Mid-America Apartment Communities, Inc.

fourth quarter and full year 2024 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterward, the company will conduct a question and answer session. As a reminder, this conference call is being recorded today, February 6th, 2025. I will now turn the call over to Andrew Schaefer, Senior Vice President, Treasurer and Director of Capital Markets of MMA for opening comments.

Thank you, Ian. 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 Del Toro. 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 .mac.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 good morning. As reported in our earnings release, MAA finished calendar year 2024 in line with our expectations and is in a great position for the recovery cycle for apartment leasing that should be increasingly evident over the course of this year. While we are still working through the impact of record high levels of new supply delivered over the past year, we are encouraged with some of the early recovery trends that we are capturing with -over-lease pricing performance. While it would take some time for the recovery momentum to build, it seems clear that the tide is starting to turn and we look forward to a productive spring and summer leasing season when the improving trends will have a more obvious compounding impact on overall portfolio results late this year and into 2026. Before turning the call over to Brad, I did want to take just a few minutes this morning and tell you why I'm excited and confident about the prospects for MAA's earnings outlook over the emerging recovery cycle. It starts with my confidence in our leadership team. As we disclosed in December, effective April 1st, we plan to execute on the next step in our CEO succession planning program and Brad will assume the role of president and CEO. I'll remain active in supporting Brad and our board as executive chairman. Brad and his executive leadership team have an average tenure of 16 years with our company. I know this leadership team well and I have a lot of confidence in them. Brad and his team have a deep understanding of our strategy and our approach to executing on that strategy which has delivered sector-leading long-term results for shareholder capital. Beyond my confidence in our leadership team, while our markets have more recently been challenged with a 50-year high record of new supply deliveries, there is increasing evidence that the worst of the pressure from this new supply is poised to materially moderate, especially as we get into the summer leasing season. As we have discussed, we historically have seen the actual delivery and leasing pressure from competing new development peak at roughly two years after the start of construction. Based on our analysis, the volume of new construction started in calendar year 2023 or two years ago dropped 39% from the peak of starts during the extraordinary low interest rate environment in calendar year 2022 and then starts sequentially dropped another 50% in calendar year 2024. So this is expected to result in a significant decline in actual unit deliveries starting this year and into 2026 and 2027. Given where we are currently with interest rates and construction costs, we continue to see challenges in the market's ability to meaningfully restart and increase in new projects. Taken together, we believe these conditions will manifest in a sharp drop in new supply delivery starting this year and continuing for several years. In addition to the supply dynamic and the impact on leasing conditions, we believe that our portfolio is uniquely well-positioned to capture the benefits from job growth, population growth, and high single-family housing costs. This continues to drive a resulting growth in the demand for apartment housing across our markets that will outpace national trends over the long haul. This strong positioning for the demand side of the equation, coupled with the material drop in new supply this year and beyond, we believe will have a significant impact on market rent growth across the portfolio for the next few years. Furthermore, I'm excited about the various new tech initiatives we have underway aimed at driving enhanced services for our residents and more efficiencies within our operating platform. Several new initiatives that we have more recently implemented, coupled with new projects that will launch over the coming year, we expect will further increase operating margin and accelerate earnings over the next few years. And finally, our external growth pipeline is stronger and larger than at any time in our company history. We have several new projects slated to deliver over the emerging recovery cycle with other new sites already lined up. And importantly, the balance sheet is strong and well-positioned to continue to support this growth. So in summary, the experience and proven capabilities of our leadership team, our orientation towards the strongest growth in housing demand markets in the country, the strength of our operating platform with growing efficiencies, and the more robust external growth pipeline we have in place that is supported by a sector-leading strong balance sheet all combined to drive much enthusiasm and confidence in my outlook for MAA over the next few years. As this will serve as my last earnings call prior to the transition of the CEO role, I'd like to extend my appreciation and thanks to our shareholders and to the analyst community for your trust in our company and our team. It's truly been an honor to serve the public capital markets over the past 30 years here at MAA. Our culture at MAA is grounded in a strong belief that our stewardship of MAA assets and shareholder capital is at all times focused on creating value for the benefit of our residents, our shareholders, our associates, and the communities where we operate. I'm proud of our associates at MAA. I appreciate their hard work and support and I look forward to MAA delivering even higher value in the future for those that we serve. Turn over to Brad now. Thank you, Eric, and good morning, everyone. As expected during the fourth quarter, our focus on occupancy combined with higher new supply and the typical seasonal slowdown and leasing traffic weighed on new resident lease pricing during the quarter, but the seasonal decline in lease over lease rates was less than we've seen in previous years. Encouragingly, this pressure has continued to moderate in January with blended pricing improving more from the fourth quarter's performance than in previous years, predominantly due to improvement in our new lease pricing. I share Eric's optimism for our growth prospects and momentum toward delivering strong long-term earnings. As Tim will discuss in more detail, we are seeing encouraging signs that indicate leasing conditions are poised to support improvement in blended lease rates and have a compounding impact on revenue performance throughout the year. Continued strong absorption, occupancy and exposure, improved seasonal performance, and an expected more meaningful reduction in supply pressure all contribute to a favorable outlook for our existing portfolio. Additionally, we're continuing to invest in several key areas that will significantly impact future earnings. Including various technology initiatives that will support our centralization efforts and enhance efficiencies. In 2025, we will begin to more aggressively roll out property-wide Wi-Fi across our portfolio and we will ramp up the rollout over the next couple of years as a number of our properties transition off of our legacy bulk Wi-Fi program. We also plan to increase our investments in the interior renovation and repositioning programs, both of which benefit from the higher price new supply that has delivered into the market recently. On the external growth front, we're committed to maintaining an active development pipeline of around a billion dollars. In 2024, we invested in a record five projects expected to deliver average NOI yields at stabilization of 6.3%. Ending the year with seven projects under construction representing over 2,300 units at a cost of approximately $850 million. We expect to start construction on another three to four projects in 2025. As the transaction market begins to open later this year, we'll continue to opportunistically deploy capital into acquisitions that are in their initial lease up. During the fourth quarter, we closed on a 386 unit property early in its initial lease up in the Dallas market. This property was 44% occupied at the end of the fourth quarters and expect and is expected to stabilize in early 2026. This brings our total acquisitions in 2024 to three properties, which were on average 65% occupied at closing and projected to deliver NOI yields of .9% upon reaching stabilization in 2025 and 2026.

