Andrew Schaeffer:

Thank you, Julianne, and good morning, everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning with prepared comments are Eric Bolton, Brad Hill, Tim Argo and Clay Holder. Rob DelPriore and Joe Fracchia are also participating and available for questions as well. Before we begin with prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking 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 debt. Our earnings release and supplement are currently available on the for Investors page of our website at www.maac.com. A copy of our prepared comments and an audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. I will now turn the call over to Eric.

Brad Hill:

Thank you, Eric, and good morning, everyone. We continue to see solid demand in our markets supported by strong household formation and positive wage and job growth, leading to continued blended pricing momentum in July with stable occupancy. MAA's long-term strategy positions our portfolio as an attractive lower cost alternative to the higher priced new multi-family supply being delivered, as well as the available single-family housing options within our markets. Our renewal accept rates are at a record high and our Google scores continue to lead the sector, evidence of the value our residents find in living with MAA. With the backdoor controlled, we're very focused on the front door and encouraged by the improving traffic trends. Our property tours are higher than this time last year and our conversion of leads into leases is also up. With increased traffic, strong conversion, stable occupancy and lower exposure, our properties are well-positioned as we enter the back half of the year. As indicated in our release, we have made progress using our balance sheet capacity to support future earnings growth. In addition to the two second quarter construction starts that bring our under construction pipeline at the end of the second quarter to 2,617 units at a cost of $866 million. In July, we provided financing to take out the equity partner on a 239 unit under construction development in the SouthPark area of Charlotte. The project suffered an early delay that put the project's investment horizon outside of the equities fund horizon. Our previous relationship with the developer and the equity partner provided us the unique opportunity to invest in an under construction project with no entitlement risk and a materially shortened construction schedule with first units scheduled to deliver in second quarter of 2025. The second quarter development starts -- the two second quarter development starts were expected to deliver first units in mid-2026 and all three projects are expected to deliver average initial stabilized NOI yields around 6.4%, similar to what we are achieving on our current developments that are leasing. While new lease rates are facing slightly more pressure at the moment, rents achieved at our developments are well above our original expectations, driving higher than originally projected NOIs that should deliver stabilized NOI yields that exceed our original expectations by approximately 70 basis points. Pre-development work continues on a number of projects in our pipeline, which has increased to 11 projects, representing additional growth of over 3,100 units. We maintain optionality on when we start these projects, but we expect to start construction on one to two more projects later this year, bringing our development starts for the year to four to five at or slightly above our original guidance for the year and leading to a slight increase in our development spend for the year at $350 million. Construction costs have yet to decline broadly. But we are hopeful that as the current under construction pipeline winds down, we could see more improvement in construction costs and schedules as we progress through the year, supporting our ability to start construction on additional opportunities at compelling yields. In the transaction market, volume remains low with cap rates generally in the low 5% range, with a number of transactions occurring well below 5%. Our team continues to find select but compelling acquisition opportunities generally in lease-up and on an aftermarket base -- on an off-market basis. In the second quarter, we closed on a 306 unit suburban property in Raleigh for approximately $81 million, which is 15% to 20% below replacement costs. This newly constructed property is currently in its initial lease-up and finished the quarter at 62% occupied. We have two additional acquisition opportunities in due diligence and upon successfully concluding our inspections we expect the closings to occur over the next few months. The three acquisitions are expected to deliver stabilized NOI yields on average just under 6%. Based on the activity our team is seeing in the market, we believe, our forecasted acquisition volume of $400 million is achievable. We have two dispositions in the market, one in Charlotte and one in Richmond that we hope to execute on by the end of the year, but we are early in the process. Before I turn the call over to Tim, to all of our associates at the properties in our corporate and regional offices, I want to say thank you for your hard work and dedication that you show on a daily basis to our prospects, residents, and fellow associates. With that, I'll turn the call over to Tim.

