Mid-America Apartment Communities, Inc.

Good morning, ladies and gentlemen, and welcome to the MAA fourth quarter and full year 2025 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, the company will conduct a question and answer session. As a reminder, this conference call is being recorded today, February 5, 2026. As a reminder, in consideration of time, we have a one-question limit. I will now turn the call over to Andrew Schaefer, Senior Vice President, Treasurer, and Director of Capital Markets of MAA for opening comments.

Andrew Schaefer 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 Brad Hill, Tim Argo, Clay Holder, and Rob Del Torre. 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 statements section in yesterday's earnings release and our 34-act filings with the SEC, which describe risk factors that may impact future results. During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures, as well as reconciliations of the differences between non-GAAP and comparable GAAP measures, can be found in our earnings release and supplemental financial data. Our earnings release and supplement are currently available on the For Investors page of our website at www.MAAC.com. A copy of our prepared comments and audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. When we get to Q&A, please be respectful of everyone's time. In an attempt to complete our call within one hour due to other earnings calls today, we will limit questions to one per analyst. We ask that you rejoin the queue if you have any follow-up questions or additional items to discuss. I will now turn the call over to Brad.

Thank you, Andrew, and good morning, everyone. As highlighted in our release, our fourth quarter core FFO results met expectations, despite continued elevated supply levels. With occupancy up 10 basis points and same-store blended lease-over-lease performance 40 basis points stronger year-over-year, the recovery in fundamentals is underway. As we look ahead, we are entering 2026 in a stronger position with a higher earn-in and more top-line revenue momentum that we expect to build throughout the year, particularly in new lease rates, driving an anticipated 110 to 160 basis point improvement in blended lease rates and an 85 basis point improvement in effective rent growth compared to 2025. While uncertainty remains in the broader economy, the level of uncertainty appears lower than what we navigated in 2025, supported by expectations for sustained GDP growth. Several of last year's major headwinds are showing signs of easing. At the same time, the economy should benefit from the working families tax cut, easing inflationary pressure, and improving consumer sentiment, which is showing signs of recovering from multi-decade lows. Looking at our portfolio, rent-to-income ratios have improved, making rents more affordable. New deliveries are decelerating sharply, down over 60% in 2026 from the peak. and new starts are muted and have been for nearly three years, down nearly 70% from peak levels. Against this improving backdrop, we anticipate demand across our markets to remain solid and broad-based, supported by stable job growth, continued in-migration, healthy wage gains, and record levels of resident retention. These trends point to a financially healthy resident base, supporting our consistently strong collections, reinforcing the durability of our revenue profile and suggesting that, absent a meaningful shift in the broader economy, underlying demand conditions remain well supported. Building on this foundation, our long-term earnings growth will benefit from numerous strategic investments we're making. This includes expanding our technology initiatives, such as community-wide Wi-Fi and other enhancements designed to elevate the resident experience and improve operational efficiencies. Our residents value our communities and the exceptional service our teams provide. Reflected in record retention levels, strong renewal rates, and sector-leading resident Google scores, averaging 4.7 out of 5 for the year. Persistent single-family affordability challenges combined with favorable demographic trends continue to support renter demand and keep move-outs to purchase a home near historical lows. These trends, along with fewer competitive units and lease-ups, support strong returns from our repositioning and redevelopment projects. As a result, we're expanding our capital investments in these areas by more than 10% in 2026. Beyond these investments, we continue to grow our development pipeline by leveraging our strong balance sheet and development capabilities to invest early to take advantage of growth opportunities at a time when access to capital is more limited for others. As such, during the fourth quarter, we purchased a shovel-ready project in Scottsdale, Arizona from a developer that was unable to line up equity for their project after three years of due diligence, bringing our active development pipeline to $932 million. Additionally, during the first quarter of 2026, we purchased a land parcel in the Clarendon neighborhood of Arlington, Virginia, and expect to start construction on a 287-unit apartment community later this year. As demand remains robust, new delivery slow, and new starts track well below historical levels across our region, our development should continue to generate strong returns and earnings growth with stabilized NOI yields between 6 and 6.5, well above current market cap rates. Subject to market conditions, we expect to begin construction on five to seven new development projects in 2026 that should deliver into a much stronger operating environment than the one experienced over this past year. Additionally, our balance sheet provides the flexibility to pursue compelling acquisition opportunities