Hendell, this is Brad. I mean, generally relative to the compelling comment, you know, that really is similar to what we're investing in today. And if you look at the stabilized NOI yields of the three acquisitions we've had this year at 5.9% relative to where current market cap rates are, you know, those are pretty compelling returns, I would say. Really what we're focused on and where we're finding our opportunities are on properties that are generally brand new. Most times they are just finishing up their initial lease up, or excuse me, just finishing up construction and just entering in their initial lease up. It's assets that are tougher for other folks to get financed, but given our ability to close all cash, we have some competitive advantage versus others in the market. There's also opportunities for us to put our operating platform on these assets to drive additional returns that many other folks can't do. Oftentimes, we're looking for properties that are in a proximity to current assets that we have where we're able to prod those properties and really generate additional returns. So those are kind of the competitive angles that we're looking for where we're able to generate additional returns. And then the last point I would just make is generally a lot of what we're doing is off market. We have extensive relationships in this region of the country exclusively operating for 30 years. About 80% of the $2 billion that we've purchased over the last 10 years have been with merchant developers. So we have extensive relationships that we're able to lean on that allow us the opportunity to execute at returns that often exceed what the market rates are.

Got it. Appreciate that. Just going back to development pipeline for a moment, now up to over a billion, I think you mentioned, and with a sizable opportunity beyond that with the shadow pipeline. I guess I'm curious, how large could that development pipeline In the near term, how aggressive could you be given the opportunity you see into 26? And then maybe some color on which colors of projects are likely to be started next and how you're thinking about underwriting the rent growth in those markets the next couple of years. Thanks.

Yeah, if I forget something in that question, please let me know. But yeah, I mean, in terms of the size of the development pipeline, we've commented for a couple of years now really I desire to build that pipeline to a billion-billion-two total size. Today we're just under a billion, so we've got a little bit of room, you know, to grow that a little bit. That would equate to about three to four starts a year in over a three-year period, which is really the timeline it takes for most of these projects. That gets us to our billion-billion-two. So that's really – we're very comfortable, given the size of our balance sheet, of really maintaining our pipeline size. at that level and clearly given what we think are going to be strong operating fundamentals in 26-27, this is a great time for us to be ramping up that development pipeline to that billion-billion-two level. In terms of how we're underwriting these projects, very conservatively, you know, the Developments that we have delivering today, on average, even in this high-supplied environment, we're exceeding our underwritings on average by about 50 basis points. So we underwrite very conservatively, very little trending in rents for the first few years, and typically you get to year three, year four, you start trending a little bit more We're turning our expenses the entire hold period. So that's generally how we underwrite our deals, but on a very conservative basis.

Okay, thanks. Appreciate that.

Our next question comes from Buck Horn from Raymond James. Please go ahead. Your line is open.

Hey, thanks. Good morning. I just wanted to follow up on that. I'm thinking about the Richmond asset in terms of the start there. You know, as you're rebuilding the development pipeline, thinking about your large markets versus mid-tier markets, would you expect to kind of restock and maybe look at more development opportunities in those mid-tier markets? And I'm kind of wondering what the differential in yields might be to do a development in a larger market versus a mid-tier market right now.

Hey, Buck, this is Brad. Yeah, I mean, we definitely believe in our strategy of allocating capital between both large markets and these mid-tier markets. So we are very much committed to continuing to growing our presence and allocating capital both through acquisitions and development in some of these mid-tier markets. And, you know, really it's been a function of just where the opportunities have come. So we haven't seen as many opportunities given the lower level of supply in some of these mid-tier markets, but we are seeing some of those opportunities now. We acquired the Raleigh project earlier this year, the development here in Richmond. So you'll see us continue to have a focus in those mid-tier markets. You know, I would say from a stabilized yield perspective, there's maybe 10, 20 basis points difference in today's rate. So Richmond's close to 6.5%, and some of the other projects are maybe 6.25%, 6.3%. So there's not a big swing in terms of some of the yields for these projects, but really that is going to manifest itself maybe a little bit on IRRs, where we're getting higher IRRs on the projects in the secondary markets as the exit cap rates may be a little bit different. But that's really the only difference in terms of the underwriting. projects.

That's great. Really helpful.

Second question, with some of these new mandates coming out for return to office, I know it's maybe not as big in Sunbelt markets, but have you seen any changes or shifts recently in terms of traffic releasing patterns in urban locations versus suburban locations that might be affected by certain return to office policies?