Clay Holder:

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.22 per share, which was $0.03 per share above the mid-point of our second quarter guidance. Just under $0.02 of the favorability was related to favorable same-store expenses and $0.015 was driven by a combination of favorable overhead cost, interest expense, and non-operating income partially offset by about $0.01 in storm cost. Our same-store revenue results for the quarter were essentially in line with expectations. As Tim mentioned, we saw sequential quarter-over-quarter improvement in both blended pricing and occupancy while same-store revenues again benefited from strong rent collections. Our same-store expense performance, particularly in repairs and maintenance, real estate taxes and personnel costs was favorable compared to our expectations for the quarter. Repair and maintenance costs continue to show moderation growing at 1.8% compared to second quarter last year. At this point in the year, we have better visibility into our real estate tax expense for 2024, which we will discuss more with our revised guidance in a moment. During the quarter, we funded nearly $80 million of development cost of the current expected $866 million pipeline, leaving an expected $328 million to be funded on this pipeline over the next two years. Considering the Charlotte opportunity and the additional development starts that Brad mentioned and adjusting for those properties we will complete over the remainder of 2024, we expect our development pipeline to grow to just under $1 billion, which our balance sheet is well-positioned to support. During the quarter, we invested approximately $12 million of capital through our redevelopment, repositioning, and smart rent installation programs, which we expect to produce solid returns and continue to enhance the quality of our portfolio. Our balance sheet remains in great shape. We ended the quarter with nearly $1 billion in combined cash and borrowing capacity under our revolving credit facility, providing significant opportunity to fund future investments. Our leverage remains low with net debt-to-EBITDA at 3.7x. And at quarter end, our outstanding debt was approximately 93% fixed with an average maturity of 7.4 years at an effective rate of 3.8%. During May, we issued $400 million of seven-year public bonds at an effective rate just below 5.4%, using the proceeds to effectively pay off a $400 million bond maturity in June that had an effective rate of 4%. While our next scheduled bond maturity isn't until the fourth quarter of 2025, we expect to be in the market prior to that date to support ongoing investment opportunities. Finally, we are reaffirming the mid-point 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 second quarter, we are making slight adjustments to our guidance associated with rent growth and occupancy. We are lowering the mid-point of effective rent growth guidance by 35 basis points to 0.5% and average physical occupancy guidance by 20 basis points to 95.5% for the year. Total same-store revenue guidance for the year was revised to 0.65%, which also reflects stronger expected rent collection performance over the back half of the year. We are lowering our property operating expense growth projections for the year to 4.25% at the mid-point. As previously mentioned we have better insight into our real estate tax expense for 2024 and have lowered the mid-point of our guidance to 4%. The lower guidance is primarily due to favorable Texas property valuations as compared to our original expectations. Also, we renewed our property and casualty insurance program on July 1 and have achieved a combined premium decrease of around 1%. The changes to our property operating expense projections, combined with our updated same-store revenue expectations, results and reaffirming our original expectation for same-store NOI at negative 1.3%. In addition to updating our same-store operating projections, we were revising our 2024 guidance to reflect favorable trends in G&A and interest expense. As Brad previously mentioned, we also increased the mid-point of our development spend to $350 million. The impact of these adjustments, combined with the $0.03 of expected storm costs associated with Hurricane Beryl in the third quarter, resulted in us maintaining the mid-point of our full year core FFO guidance at $8.88 per share on narrowing the range of $8.74 to $9.02 per share. That is all that we have in the way of prepared comments. So Julianne, we will now turn the call back to you for questions.

Eric Wolfe:

Hey, thanks. I was hoping you could discuss your seasonality assumptions and what you're expecting for the fourth quarter this year versus what you saw last year.

Eric Wolfe:

Sure. I was hoping you could discuss your seasonality assumptions and what you expect for the fourth quarter this year.

Eric Wolfe:

Thanks. That's helpful. And then it looks like your guidance includes some uplift from other revenues. Could you just talk about what the opportunity looks like there and whether that contribution could potentially increase as we go into 2025.