During the

fourth quarter, we sold two properties with an average age of 29 years, 216 unit property in Charlotte, North Carolina, and a 272 unit property in Richmond, Virginia, delivering a combined investment period IRR of approximately 19%. We have two additional properties in Columbia, South Carolina under contract and expect those to close in the first quarter of 2025. We will continue our focus on strengthening our overall earnings quality by recycling capital out of some of our older higher capex properties and redeploying that capital into newer acquisitions with a higher earnings growth profile, particularly on an after capex basis. We expect to execute on the balance of our $325 million disposition plan late in the year. At the end of the fourth quarter, we had eight communities in Lisa, four acquisitions and four developments with an end of the year occupancy of 69.7%. We expect the acquisitions to average NOI yields at stabilization of .9% and the developments to average NOI yields around 6.4%. Due to the high level of competition in many of our markets and our intent to hold firm on our rent pricing expectations, we push the expected stabilization dates back slightly on a few of our lease up properties by one quarter. However, rents continue to exceed our performance expectations and the stabilized NOI yields on our new developments and lease up are significantly above our original expectations. Our existing portfolio is well positioned to benefit from the improving demand and supply trends with our various growth initiatives providing additional earnings over the recovery cycle. To all of our associates at the properties and our corporate and regional offices, thank you for your commitment, hard work and dedication that you show every day to our prospects, residents and fellow associates. Before turning the call over to Tim, I do want to take a moment to say a few words in recognition of Eric ahead of his transition to the executive chairman role. Over his 30 years of service to MAA with 23 years as our chief executive officer, Eric has been instrumental in so many ways to this company. His dedication to serving our various stakeholders is second to none. We are grateful for his vision and wisdom, his courage and his discipline in leading this company to unmatched performance. His mentorship and counsel over the years to so many in the industry and especially to MAA's executive leadership team and to me exemplify the tremendous leader that he is. Eric, for all you've given to our company and to the industry, we thank you. With that, I'll turn the call over to Tim. Thanks, Brad. Good morning, everyone. As noted by Brad, in the fourth quarter, we prioritize achieving portfolio level occupancy that positions us well for the improving supply demand dynamic in 2025. We particularly focused on the higher exposure markets which came at the slightly weaker new lease pricing performance but achieved the occupancy goals for which we were striving. The moderation in new lease pricing showed less seasonal deceleration than we saw in 2023 and less than we typically see from the third to fourth quarter. As a result of this strategy, new lease pricing on a -over-lease basis for the fourth quarter was down 8%. A 260 basis point decline from the third quarter but favorably comparable to a 470 basis point decline over the same period in 2023. Renewal rates for the quarter stayed strong, growing .2% on a -over-lease basis which was a 10 basis point increase sequentially over the third quarter. The resulting -over-lease pricing on a blended basis was down 2% which represented 140 basis point improvement in sequential moderation as compared to the same period in 2023. Average physical occupancy was .6% of 10 basis points from the third quarter. And collections continued to outperform expectations with net delinquency representing just .3% of billed rents. All these factors drove the resulting same store revenue down .2% for the quarter and up .5% for the full year of 2024. As was true for most of 2024, several of our mid-tier markets continued to hold up better than the broader portfolio in the fourth quarter from a blended -over-lease pricing standpoint. Richmond, Norfolk, Charleston, Greenville, and our Fredericksburg and other Northern Virginia properties all stood out. Tampa and Orlando are two larger markets that started to show some relative pricing recovery. Also, as was true for most of 2024, 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 continuing to be the toughest challenge of all the markets. We continued our various redevelopment and repositioning initiatives in the fourth quarter. And as Brad mentioned earlier, we expect to accelerate these programs over the course of 2025 and into 2026. For the fourth quarter of 2024, we completed 1,130 interior unit upgrades bringing our -to-date total to 5,665 units achieving rent increases of $106 above non-upgraded units. Despite this more competitive supply environment, these units lease about 10 days quicker on average than a non-renovated unit when adjusted for the additional turn time. We expect to renovate closer to 6,000 units in 2025 with an even larger increase expected in 2026. For our repositioning program, we have two active projects that are most of the way through the repricing phase with NOI yields approaching 10%. We have an additional six projects underway with a plan to complete construction between April and June and begin repricing in what we believe will be a strengthening leasing environment. We're also now live on the four property-wide Wi-Fi retrofit projects we began in 2024 and expect to begin an additional 23 projects in 2025. With January wrapped up, we're seeing encouraging trends that are aligned with our outlook for 2025. New lease and blended pricing in January improved as compared to both December and the full fourth quarter with stable occupancy of 95.6%. Our 60-day exposure at the end of January was 7%, 70 basis points lower than this time last year and should serve to keep occupancy stable through the remainder of the quarter and allow for more pricing power if seasonal demand starts to increase. The .6% January average daily physical occupancy was 25 basis points higher than January of 2024. As Brad noted, absorption remains strong in our markets with the fourth quarter representing the second consecutive quarter that units absorbed exceeded units delivered. The excess absorption as compared to new supply in the fourth quarter with the largest gap since the third quarter of 2021. With new lease pricing improving, though remaining a challenge, we're also encouraged by the -over-lease rates achieved on excessive renewals through April with the average increases in the .25% range. Improving new lease rates should help support continued strong renewal performance into the busier spring and summer leasing season. New supply deliveries continue to be a headwind in many of our markets, but the trend support expected improvement throughout 2025 laying the groundwork for an even stronger 2026. Following on Eric's comments with construction starts peaking in mid to late 2022 in most of our markets, we believe we have passed the maximum pricing pressure period that tends to come two years or so after the peak of construction. The slowly moderating supply pressure, increasing spring and summer leasing traffic, and our current occupancy exposure portfolio position have us excited about the recovery to come. That's all the lab prepared comments. We'll now turn the call over to Clay. Thank you, Tim. And good morning, everyone. We reported core FFO for the quarter of $2.23 per share, which was in line with our fourth quarter guidance. I contributed a core FFO for the

full year of $8.88 per share in line with our original guidance for the year. Our same store revenue results for the quarter were relatively in line with expectations. As Tim mentioned, same store revenues benefited

from strong occupancy and collections

during the quarter. Our same store expense performance was slightly unfavorable compared to our

guidance

due

to personnel cost and other property expenses. Savable interest expense and non-operating income offset the increase in same store expenses. During the quarter, we funded approximately

$64 million of development costs of the current $852 million pipeline, leaving an expected $374 million to be funded on our current pipeline over the next two to three years.

We also

invested

approximately $18 million of capital through our redevelopment and repositioning programs during the quarter, which we expect to continue to enhance the quality of our portfolio and produce solid returns upon completion. Our balance sheet remains in great shape. We ended the quarter with over $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 four times. And at quarter end, our outstanding debt was approximately 95% fixed with an average maturity of 7.3 years at an effective rate of 3.8%. During December, we issued $350 million of 10-year public bonds at an effective rate of just over 5%, using proceeds to pay down our outstanding commercial paper. These proceeds provide an accretive use of capital given the expected stabilized NOI yields approaching 6% or greater on our recent acquisitions and current developments that Brad previously mentioned. Finally, we provided initial

earnings guidance for 2025 with our release, which is detailed in the supplemental information package. Core FFO for 2025 is projected to be at $8.61 to

$8.93 or $8.77 at the midpoint. As has been outlined in the prior comments, we expect the momentum in rental pricing to grow over the course of the year and to drive improving -over-year performance in Core FFO over the back half of the year. The proposed 2025 same store revenue growth midpoint of .4% results from a rental pricing earn-in of negative .4% combined

with a blended rental pricing expectation of .7% for

the year. We expect blended rental pricing to be comprised of new lease pricing that will continue to be impacted by elevated supply levels

and renewal pricing

in line with historical levels. We expect the impact of these elevated supply levels to improve over the course of the year. For

the same store portfolio, we expect effective rent growth for the year to be approximately .2% at the midpoint of our range. Occupancy to average

between .3% and .9% for the year or .6% at the midpoint. And other revenue items, primarily reimbursement and fee income, to grow at 2.5%.