Hey, Mike. This is Tim. Nothing that we've seen, you know, at a material level. I mean, we did see, you know, we talk about performance between A and B assets and urban-suburban. We did see that narrow a little bit where the urban property is performing a little bit better. I'm not sure that's necessarily related to anything returned to office, but we did see a little bit of performance there. But, no, broadly speaking, not seeing a lot of shift in any of the metrics that we tracked.

Got it. Thanks, guys. Appreciate it. Good luck.

Our next question comes from Eric Wolf from Citi. Please go ahead. Your line is open.

Hey, thanks. As you get ready to give guidance next year, I guess what will you be looking at over the next couple months to determine your view on market rent growth or blended spreads for next year? You know, I think you said new leases might be down like 7 or 8% in November and December. Does that even weigh into your view? Does it not really matter? Just wondering what we should be looking at to kind of understand what market rent growth should be like next year. Yeah, I mean, I think new lease pricing is the key metric that we're looking at in terms of, you know, it's not going to – what happens in the rest of this quarter – is not going to be impactful necessarily to 2024, but does have some impact to some extent on earn in and where we start the year. You know, occupancy we think will be relatively stable. And so, you know, it's going to, and we think renewals will continue to be stable. They've been in that four to 5% range all throughout this year. So we don't expect to see that change necessarily. So it's, it'll come down to the new lease rates and sort of where those, how those play out. And then, you know, we'll have more to say as we, as we get into Q4 earnings release. But certainly sitting here today compared to where we were 12 months ago, feel a lot better, both in terms of just macroeconomic variables. Recession risk is down. There's a little more certainty there. We know supply is starting to moderate. And so feel pretty good that it sets up for a little bit better year. I mean, it's still going to be elevated supply. And, you know, even in a, quote, normal environment, new lease rates in Q1 and Q4 are typically negative. So we don't expect that necessarily to change, but we do expect to see a little more positive momentum in terms of new lease pricing when we get into Q2 and Q3. You know, the other thing that I'll add to that quickly on top of Tim's comment is that Don't forget what Tim mentioned in that, you know, we intentionally only have about 16% of our leases expiring in the fourth quarter. And then you consider that roughly, you know, a good percentage of those are going to renew as a renewal transaction versus a new lease transaction. So the overall impact on earn-in from new lease performance between now and the end of the year is not as significant as you might think it is given the low percentage of leases set to expire and the split between renewal and new lease pricing that will take place. Yeah, that's helpful. And then I guess are there any other items that we should be thinking about when it comes to your revenue growth potential next year? I know I sometimes ask about this other income, but I think you've been studying the the Wi-Fi cable program. So I was curious if that might pick up next year, if that's maybe an opportunity, you know, more for like 2026 and 2027. Yeah, I mean, you called out one that can start to have an impact. I mean, we're testing or retrofitting four properties this year that are just now starting to go live that have that property-wide ubiquitous Wi-Fi, if you will. So if you think about those four properties by themselves as Once it's fully rolled out and kind of flows through the portfolio, it's close to a million dollars. So you can start to extrapolate the opportunities that we have there. We expect to expand that pretty significantly next year, initially looking at maybe 20 to 25 properties that we do in 2025. So on the revenue side, that would be one that I call out. We're wrapping up the smart rents. at the last few properties now. There'll be a little bit of tailwind from that in 2025. But, you know, other than, you know, rent growth and stable, I can say I think the Wi-Fi starts to slowly have a bit of an impact.

Thank you.

Our next question comes from John Kim from BMO Capital Markets. Please go ahead. Your line is open.

Thank you. As far as hurricane and storm related costs, you don't exclude or add back those costs to get to your core FFO, which I think is a really standout policy versus maybe some of your peers. But going forward, will you be including a larger assumed expense in your guidance if you look to 2025? And how do you think about exposure in some of these markets like Tampa?