Eric Wolfe:

Great. Thank you.

Nick Yulico:

Thank you. I just wanted to see, I think, I don't know if you gave this, apologies. But is there a way to get just sort of the blended lease pricing that is assumed to the back half of the year? I know you said you adjusted in the full year; I just want to make sure we're clear on that.

Nick Yulico:

Okay. Great. Thanks. And then just second question is, you talked about some of the markets where you're seeing more impact from supply, Austin, Atlanta, Jacksonville. As you look at some of the supply deliveries or what's happening with competitive concessions in those markets. I mean do you have any sort of visibility right now when you think some of those markets would be not as much of a drag on overall new lease pricing? Thanks.

Nick Yulico:

And just a quick follow-up on that. I mean, is there anything you're seeing just on the ground right now that would point to some of that concessionary impact already easing? Or is it still a wait and see?

Eric Bolton:

And Nick, this is Eric. Just to follow on what Tim is saying, last -- late last year in the fourth quarter, there was a lot of uncertainty out there surrounding the demand side of the business and the overall economy and the job market and the supply delivery is really starting to make an impact. And I think that, that's what prompted a lot of pretty aggressive concessionary practices in the marketplace late last year. But as the year has continued to unfold, I think we've all been pleasantly surprised with the very strong demand that we continue to see taking place. Stability is more evident than I think people initially feared it was possible, and as a consequence of the strong demand that we're seeing and clear visibility that new supply deliveries are poised to start declining. I think the market is starting to feel a little bit more comfortable with the practices I have and the lease-up programs I have in place.

Operator:

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

Rob DelPriore:

Yes, hi, Josh, this is Rob. I guess kind of framing it up, if you look at the last three years of insurance renewals in the aggregate, our costs have gone up about 50%. And we've had some good positive claims here. We've got long relationships -- positive relationships with our insurers. So I think given the claims history and where this wound up, we wound up with the same coverage levels that we had last year. And we just -- we caught a break with a kind of stabilizing insurance market and favorable claims history.

Clay Holder:

Hey Josh, this is Clay. Yes, I think we have pretty good visibility across the portfolio at this point with the exception of Florida. And that's the one -- that's the one state that typically lags the rest. I think keep in mind now that Florida has a cap on their valuations. And so we have a pretty good idea of where they'll ultimately end up. We just don't have the final valuation onto at this point. The other missing piece is around the millage rates. And that's fairly across the Board. But we, again, kind of same story with Florida property valuations. We have pretty good visibility as to what we think that those will be as we wrap up the rest of this year.

Operator:

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

Tim Argo:

Yes, this is Tim. And I mentioned a couple on that. I think, one, we're at a really good spot from an occupancy exposure standpoint. As we said here this time last year, we were a little bit more of a hole in terms of occupancy and exposure. We're in a better spot this year. And I think, frankly, a couple of things that I didn't mention in the prior question is about mid-July of last year is when new lease rates really started to drop off, they hit sort of a cliff there in mid-July and continue that way through December. So that frankly creates an easier comp scenario for us as well. So now as we sit here at the beginning of August, we're starting to lap some of those comparisons. And then I think as we've said, too, we do expect the impact from supply to start to moderate a little bit in the back part of the year. I mean it won't manifest itself too much with seasonality. But we were in a period of increasing supply this time last year, while we think we're in a little bit of a period of decreasing price from supply this year. So I think where we are with occupancy exposure the comps, the supply situation, and the continued demand turnover being low, more of our mixes and renewals, which continues to be our strongest point for pricing. Rent to income continuing to be solid. So don't see any change on the demand scenario either other than some of the normal seasonality that we'll see later this year.

Tim Argo:

Yes. So we were at 4% in June. We're actually 4% -- or in July, sorry, the next couple of months, August, September, where we expect to be in the 4% to 4.5% range with actually September being more towards the higher end of that range. So we're seeing -- and on top of that, our renewal accept rates are higher than they were last year, really higher than they've been in the last few years. So continue to see strength there and expect that to hold up pretty well through the rest of the year.