Same store operating expenses are projected to grow at a midpoint of .2% for the year. Personnel and repair and maintenance costs are expected to grow just over 3% while expect some continued pressure for marketing costs and insurance

expense. These expense projections combined with the revenue growth of .4% results in a projected decline in same store NOI of .15% at the midpoint. We currently have nine communities actively leasing and an additional community that stabilized in late 2024. Given the interest carry and leasing velocity of these recently acquired and completed developments, we anticipate our lease-up pipeline being slightly diluted to core FFO in the first half of the year before

turning a creative later in the year as more projects stabilize, contributing about three cents to core FFO for the year net of the interest carry. We expect continued external growth in 2025, both through acquisitions and developments. We anticipate a

range of $350 to $450 million in acquisitions. All likely to be in lease-up and not yet stabilized and a range of $250 to $350 million in development investments for the year. This growth we've partially funded by asset sales, which we expect dispositions of approximately $325 million with the remainder to be funded by debt financing and

internal cash flow. This external growth is expected to be slightly diluted to core FFO in 2025 and then turn a creative to core FFO after stabilization. We project total overhead expenses, a combination of property management expenses and G&A expenses to be $134.5 million at the midpoint, a .5% increase over 2024 results. We also expect to refinance $400 million in bonds maturing in November 2025. These bonds have an effective rate of .2% and we are forecasting to refinance at 5%.

This

anticipated refinancing,

coupled with our 2024

refinancing activities, will result in three cents of dilution to core FFO as compared to prior year. Combined with financing to support our expected growth for 2025, we project interest expense to increase by approximately 13% for the year. That is all that we have in the way of prepared comments. So, Ewan, we will

now turn the call back to you for any questions. Thank you. Once again, we will now open the call up for questions. If you'd like to ask a question, please press star, fall by the number one on your touchtone phone. If you'd like to withdraw your question, you may press the pound key. Our first question comes from the line of Jamie Felton with Wells Fargo. Your line has opened.

Great. Thanks for taking the question. I was hoping you could put a finer point on the 17 blend outlook for 2025. Can you talk exactly about what you're thinking for new versus renewal? And then is there a point in the year where you think new spreads actually turned positive and maybe talk a little bit more about the cadence throughout the year of that one seven?

Yeah, this is Tim. I'll give a little bit of detail on the on the guidance, the pricing guidance. So for the year, we're expecting new lease pricing at a -over-lease basis somewhere in the negative one and a half range with that obviously playing out seasonally with the lowest point where we are right now getting slightly positive as we get into Q3 and then starting to trend back down seasonally a little bit as you get into Q4. And then renewals pretty pretty steady in that four and a quarter, four and a half range where we are right now. We don't expect much movement there. That tends to stay pretty consistent. So it's the new lease pricing that drives the various throughout the quarters.

Okay, I'm sorry. Did you do you think you'll see any months or quarters with positive new lease?

Yeah, I would say if you get into typically what we see if you think about normal seasonality is new lease pricing sort of accelerating January 3 to about July and then starting to moderate as you get into August. So I would expect as we get into into late Q2 early Q3. We expect to have two or three months where we'll be slightly positive on the new lease rate and then trend back down to negative as you get in the late Q3 and in the Q4.

Okay, and then what are you guys thinking on turnover? How does that trend throughout the year?

Expecting pretty consistent with where we were in 2024. You know, not the major reasons people move out obviously buy home job change. Those are the buy home is down. I think 20% in Q4 compared to where it was last year with with interest rates and home prices where they are. We don't expect that to move a lot. And so we in generally we're dialing in to our forecast renewal or turnover consistent with where we were in 2024.

Okay, great. Thanks for the cover. And Eric, congratulations again.

Our next question comes from the light of Eric Wolf with City. Your line is open.

Hey, I just wanted to follow up there. I mean, I when I look at the contribution to your same store revenue from the .7% blend, it looks like it's sort of on the lower end, which suggests that there's probably a good back half waiting to the blended spread. So I was just curious if that's the case, if you could just maybe provide like, you know, you expect the first half to be in like a half percent range and then it's a step up to over two and a half percent or if the difference is really just seasonally like you just think the seasonally the second quarter and third quarter will be a sort of a very normal lift. I'm just trying to understand if this is like a sort of a back half type of prediction for this year.

Not necessarily a back half prediction. I mean, we expect the normal seasonality as I was talking about and certainly for new lease rates to moderate as you get late Q3 and into Q4. So it's really and you know, other thing keep in mind, obviously when you when you think about mid Q2 early Q3, we also have the bulk of our leases expiring during that time. So matching up some of the more positive new lease rates with the maximum number of leases is really what drives that waiting. But as I mentioned, you know, expect to get slightly positive call to the one to one and a quarter range for a couple months in the in the middle of the year and then start to trend back down. So it's it's the combination of the waiting of the lease expirations and then obviously the the balance between new lease and renewals we expect renewals will will be a heavier waiting as they were this year with with consistent turnover. So that's that's really what's driving the full year number. Eric, this is Brad. I'll just I'll add one one additional item to that. You know, certainly if you look at the supply and the new deliveries as we get into this year, I mean, you know, as we look back in the new supply that was started in 2023, clearly there was a drop off in that new supply in the back half of 2023, which we think, you know, really informs the supply pressure as we get into 2025. So, you know, as we mentioned in our comments, you know, we are in still an elevated level of supply today. We're off the peak of where we have been in 2024 in that supply picture will continue to get better as we go throughout this year. So to Tim's point is you if you start layering on top of a diminishing supply pressure environment as we go through the year with you know, the demand that continues to pick up as we get into the spring and summer leasing season that really starts to inform the trajectory of what we think in lease rates will look like through the year.

Got it. That's how I'm not sure if you have this data, but when when you look at your renewals, what percent of those renewals are also tenants that renewed the prior year? I guess I'm trying to understand sort of what percentage of tenants are taking two years of this sort of five four to five percent renewal increases and sort of a flattish market rate environment. And if you have any sort of limit on where renewal rents can be relative to market or new lease rents.