Yeah, John. Hey, this is Clay. Yeah, so I think whenever you kind of look at what the cost that we had, that we were projecting for the full year this year, it's going to be somewhere around $10 million, you know, not $10 million, call it. When you look back over the past seven years, six, seven years, you know, we haven't had anything of this magnitude that we've had to deal with. And, you know, it's been spread across each quarter of this year. It hasn't been just one quarter or one storm. It's been multiple storms impacting us throughout the year. So, you know, I think as we look towards next year, you know, that's not something we've traditionally done in the past as far as including some storm cost in our guidance. Now, we did include one penny in our guidance this past year. for these earnings back in February and then released our 2024 guidance in February. So we reflected that, but that's the only cost that we reflected in our guidance. But as we look forward to next year, I think that you would expect to see something in there. It will not be at the levels that we experienced this year just because history hasn't shown that that's the norm. But I would expect it will include something in our guidance to account for that.

And then does it make you think differently about some of your Florida exposure? I know you just purchased something in Orlando, but as far as Tampa or maybe some other markets where insurance costs could be pretty significant?

Well, the one, you know, that's, you know, the insurance cost in Florida gets a lot of publicity. Of course, one thing you have to consider is just our overall portfolio and that we're able to defer a little bit of that risk, you know, across all of our markets, not just in the Florida market. So, you know, we're still committed to Florida. Yes, there's some higher cost-related insurance there, but just given our size and portfolio, our platform that we have across the portfolio, we can still take advantage of some opportunities there.

And just to clarify, you do exclude these costs from same-store expense, but do you keep those affected properties in the same-store pool?

Yes. You've got to think whenever these – the damage that we've seen has been extremely minor. So damage is probably a strong word. It's more of a cleanup that we see whenever these properties are typically impacted. If you did have a property that was significantly damaged, lost property, a number of units that would not be able to be occupied, we would probably remove that property from same store while it was being repaired and put back into service. So we'll treat that particular property as appropriate just based on our general policy of how we include stores in same store versus non-same store. But to your point, these cleanup costs, we've reflected those as non-same store costs in our earnings. We don't want it to impact the comparability of the same store portfolio.

Great. Thank you.

Our next question comes from Julian Bluay from Goldman Sachs. Please go ahead. Your line is open.

Yeah, thank you. I just want to make sure I heard a couple numbers correctly. So the earn-in going into next year, about negative 30 basis points, and then gain-to-lease currently around negative 70 basis points, And then with my real sort of question here is with new lease spreads down 7% in October, do you still think we can get to sort of positive new lease spreads by spring, early summer? It just seems like quite the ramp to get there.

Yeah, to answer your first question, you have those numbers correct. That is what we stated. As far as new lease rates, well, We'll talk more about this, obviously, in our next quarter earnings. You know, difficult to say right now exactly where it'll get to. We're kind of going through our budgeting planning process now. You know, I think one point to make is through this year, our best new lease pricing was about negative 4%, negative 4.2, something like that in July. We certainly expect to exceed that. And to reiterate a point I made earlier, you know, even in normal supply and demand environments, Q1, Q4, typically negative new lease pricing anyway. So it's really Q2 and Q3 where you start to see it go positive. So more to come on that, but we certainly believe all the factors, supply and demand, point to much better new lease performance in 25 and 24. And, of course, the prior year comparisons factor into this as well.

Yeah, thank you. Yeah, on those sort of comparisons, it does feel like the comparisons get a lot easier year over year in November and December, given just the new lease deceleration and concessions we saw last year. So if the worst of supply pressure is behind us and October held steady versus September, why wouldn't that sort of new lease spread begin to improve sequentially into November and December?

Well, we'll see, and it might. We certainly don't expect it to get much worse for all the reasons we've laid out, including those easier comps. New Leafs is certainly the tip of the spear and can change on a dime, but we feel comfortable it's going to stay in this range, if not start to improve a little bit. But the other point is just There's not much leases, as we mentioned, you know, 16%, and frankly not a lot of traffic, particularly when you get into mid-November on through December, just with holidays, just not a lot of people searching. So, you know, it's not going to have a material impact one way or the other, but, you know, we could see it sort of hanging in where it is right now.

Okay, great. Thank you.

Our next question comes from Adam Kramer from Morgan Stanley. Please go ahead. Your line is open.

Hey, great. Thanks for the time. I just wanted to ask about kind of the portfolio opportunity out there. I think you talked a little bit about kind of the one-off acquisition opportunities and clearly seeing you guys be a little bit more acquisitive there, but are you seeing any change in terms of kind of sellers of portfolios out there? We've seen some Some large portfolios trade recently. Is that something that maybe you guys can take advantage of, or is the pricing there not kind of what you're looking for?