as they materialize. We remain encouraged by the progress we're seeing across our portfolio. With more than 30 years of navigating economic cycles, we believe we are well positioned to serve our residents and to deliver compounded earnings growth over the full cycle. As market conditions continue to strengthen, improving fundamentals coupled with our strategic investments should provide meaningful opportunities to enhance performance and and support a stronger revenue trajectory over the next few years. To all our associates across our properties and corporate offices, thank you for your continued commitment to customer service. With that, I'll turn the call over to Tim. Thank you, Brad, and good morning, everyone. For the fourth quarter, the key operating fundamentals of pricing and occupancy combined were in line with expectations. Newly scrubbed continues to be muted due to the moderating but still elevated supply picture combined with the normal seasonal slowdown of the fourth quarter. We did, however, continue to have strong retention and renewal lease rates and achieve sequentially improved average physical occupancy. As compared to the fourth quarter of 2024, blended rates improved 40 basis points, supported by a 50 basis point improvement in renewal rates and flat new lease rates. Average physical occupancy was 95.7%, which was a 10 basis point improvement for both the fourth quarter of 2024 and the third quarter of 2025. Initially, we had another quarter of strong collections with net delinquency representing just 0.3% of bill grants in line with the collection performance for the full year. While we broadly saw normal seasonality in pricing during the fourth quarter, many of our mid-tier markets, particularly in Virginia and South Carolina, continue to be outperformers relative to the portfolio. Charleston, Greenville, Richmond, and the D.C. area markets all demonstrated strong pricing power and strong occupancy in the quarter. Encouragingly, our two highest concentration markets, Atlanta and Dallas, continue to show improvement as compared to the prior year. Of our top 20 largest markets, these two, along with Denver, had the largest year-over-year improvement in blended pricing as compared to the fourth quarter of last year. Austin continues to be our weakest market in terms of pricing as it continues to work through the 25% of inventory that has been delivered cumulatively over the last four years. In our lease-up portfolio, MAA Vale and the Raleigh-Durham market reached stabilization in the fourth quarter. We now have three properties remaining in lease-up with a combined occupancy of 65.7% as of the end of the fourth quarter and an additional three development properties that are actively leasing units. Elevated concessions and longer lease-up periods continue to have a greater impact on the lease-up properties and have pushed the full earnings contribution from these out about a year. However, these projects are still expected to achieve our underwritten yields as markets continue to improve and retain the long-term value creation opportunity despite the overall leasing velocity being behind original expectations. We continue to progress on our various targeted redevelopment and repositioning initiatives in the fourth quarter, and as Brad mentioned, expect to accelerate each of these programs in 2026 with improving fundamentals. During the fourth quarter of 2025, we completed 1,227 interior unit upgrades, bringing the total for the year to 5,995 units renovated, with rent increases of $95 above non-upgraded units and a cash-on-cash return of 19%. Despite this more competitive supply environment for the full year, these units leased on average 11 days faster than non-renewable units. For our common area and amenity repositioning program, we were on average at over 70% reprice at six recent projects, with an average DOI yield above 10% and rent growth far exceeding peer MAA properties. Five additional projects are well underway with anticipated repricing in mid-2026 during the prime leasing season. We have targeted an additional six properties to begin later this year that will reprice in 2027. While vendor challenges and equipment delivery delays have slowed progress on our community-wide Wi-Fi retrofit projects, we are live on 14 of the 23 projects started in 2025, with the remaining nine expected to go live in the first quarter. Similar to our redevelopment plans, we expect to expand this initiative in 2026 also. Looking forward to 2026, we are well-positioned. While winter storm burn did impact about 70% of our portfolio, and slowed traffic for several days. We ended January with physical occupancy of 95.6% and 60-day exposure of 7.1%, both in line with this time last year. As Brett referenced, new supply pressures continue to moderate, and demand remains strong with market-level occupancies, including lease-ups in our markets, well above where they were this time last year. Strong renewal performance continues in the first quarter, with high retention rates and lease-over-lease growth rates on renewals accepted for January, February, and March all above 5%. This compares to the 4.5% we achieved in the first quarter of 2025. We expect gradual seasonal improvement in new lease rates, along with consistent renewal growth, will drive improved performance in 2026 and be particularly impactful in 2027 as pressure from supply subsides throughout the year. That's all I have on the way of preparing comments. Now I'll turn the call over to Clayton. Thank you, Tim, and good morning, everyone. We reported quarter of the vote for the quarter of $2.23 per diluted share, which was in line with the midpoint of our fourth quarter guidance and contributed to quarter of the vote for the full year of $8.74 per share.