Well, another way to perhaps characterize that is our our average stay is somewhere in the 21 22 month range that certainly is extended out a little bit over the last couple years with the lower turnover. So, you know, typically you have a resident moves in has called a month lease and then does one renewal and then on average they're moving out after that that first renewal. So typically don't see renewal on top of renewal on top of renewal, which which tends to be a little bit of a governor on on that gap getting to too wide even with lower turnover. We're still turning, you know, a good chunk of the portfolio every year. And so it tends to balance itself out a little bit and then to Brad's point about strengthening supply demand dynamic. We expect new lease rates to accelerate throughout the year, which then should in turn help the renewal rates where it's starting to narrow that gap and it doesn't it doesn't gap any wider than it has been. So I think that'll provide some stability and strength on the renewal side also.

And thank you.

Our next question comes from the line of Nick Yulico with Scotiabank. Your line is open.

Good morning, everyone. It's Dan Tricarico on with Nick. Can you help us understand how concessions in your markets have impacted your new lease rate figures and you know, if you see the dissipation of concessionary activity and easier comps maybe having a you know, to use your word compounding effect on the on the recorded numbers.

Yeah, I mean to answer your question, I think it's a good question. To answer the last part of that. I mean the the lease over lease rates we quote are net of the impact of and stuff concessions and that's considered in there. But I would say broadly, you know for us for our portfolio concessions were down a little bit in Q4 as compared to Q3 in terms of cash concessions. I would say at a market wide portfolio level concessions were pretty consistent, you know around a month free is is pretty typical in most markets. Now you get into some of the tougher markets with with a lot of lease up and it's some of the same sub markets. I've talked about before you think about downtown Austin and then Round Rock Georgetown area of Austin. You think about Midtown Atlanta. You think about Uptown Charlotte. That's where you can get more into the two two and a half even up to three in a couple of spots with a lot of lease up. So still pressure there in some of the markets we've talked about but the concession pressure overall is steady to perhaps slightly declining.

Great thanks for that. And then I guess as a follow-up do you have a sense on I guess how much competitive supply that you guys track is how much that is declining -over-year in 26 and 27 and you know, maybe how that compares on a like a completions as a percent of stock basis to you know, maybe the prior years to 2020.

Yeah, I mean for for 2025 we think you know supplies probably down 15 to 20% in terms of just absolute units being delivered from from 24 to 25. It's probably think it's down closer 30 to 40% as you look out in the 2026 and then you know, you start getting pretty far out at that point. But if you look at the starts and Eric hit on this as well, I mean starts are down to four of 2024 starts in our market were .3% of inventory, which is the lowest it's been, you know for the last several years well below where it was even during COVID. So it speaks to a pretty pretty long window where we think supply will be be moderating.

But like on a completion as a percent of stock like in 26 is that like lower than a normal year?

Yeah, I would say you know in our markets three and a half percent of inventory is is probably about average. You know, if you think about the long term three and a half percent, we probably been above that the last few years, but I think 25% or 2026 is below that and I expect 2027 is even further below that.

Right. Thanks and congratulations, Eric.

Our next question comes from the line of Brad Heffern with RBC Capital Markets. Your line is opened.

Yeah, thanks morning everyone. You've talked a few times about the start of the year being better than normal. I think you said in the prepared remarks that blends are improving more than normal in January on a sequential basis. Those are obviously very influenced by comps. So I'm just curious if you're seeing like a real market level fundamental inflection market rent trend being better than normal occupancy rising You kind of talked about concessions maybe getting a little bit better. Just trying to figure out how much of that is sort of just comps and the abnormality of where leasing spreads are right now versus like a real fundamental change.

Well, I mean it's a combination of all those certainly the lessening supply I think is playing a part of that, you know, easier comps if you will playing a part of that. But you know, when we think about the sequential trends we're seeing in January both compared to December and Q4 and not just looking back to the last year or two, but looking back to you know, what we would call more normal periods, which probably is going back to 2017 2018 2019, but deceleration from Q3 to Q4 was sort of less than typical and then the acceleration from from Q4 to January was was more so and so much where you know January new lease pricing is better than the full Q4, which is pretty atypical. We usually see it's usually a little bit lower than Q4 and then we would expect February March to accelerate even more. So I feel like it's a good position to where we are in showing some I think real strength in the recovery. So I think that piece is probably tied to just an improving overall outlook the higher than typical acceleration.

Okay, thanks for that. And then can you talk through whether you think changes in immigration policy could have a significant impact on the portfolio either through, you know deportations or just through less immigration?

Yeah, hey, this is Brad. You know, I would say from the same store perspective, you know, we don't see a whole lot of impact coming from from the change in the immigration policies. I mean, there's nothing that we track that would indicate that we're really overly exposed to any type of the immigration issues that we see out there. So, you know, from a labor perspective in our same store portfolio, we don't see that being a big impact in terms from a resident perspective again, you know what no matter what metric we're looking at. We don't see that we're exposed to a large degree to that now having said that where I think we could see some impact associated with the immigration side would be on, you know, perhaps in the new development area where, you know, a lot of the labor in that area there could be some labor impact associated with that and, you know, clearly that would have an impact on the ability of the market really to ramp up a new construction, you know, for us, you know, obviously that that would impact our desire to continue to hold our new developments, you know, at the billion dollar level that we're talking about. But given the overall size of our existing portfolio, you know, anything that slows down supply longer term would be a benefit to our existing portfolio. But, you know, at this point, it's something that we'll have to continue to monitor and see how it how it plays out. But we're not seeing a material impact and don't see that on the horizon at the moment.

Okay, thanks for the thought.

Our next question comes from the line of Jeff Spector with Bank of America. Your line is open.

Great. Thank you. Just to follow up to that, I was going to ask a similar question, but maybe even just pulling in demographics. When you think about your portfolio positioning, third A, third B plus, third B, and then you're split between urban, suburban, I guess from a high level long-term standpoint, five-year view, does any of this change your thinking on portfolio positioning?

Yeah, this is Brad. Tim, you can add some points here too, but you know, I don't think so. I mean, you know, one of the characteristics of our portfolio long-term is definitely to orient our portfolio toward the highest demand region of the country. You know, that generally leads to lower volatility in both earnings and dividends performance. And so we think that continues to be the right focus for us in terms of where we're located, the markets we're located in, you know, and also allocating capital mixed between, you know, larger markets and mid-tier markets. So, you know, that also tends to support kind of a more affordable price point than, you know, other portfolios that are out there. And I think, you know, if you look at our return over a long period of time, I think that speaks to, you know, us appealing to the broadest segment of the rental market. And I think ultimately that's really what we want to do versus skewing the portfolio to one end of the spectrum versus the other. And so I don't see a material change in terms of our strategy in terms of how we're allocating capital or those other portfolio characteristics that we target.

Great. Thank you. And then I apologize if I missed this, but can you talk a little bit more, disclose more on cap rates between the acquisitions, dispositions, and maybe what the requirement is today between, you know, what you're looking for between development and acquisitions? Thank you.