Hey, Adam. This is Brad. I mean, generally what we see on portfolios is a lot of times the quality of the assets are not what we're looking for. There's some type of bad with the good, so to speak. In some of the portfolios that we've seen recently, I mean, frankly, part of that has been pricing. Some of the pricing on those assets were more aggressive than what we believed was appropriate or where we want to invest our capital. If you look at the three one-off acquisitions that we transacted on, um, you know, close to a six on an NOI yield basis for brand new assets. So from an after CapEx basis, it's pretty appealing, especially considered to where some of these portfolios are trading. And then if you, you take into account the age and after CapEx nature of those, we just feel like, um, you know, what we've been able to do so far is, has been a very good strategy for us. Now, if there's a portfolio out there that we think, um, has some type of strategic nature to it that makes us stronger in some way, we would absolutely take a look at that. And if it's accrete of the earnings, we would be interested in looking at something like that.

Great. And then just as a quick follow-up here, just remind us where kind of the pre-COVID bad debt level or rule of thumb is and then kind of where you are today relative to that. And Your view as to kind of getting back to that pre-COVID number, is that something that could happen in 2025 or is that still multiple years away?

I mean, honestly, we're just about there. I mean, I think, you know, pre-COVID, it was anywhere from 30 to 40 basis points of net delinquency. Right now, we're at about 40 basis points. So, you know, at most, there's 5 to 10 basis points of difference in terms of where we were pre-COVID. You know, we certainly didn't deteriorate near as much as some other markets, and we've just about gotten back to where we were pre-COVID.

That's really helpful. Thanks for the time.

Our next question comes from Michael Lewis from Truist Securities. Please go ahead. Your line is open.

Thank you. So, Eric, in the press release last night, in your remarks, you said we're confident we will enter a new multi-year cycle with demand outpacing supply. One of the points of pushback I sometimes get is, you know, with cost pressures easing and short-term interest rates coming down, and developers who have capital like you, you know, already starting projects, that maybe this cycle will be short, right? That maybe what ends up happening is your same-star growth in 25 is similar or a little bit better than 24, and maybe 26 is a good year. And then by the time you get to 27, you have, you know, your next wave of delivery. So, you know, maybe there's historical precedent or kind of, you know, what do you think about the reason why, you know, Sunbelt supply won't just rise up to meet the demand kind of more quickly than in the past?

Well, I think to put it in context, what's important to recall or remember is that the deliveries this year, this is not a normal supply cycle. The deliveries this year is a 50-year high. 50 year high. And so, uh, do I think that by 27, 2028 and 29, that we could see supply levels pick up from where they will likely be in 25 and 26? It is certainly possible. You have to start to think about, you know, financing costs and construction costs and will things pencil out by that point, uh, in a way that, that, you know, it's, it's super compelling for developers, but, uh, But I think that the idea that we are going to, any time in the next 10 years, repeat this 50-year high cycle, I think, is not reasonable, in my opinion. So I think that, and of course, we've long believed that ultimately what really drives performance and ability to drive value for shareholder capital over a long period of time is really the demand side of the business. We go through these periodic cycles where supply picks up, but because of some of the things Brad mentioned in terms of how we've diversified across both mid-tier and large-tier markets, we think we can weather these supply cycles okay. And, you know, if you'd have told me two years ago, three years ago, we were headed to a 50-year high delivery of new supply supply. and that our NOI was only going to go down by 1.3%, I'd take that all day long. If that's as bad as it gets in a 50-year period, that's okay. And next year will be better. 26 will be even better. I think 27 and 28 will be even better. Now, is it possible that, again, supply picks up in 28 and 29? Probably so. But I don't see us going back to another 50-year high. Yeah, Michael, this is Brad. The only point I would add is if you look at the starts that occurred in first, second, third quarter of 2022, there's a very high correlation with that associated with where interest rates were. Historic low interest rates. I think interest rates could come down a little bit from where they are today, but they certainly, we don't think, go back to that level. But really spurred this kind of excessive 50-year high supply levels that Eric was talking about.