Yeah, Jeff, this is Brad again. Yeah, so the dispositions that we sold in the fourth quarter, you know, cap rates on those were, call it low sixes. And those, I'll tell you on the two that we sold, we had one property in Charlotte that did have a fire during the marketing process. So, you know, proceeds were certainly impacted a bit by that. So, you know, but I will tell you on an after capex basis, you know, that those properties that we're selling generally are 30 year old assets. So they have higher capex needs that we're recycling the capital out of. And then we're redeploying that capital. As I mentioned in my call comments into acquisitions, generally in lease-up. So there's some lease-up period associated with them. And then upon reaching stabilization, those yields are close to 6% in terms of what we're achieving. Now, we're able to achieve those yields, you know, because we are focusing on properties that are in lease-up that are harder for the market to finance, so we're able to get better pricing. Generally, we're 15 to 20% below current replacement costs on those. So we're able to get a pretty good return on those. The market cap rates in the fourth quarter that we tracked is not a lot of data points. We only tracked six projects that ended up closing in the cap rate was around a .5.1. Our developments, the five that we invested in in 24, those were a 6, call it a 6.4 NOI yield. So it's a 140 basis point spread to current market cap rates. And we feel that that's a good place for us to continue to focus our capital, you know, in that six to six and a half range on development.

Thank

you. Our next question comes from the line of Austin Werschmidt with KeyBank Capital Markets. Your line is open.

Great. Thanks and good morning everybody. So going back to a question earlier about lease over lease pricing expectations and just kind of thinking back to when you started to see pricing pressure in the back half of 2023 and kind of this expectation that absorption of peak deliveries will continue through the first half of this year. Is it fair to assume that you do face easier comps in the back half of the year? You could see concession pricing begin to abate more quickly, which could lead to kind of the even better spread in blended rate growth versus the prior year. And that will lead to, you know, the acceleration of net -over-year net effective rent growth. Is that the right way to think about it?

Hey Austin, it's

Tim. And are you talking about as we get to the back part of 2025 primarily? Yes.

Yeah.

Yeah. I mean, I definitely think we could see if you want to call it less seasonality as you get into late 2025 because we, as we talked about, we've got the moderating supply pressure that will continue to speak well on the demand side through the remainder of 2025 and into 2026. We did see kind of the peak of that supply pressure late 24. So yeah, I think there's an easier comp component that comes with that. It's where I would expect, you know, we're talking about this less seasonal deceleration that we saw this year. I think we could definitely see that in the back part of 2025 as well.

And based on the fact that you did negative half a percent -over-year net effective rent growth in the back half of 2024 and the guidance assumes a 20 basis point positive growth this year, I guess when do you expect that net effective to turn positive on a -over-year basis?

Yeah, Austin, it will probably be towards the middle part of the year if I am Q3, mid Q3 and then on

into Q4 and beyond.

That's helpful. And then just last one for me. If you broke out your blended rate growth between the larger markets and your smaller secondary markets, how do those stack up, you know, relative to, you know, this year versus 2024? Just curious where you're seeing the most improvement between those two buckets. And that's all for me. Thank you.

I

mean, I would say we've seen it, seen that gap narrow a little bit. I mean, the secondary markets or mid-tier, however you want to call it, have outperformed. Certainly the last couple of years with

generally lower

supply happening in those markets, but we have seen it start to narrow, particularly the last couple quarters. There's still probably 50 basis points. I call it a pricing difference, but it has narrowed a bit.

Our next question comes from the line of Michael Goldsmith with UBS. Your line is open.

Good morning. Thanks a lot for taking my question. The question is on the return of pricing power. Your occupancy levels are elevated, but not necessarily everyone in your markets are in the same position. So do you see pricing power returning contingency, contingent on occupancy to improve in competing properties? And does this slow down in supplier growth that you're expecting this year support that?

Well, certainly the market level occupancy plays into it a little bit. You know, you're somewhat at the mercy of what some of your other immediate comps are doing. But when we look at where current occupancy is right now, which is 25 to 30 base points better than it was this time last year, and really looking at exposure, which looks out further and we're in a much better position there. We're pretty confident that certainly over the next few months, we're in a good spot with occupancy to where we can, particularly to get into the spring, you can start to push on that pricing. But given where we are right now with exposure compared to last year, that's a better spot to be. And then you combine that with declining supply, gives us pretty good confidence that occupancy will stay in the steady range, which is about where we want it. We don't really desire to be at 96 percent. Somewhere in this 95, 6 range is about right and where we can start to push on price as we get into the spring and summer.

Got it. And just as a follow up, as you think about new lease rents and how they'll trend through this year, you're going from, you know, down 8 percent today to positive in the third quarter. So what does that new lease rents look like from the start of the year to peak? And how does that maybe compare to historical growth over the year? Thanks.

So our January new lease rates were negative 7.1. So that's kind of where we're starting. And, you know, as we talked about every year that we've seen sort of normal seasonality, we see that accelerate pretty consistently through to about July. So, you know, as I mentioned, as we get to July, we're thinking slightly positive, somewhere in the one, one and a half percent range. You can kind of do the math on the acceleration that we're assuming. But that's typical with kind of how the seasonality typically works.

How does that compare to like a historically like the historical year, the historical curve?

It's certainly historical. It's a historical curve. So the shape of the curve would look like normal. It's a little bit steeper as you get into the spring and summer based on seasonality combined with declining supply pressure.

Yeah, thank you very much.

Our next question comes from the line of Adam Kramer with Morgan Stanley. Your line is open.

Great. Thanks for for taking the question and congrats, Erica, all the best going forward. Once you ask about the kind of job growth and wage growth assumptions and maybe even just kind of higher, higher level macro assumptions that you've you've embedded, I guess, out of formally or informally kind of in the guide here.

I would say from a macro economic standpoint, pretty consistent with what we saw in twenty twenty four. So we're expecting, you know, call it six hundred thousand new jobs in our markets for twenty five, which would be consistent with what we saw in twenty four. Pretty consistent in terms of the immigration that we continue to see household formation, population growth, all the various factors that that you've seen. We would expect to stay pretty consistent and certainly be above what we see at the national level with these markets being a little little bit higher gross markets. And then combined with that, you know, continued low turnover, continue to low move out to buy a home and some of the other reasons. So, you know, macro economic pretty consistent with last year, but with a better supply dynamic.

Great. That's really helpful. And I think you just mentioned the January new lease number in the prior question or answer. But do you mind just giving that kind of renewal and blended number for January as well?

Yes, January new lease, negative seven point one renewal was four point six and blend was negative zero point nine.

Got it. Appreciate the time, guys. Thank you.

Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Your line is open.

Good morning. Morning. Morning down there. And Eric Mazel tov, as they say in New York and Brad, you know that the buck now stops with you. So all the complaining, all the complaining and griping now comes to your desk. Two questions first, as you guys look at, you know, cap rates, you mentioned five, five, one, I think to Jeff Spector's question. You know, debt costs are certainly above that. How long do you think people, you know, because not everyone can be an all cash buyer. So what is your sense for how long people are tolerating that negative leverage? And is that and do you think it's typical with what we what you've seen historically when we have periods of negative leverage? Or do you think people are willing to wait longer?

Yeah, I mean, this is Brad. I think, you know, historically, periods of negative leverage have been temporary. I'd say this has probably been one of the longest periods of negative leverage that has occurred. And so what we're seeing a couple of things. One is, you know, buyers are buying down their interest rates a bit, which helps the negative leverage some. And then two, I think I think they are underwriting an assumption of a pretty aggressive recovery in twenty six and beyond. And I think that that certainly helps them get more comfortable with what their negative leverage looks like and how quickly they can grow out of that position. So I think it really depends on what your outlook is and how aggressive you're going to be on the on the underwriting. But those are two things that we're certainly seeing in the market right now.

And then as you guys underwrite projects, whether they're acquisitions or developments, how much of your how much of the math is coming from other income, meaning Wi-Fi or cell service or waste or other services, meaning like years ago is pure rent, but the industry has evolved. So I'm just sort of curious how much of your yield now comes from things other than rent?

You know, it's it's not much. I mean, we certainly the the one piece that I think would be probably a bigger component will be with the Wi-Fi piece, which we're just now rolling out across the portfolio. You know, that that is one that that certainly has positive implications from a resident experience perspective. And, you know, and from a demand perspective from our residents, as well as supporting what we're doing on self touring and things of that nature. But, you know, we've gotten away. We have some properties with valet trash and things of that nature. But generally, you know, those are not major items that we're focusing efforts on. It's really in areas where we're adding value to our residents, whether it's our bulk cable that we have or our Wi-Fi. You know, certainly those are some of the larger components of the fees that we do have.

Thank you.

Our next question comes from the line of Richard Anderson with Wed Bush. Your line is open.

Thanks. Good morning. And, you know, Eric, if this is an April Fool's joke, it would be the best one ever. But really, really, really an honor to follow your career to this point. And good luck to you. But I am going to ask you a question because, you know, I'm not letting you get off the hook. As executive chairman, we've heard that title before, and sometimes people have difficulty disengaging. And you said you're going to remain active, which is great, I think, for everybody involved. But how do you think the dynamic will play out? You know, is Brad like on day one, his fingerprints are going to be all over? Or is there going to be sort of a phase in process? I'm just wondering, you know, when you say remain active, is that like a dimmer switch as time passes or a light switch? I'm just I'd just love to know how things will go from here.

Well, I like your analogy, Rich, about the switches. I would definitely lean towards the dimmer switch concept. And that's the intent here. As I said earlier, I've got tremendous confidence in Brad and tremendous confidence in the team that he has with him. And I think just as a function of me pulling back a little bit that the influence that that Brad and the rest of the team have on performance and how things are playing out is going to grow and my influence will diminish. But I think that the intent here is for me to continue to be actively available to Brad to help him think about, you know, whatever may be coming up in terms of challenges or opportunities. And I certainly will remain tied in to the various reporting and things are going on to be sure I have a good finger on the pulse so that I can I can be helpful in that regard as well. But but but it clearly is an intention here, as I've seen it done successfully in other organizations for my sort of involvement to diminish over time. And that's that's the plan. And and I certainly remain active at the board level for years to come. I've got I've been here for 30 years and everything I have personally is tied up in the company. I can't think of a better investment for my net worth and plan to continue to do all our candid support, making it worth more in the future.

Awesome. Thanks for that, Eric. And good luck. My second question real quick is, you know, when we've seen extraordinary conditions play out, it's often followed by extraordinary snapbacks, like, for example, the 20 plus percent type growth we were seeing in rents when people move back to the office and so on in 2022, I guess it was. So we've had extraordinary supply in the Sun Belt. You're talking about a path of improvement as the year progresses. How excited are you really for 2026? And is there a chance for like, significantly outsized growth starting in 2026 just because of the nature of the events that took place that preceded it? I'm just curious if that's a possibility in your eyes.

I mean, I definitely think it's a possibility, Rich, because, as you say, you and I've both been around a long time and the severity of the cycle tends to define the the extent of the recovery. And we're coming off a 50 year high level of supply in our markets. This is this is unprecedented. We haven't seen this level of supply since we've been a public company. And what's so encouraging about that fact is the fact that our NOI and our overall performance moderated certainly from where we were during the COVID years, but it didn't collapse by any means. And it's held up actually pretty darn well in the grand scheme of things. And I think that speaks to just the appeal of this product, the appeal of our markets, the appeal of our portfolio. And all those factors that drive the appeal and drive demand are still there and I think are growing. I think the new incoming administration is more likely to have a positive impact ultimately on the economy than a negative, at least I certainly hope that. So I'm very enthused about what I continue to believe is going to be great demand side dynamics against a backdrop of what we know is going to be incredibly dramatic fall off in the level of supply coming into the markets. And so that does set up a very interesting set of demand supply dynamics going into 20 late this year into 26 and 27 that we think is going to have a hugely positive impact on on our performance.

Okay, great. Thanks very much. Thank you again, Eric.

Thank you, Rich. Appreciate it.

Our next question comes from the line of Steve Sackler with Evercore ISI. Your line is open.

Yeah, thanks. Most of my questions have been asked. I just want to maybe ask Clay one on just the refinancing of the bonds. You know, I think he threw out a 5% rate. I guess I'm really curious, where do you think your spreads are today? I realize the 10-year is pretty volatile, so trying to peg it to an exact way today might be hard, but where do you think a 10-year issue would be for you today with the 10-year sitting around a little over 440?

Yeah, Steve, you know, back in December, we actually issued some bonds and actually got a record low spread of 78 basis points with that transaction. You know, given where the treasury has trended since that point in time, you know, I suspect that spread has probably ticked up several

basis points, but I would still say it's somewhere between 80 and 85.

Okay, great.

Thanks. Our next question comes from the line of Michael Gorman with BTIG. Your line is open.

Yeah, thanks. Just a couple of quick ones. Going back to the transaction side of things, just trying to understand how we should think about the potential timing of investments over the course of the year. If I kind of marry it up to your discussions of the fundamental strengths kind of improving in the markets and your focus on lease-up properties, should we expect acquisition opportunities maybe to be front-end loaded before maybe some of that lease-up opportunity hits and maybe more competition comes into the space, or how should we think about that?

Yeah, I mean, you know, just based on, you know, what we're seeing in the market right now and, you know, what we heard last week at NMHC, you know, my sense is that the market's probably going to be slower the first half of the year and will likely tick up, you know, maybe mid-year and into the third quarter. And, you know, obviously, you know, as those properties come out and hit the market, you know, it takes, you know, 90 to 120 days, you know, for some of these to close. So, you know, my sense is this could be third quarter before we really start to see the volume pick up on the transaction side.