Okay, great. And I'm going to structure my second question kind of the same way, right? I'm going to read a brief excerpt from Cushman and Wakefield's 3Q National Apartment Report and then ask you a question. So they said, demand for apartment units is booming again, resurgent international migration trends in recent years alongside a stout labor market. continue to power some of the best multifamily demand on record. So, you know, maybe this is opening a can of worms, or maybe it's a better question after, you know, maybe for when hopefully we know who the next president's going to be. But since they singled out migration, it's not a topic that I hear a lot about as a primary demand driver. Is it, you know, now that, you know, maybe we'll have mass deportations, I don't know, but to the extent the migration picture changes, Is this a major key variable? Like in 2025, is this going to be a key demand variable potentially where, you know, me and the rest of the analysts on the call are writing research reports about this? Or do you think it's, you know, is that wildly overstating the importance of how that trends?

I think the input integration has on apartment performance is function of two things. It's a function of the markets, obviously, and I would argue that a number of the coastal gateway markets are going to be more influenced by immigration trends than a lot of our Sunbelt markets. Secondly, I would tell you that the price point of your product is going to also be impacted somewhat or is a variable that can be influenced by immigration trends. And we think that a lower price point portfolio is more likely than not to be more at risk from fluctuation with growing or declining levels of immigration. We think that we are not exposed in that way. Over 80% of our portfolio is single, you know, majority are female. We're serving a resident profile with average incomes of over 80, 85,000 a year. I mean, this is not a demographic that we're serving largely in our portfolio that's going to be influenced or impacted one way or the other by changing immigration trends. Thank you.

Our next question comes from Alex Kim from Zellman. Please go ahead and open.

Hey, good morning. Thanks for taking my question. I wanted to ask about occupancy trends. Same for occupancy rose 20 basis points sequentially this quarter, and I know it stands at 95.4 in October, but can you talk through some of the drivers of the 3Q increase and With blended rent growth inflecting negatively during the quarter, I mean, when does incremental occupancy become less valuable than rent growth to your revenue strategy?

I mean, I think as far as the increase in occupancy from Q2 to Q3 is a function of the absorption we talked about and the, you know, getting more units absorbed than were delivered, and we certainly saw that. play out in our portfolio, and the majority of our markets saw that sequential gain. You know, we balance pricing and occupancy at a market-submarket property level. You know, I think we're comfortable where we are right now with occupancy at the 95.4 level. primarily because of what we see with exposure that we talked about. We're at a record low exposure, something we haven't seen ever at 6.3, which what that does is, you know, kind of stabilizes where we think occupancy will be over the next 60 days or so and allows us where we can to push on pricing. So, you know, exposure is what we look at a little more than occupancy, and since it's in that range, you know, we're certainly comfortable in this 95% $495,500 range and being able to push a little bit on pricing where we can.

Got it. Thanks. And then just a quick follow-up here. This is now the second quarter. That was already in lease-up. Can you talk through just kind of what you're seeing, what you like about that strategy, and if it's something that you'll continue employing moving forward?

You kind of broke up in your question. Can you repeat that last question?

Yeah, sorry, just asking about your recent activity and buying properties and lease up. Just curious about that strategy and if it's something you'll continue.

Yeah, absolutely. Our acquisition strategy has been focused on brand new properties in their initial lease up for the last few years. Again, we just think that there's an opportunity for us to execute in that area, given that it's harder to get to line up financing when a property is not stabilized, and our ability to execute all cash is a benefit for us that we're able to to really execute driving, you know, higher returns, higher NOI yields than what we could get, you know, on a fully marketed project that's stabilized. So, yeah, we'll continue to focus in that area.

Got it. Thanks for the time.

Our last question today will come from Ann Chan from Green Street. Please go ahead. Your line is open.

Hey, good morning. Just one question for me. And keeping on the topic of demand earlier, amongst your larger markets, particularly where supply continues to pressure pricing. Which markets are you underwriting weaker or stronger job growth or in migration on a relative basis?

Well, certainly the market that we talked a lot about that's struggling right now, Austin, is one that, you know, as we think about longer term, is one that we're really high on. I mean, You know, in terms of broader trends, we look at migration, we look at household formation, we look at population growth, and obviously look at job growth. And Austin is, you know, near the top of the list in all those. So that would be one. Raleigh is another one that we feel strong about. Orlando is one that, you know, has had some struggle with supply, but it's got some really strong demand metrics. you know, most of our footprint, you know, we would be happy to continue to acquire. And those are two or three markets that I would point out as having some really strong forward-looking demand trends.

Got it.

Thank you for your time.

Thanks.

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

Okay, no further comments from the company. I appreciate you joining us this morning, and we look forward to seeing many of you out at Mayweath.

This concludes today's program. Thank you for your participation. You may now disconnect.