Okay, great. That's helpful. And then maybe just one last one. I apologize if I missed it, but you mentioned outperforming on the collections. What do you have baked into the 25 guidance in terms of delinquencies?

Yeah, we, it's pretty consistent with what we've seen

this

past

year. So I think we've got about 30 basis points, 35 basis points assumed for delinquencies and the 2025 guide.

Great.

Thanks

so much.

Our next question comes from the line of Handel St. Just with Mizuho. Your line is open.

Yes, good morning and Eric, golf clap. It's been a pleasure. I had a couple quick questions I wanted to first to follow up. I think it was Michael's question earlier. I'm curious how much actual rent would need to change over the course of this year for new lease rates to be positive, not just how much new lease spreads we need to improve, but the actual dollar per unit change from now until third quarter. And then maybe some context on what that would perhaps look like in a more normal year. Thanks.

Yeah, and I was, Tim, if you think about, so if I look at January, for example, the all of the new lease absolute rents that we put in place compared to January of last year, it's about a negative one and a half percent spread. And that gap has continued to narrow throughout 2024. So you're calling it a $25 gap in that year over year look. So that can give you a little bit of perspective on what that gap looks like. I mean, we, we typically would say if you think about market rents as you know, whatever December was and then how it trends on new leases throughout the year, we would see, you know, July, probably four or 5% above what December rents are and then trend back down. So, you know, something less than that is really what we have dialed in. But that gives you a little bit of perspective.

Appreciate that. My second question is on the outlook for turnover. This year, I think you guys mentioned flat relative to last year. And last year, I think you had close to, I think, almost 60% retention, one of the highest levels I can remember. But I'm curious if demand and market rates start to show some improvement as we expect, you start pushing a bit more for pricing power. Wouldn't that cause some upward pressure on turnover? So just curious on how you're thinking about your expectations for turnover this year.

Yeah, I mean, certainly it does. But, you know, I would argue right now with all of the options that are out there in the market and all the supply that is out there. I mean, people have more options certainly than they ever have. So, you know, that's, there's more incentive, frankly, to move right now given the concession environment and all the supply that's out there. And yet we haven't seen that turnover pick up. So I think it's more macro driven. Biggest reason to move out has always been to buy a house. And that's extremely difficult, not only with interest rates, but with where single family home prices are, they continue to grow even as our rents have moderated over last year. So I think it's more of a macro picture in terms of price child changes and life events that's driving it more, less so than, you know, the current pricing position.

Appreciate the thoughts. Thanks, guys.

Our next question comes from the line of Rich Hightower with Barclays.

Your line is open. You know, as sort of current projects trail off, what's the appetite, the capacity? Obviously, you've got a great balance sheet, and I assume you could flex that up anytime you like. So just tell us about the thoughts around maybe increasing development from here. Thanks.

Yeah, I mean, I think certainly development is one of the best uses of capital that we have today, especially given what we think will be a diminished supply pipeline going forward. And, you know, it takes time to really build that pipeline. And, you know, two years ago that we had that pipeline was at about $450 million. And today it's close to $900 million where we want to keep it. So the team has done a tremendous job of really building it to that point. And I do think, Seth, in his comments, and I've mentioned, you know, the starts that we had in 2024 is a record level for us. And so we have really good momentum in terms of building that and would like to really keep it elevated. You know, today, you know, we expect another three to four projects to start this year, which will keep us at that level where I think you could potentially see additional opportunities could be in our JV pre-purchase platform where we partner with other developers because we are seeing continued instances where equity capital, you know, is backing out of deals and we're able to step into potential deals that are pretty close to shovel. And we're looking at that already. We have a couple of opportunities we're looking at like that for this year, which could allow us to quickly add additional projects to that pipeline. So, you know, that's an area we'll continue to focus on. You know, we'd like to keep our exposure there to no more than about 5% of our enterprise value, which keeps us kind of in that, we'll call it $1.2 billion range, something in that area. So we'll continue to focus on development

to

the extent that we're able to lean into that a bit more. We will.

Okay, very helpful.

Thanks. Our next question comes from the line of Rob Stevenson with Janney. Your line is open. Rob, you appear to be muted. Okay, we're going to go ahead and move on. Our next question comes from the line of Wes Galladay with Baird. Your line is open.

Hey, good morning everyone and congratulations to both Eric and Brad. Quick question for you on migration to the Sun Belt. Has there been any change in volume or where they're coming from?

Hey Wes, this is Sam. Not really. I mean, it's sort of hovered in that, in the 12 to 13% of our move-ins coming from outside of the Sun Belt into the Sun Belt and that continues to be in that range. And generally, it's obviously the larger states is where they tend to come from. It's California, New York and Chicago and some of those. So broadly, the trends are the same as they've been for the last year or so.

Okay, and then you're doing a lot of asset recycling this year. Is there any appetite to lever up a little early in the cycle?

Yeah, so we'll, you'll probably see a little bit of that as we look to acquire. Brad mentioned some of those acquisitions will probably be in the latter part of the year. The way we're thinking about the case of that, to your point Wes, is that those dispositions will probably fall off in the back part of the year. And so you might see a little bit of lever up to fund some of the development pipeline that we talked about and as well as some of the acquisitions that we've guided

towards as well.

I think it wouldn't

be seen outside of what we've stated as far as where our leverage would go though.

Okay, thank you.

Our next question comes from the line of Linda Tsai with Jefferies. Your line is open.

Hi, thanks for taking my question. Eric, congratulations again. You're really a paradigm for leadership. Your earning of 15, negative 15 to negative 50 bits based on pricing through October. Maybe some more color on that and how does that compare to a year ago?

Yeah, so last year our earn-in was a positive 50 basis points. And so as I mentioned in my comments, the earn-in that we have going into 2025 is negative 40 basis points. I think you're alluding to our NAE-REIT presentation that we had provided back in November. The midpoint of that was obviously negative 35 basis points. So we did see a little bit of pressure in November and December in pricing that barred from that midpoint down

to the negative 40 basis points.

And then the steep drop in supply pressure in markets over down 20% like Houston, Atlanta, Orlando. Is that supply coming down at the same time collectively or is it sort of bumpy?

It's relatively consistent when you think about it across markets because if you go back to the starts that we talked about, the kind of peaks in second quarter, third quarter of 2022. There's a couple markets where that peak was a quarter earlier or a quarter later, but for the most part it was right in that range. So I would expect a relatively steady decline. It's pretty consistent across most markets. I mean, certainly there's a few that are still seeing increasing supply, but on balance it's pretty consistent trend. Thank

you. Our next question comes from the light of Ann Chan with Green Street. Your line is open.

Hey, good morning everyone. Thanks for taking my question. So first question, going to the topic of portfolio allocation. Over the next few years, do you expect to exit any markets or enter any new markets? And if so, which markets are on your short list?

Yeah, and this is Brad. I mean, we definitely have some markets where we have one or two assets that over time will continue to cycle out of and drive efficiencies. I mean, broadly speaking, we like our overall portfolio allocation where we're located in the split between kind of our larger markets and our mid-tier markets. So, you know, certainly not looking to do any type of a large repositioning of the portfolio, but some of those markets where we have one or two assets will certainly look to call out of over time. And, you know, in terms of other markets, I mean, you know, we do have newer markets for us that we need to continue to grow in. You know, Denver, we've got a pretty big development pipeline there where we continue to add assets and grow to that market, which is a newer market for us. And then, you know, Salt Lake City is another one where we need to continue to grow and fill out in. And we are looking at newer markets that, you know, that have some of the same characteristics of our high-growth markets. And, you know, Columbus, Ohio is certainly a market that we've studied and are looking at. And so we'll see. It has a lot of the similar characteristics as our other markets in terms of job growth and things of that nature.

Thanks. And for a second question, shifting over to developments and construction costs, have you observed any changing trends in construction cost components like labor or material costs that are over the last few months? And, you know, to the extent that it drives development decisions, where would you need to see construction costs be at for development units to be a more attractive pursuit than these sub-optitions?

Yeah, I mean, we have seen construction costs come down. I mean, really over the better part of 2024. It wasn't as broad-based in 2024. I mean, selectively, we saw, you know, 4% to 5% reduction in certain markets. I would say at this point, we're seeing it in additional markets, probably in that, you know, 5% or so range. And generally, that's more in the, you know, we've seen some labor reduction. We've really seen reduction in margins that expanded over the last couple of years by subs and GCs. So we've seen some improvement there. And I think for us to continue to increase our development, you know, we need to see costs, the combination of costs and rent improvement to the tune of, you know, call it 5% to 7% additionally. And, you know, we have a pipeline of sites that we own with projects that are approved. And to the extent we continue to see some improvement in the underwriting of those with construction costs and rents, more of those will begin to pencil as we progress throughout this year.

Great. Thanks so much.

Our next question comes from the line of Taiyo Acostana with Deutsche Bank. Your line is open.

Yes. Good morning. Again, let me add my congratulations as well with the transition. Eric, maybe this gives you a little bit more time to get that next PR in a marathon. My question has to do with, again, you guys have been very offensive minded even in the past year or so, looking for opportunities for kind of distress, opportunities to kind of take advantage of some of the oversupply and what do we begin to develop.

I'm

sorry. But it sounds like, again, cap rate track, which is still pretty tight. It doesn't sound like there's that much distress out there. So when we kind of think about, again, this opportunity that you've described for the better part of the past one year, just how real could it actually be? And how do we kind of start thinking about maybe again opportunities to kind of buy things well below replacement costs or those kind of opportunities that are really kind of value added that create shareholder value, typically in environments of distress.

Yes, I was Brad. Definitely we haven't seen a lot of distress, frankly. And we'll continue to focus where we have. And that's generally in these projects that are in lease up. I mean, we do think that those will continue to face a bit of pressure just given the amount of supply that's out there and given the strength of our operating platform. I mean, we are tooled to really take advantage of those. And there are some sellers out there that are interested in selling some of those properties earlier before they're stabilized and still generate a very similar return for their capital. But if they waited till it till it stabilized and they sold at a higher price. So, you know, based on our experience in our markets, our relationships, we're still able to find opportunities like that. We're able to get some of these assets and some of these high yields close to six percent. Well, as the basis that replacement, you know, well below replacement costs. So we'll continue to focus in that area. You know, you could see some distress perhaps in some of the older assets that, you know, sold in 2020 2021 with refinancing that has to come due. But for the most part, some of that, you know, most of that would not be something that we're interested generally.

Helpful. And if I could ask one other quick one again, thanks for the update about bad debt and delinquencies. Curious again about some of the fraud related issues that were kind of going on in some of your markets. What you're seeing in terms of that, whether it's kind of gotten worse or gotten better, both in terms of this overall activity, also in terms of some of your preventive measures as well against those issues.

I think you were asking about fraud and bad debt. Is that correct? You kind of cut out for a second.

Yeah.

We've we've seen continued, you know, lowering pressure, I would say, you know, Atlanta has been the market that has been talked about a lot and our delinquency there is just about consistent with where we are at the broader portfolio level. I mean, we have a lot of tools in place, both in terms of sort of machine learning type of stuff, plus training that we do both on site and some resources we have at the corporate level as well. So where if there's anything that looks a little bit off in terms of income documentation or ID or whatever, we've got people that are trained to really help spot that and take a look at those. So get it being very preventative. It's been helpful. You know, probably hurt occupancy for a while there in Atlanta, but it's going to be better long term. And we started to see that play out with continued lower bad debt. So honestly, not not much of an issue at all for us.

Thank you.

Our next question comes from the line of John Kim with BMO Capital Markets. Your line is open.

Thank you. And Eric, congratulations on transforming MA from good to great. I had a question. I had a question on in the press release, you talked about some markets seeing positively so for lease rates versus last year. I'm wondering what comp what markets those are and where you feel most bullish about which markets will be driving the improvement in blended lease growth this year.

Hey, John, this is Tim. I'll answer some of the detail there. So we did see, you know, 13 markets where we had positive blended in January, which was encouraging. And it was it was pretty widespread among some some mid tier and smaller and some larger markets as well. I would point to Tampa is one that, you know, we've really seen some good traction the last two quarters or so and is is trending above the portfolio. I think that's one where we could see some improving performance 2025. You know, when you think about good markets, if you will, there's there's the ones that have been good are going to drive good revenue. Now, then there's the ones where the pricing is improving and it's more tip of the spirit. We'll show up and revenue to later. So the first bucket is going to be some of the ones we've talked about. It's a D.C. It's Houston. It's it's Charleston. Those are we expect to continue to be strong. Then there's markets like Tampa and I would put put Orlando in that bucket as well that are starting to show some some improvement. And we think, you know, to get in the mid later this year, those are a couple that we expect to see some some better performance from. And then we'll also instill one that we expect to continue to be a laggard with the continuing supply pressure there. But Tampa and Orlando would be to that out point out as as trending markets for us.

And then to get to your negative one and a half percent new lease rates for the year, what kind of market rent growth are you assuming? And if you can comment on your current gain, the lease and how much of a headwind that will be in order to get that that new lease growth rate.

I mean, gain the lease about one percent right now, which it always tends to gap out this time of the year when when pricing is weakest. So, you know, I would expect we saw January market rents were a little bit higher, about half percent higher than what December were. So I think that'll that'll trend up through the summer and then trend back down. But, you know, probably the best way to think about it is just we talked about our new lease lease ever rates for the full year. Expect to be kind of that negative one and a half percent range. So, you know, over the full year, it should that should correlate pretty well with with market rent growth.

Thank you.

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

OK, no further comments from the company. So we appreciate everyone joining us and we will see many of you at the conference in February or March. Thank you.

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