Tim Argo:

Thanks.

Jamie Feldman:

Great. Thank you. I just want to talk some more about the development opportunities. I appreciate your comments of ramping up to $1 billion of potential spend. I think a lot of people are excited about all the major pullback in starts and what 2026, 2027 could look like in your markets. Can you talk more about how much more you think you could ramp up? Is the land already on your balance sheet? Would you need to go out and buy it? And just kind of how large and how would you fund as you throttle up the development pipeline?

Clay Holder:

Yes. Jamie, I'll add on to that as far as where we think that, that funding would come from, I mean, where we would look to first is to fund that through additional debt, given our leverage at the 3.7x. And so we would look to move that up at least to the 4.5x or maybe 5x. And that's a significant number. That's almost over $1 billion. So we've got plenty of opportunity there of how we would go about funding that. Especially in an environment where rates will -- we expect would continue to decline over the next year or so.

Brad Hill:

Certainly, we don't need a lot of decrease in construction cost because the other piece of the puzzle, I think, that we're likely to see a little bit of improvement on is on the schedules side of things, which has extended a bit over the last few years just given the amount of product that's in the pipeline. So we don't need construction costs to come down a whole lot to make some of these projects feasible or to get the economics more in line. But -- and we have seen that. The project that we started in Charlotte in the second quarter, we saw construction costs come down a few million dollars. So we don't need it to come down a lot. I think where you're likely to see that is some of the margins for some of the contractors out there. We've seen those margins -- profit margins increased substantially over the last couple of years. I think framing and lumber and things of that nature are down right now. So I'm not sure you'll get a whole lot of that, but I think it's going to come from some of the margins.

Tim Argo:

Yes. I mean, we certainly track the reason for move out as part -- when somebody does move out and track those reasons where they're trending. And certainly, the decrease and move out to my home has been helpful to overall turnover decreasing. So I mean, I do think it will tick back up if and when rates start to drop. I mean, it's still it probably needs to be a fairly material drop. If you think about single-family home prices even ignoring the level of interest rates. Those have continued to go up even as rents have started to moderate. And so with current interest rates, somebody buying a house is going to be -- their average payment is going to be about 40% to 50% higher than our average rent. So to fill that gap, it would take quite a decrease in interest rates. So I do expect at some point, turnover pick up a little bit, but usually when that happens, if interest rates are dropping, people buy in homes that typically speaks to a pretty strong economy as well. So we typically see that hold up okay as rents start to move as a part of that. So I don't think it would be as big of a -- I don't think it would be a one-for-one trade-off. It would have some benefits on the revenue side as well.

Jamie Feldman:

Okay. Great. Thanks for your thoughts.

Richard Anderson:

Thanks. Good morning. So if you can help me sort of marry a few things here. It sounded very optimistic looking out beyond the near-term supply maximum impact to new lease is behind you, as you said, and August is looking good, yet you lowered your new lease rate guidance. I'm just curious, is this kind of like final hurdle to clear type of thing or the beatable situation in the back half of this year? I'm just curious if you can sort of bring those two pieces together for me?

Richard Anderson:

Okay. Great. And then the second question is, when you think about kind of looking into 2025, just in your experience and history in dealing with pockets of supply that have happened in your careers many times you're accustomed to this. How does the cadence of 2025 kind of look when you think about what you know is coming to be delivered and then the tail of that as it leases up does 2025 sort of hit the ground running? Or is it sort of a slow evolution and you don't really get back to a real growth story of significance until a year into the year, if that makes sense.

Richard Anderson:

Okay. Great. Thanks for the color. Appreciate it.

Austin Wurschmidt:

Yes. Thanks, everybody. And piggyback a little bit off the last question there, Tim, and circling back to Tim's comments on asking rents turning positive in August. I guess with comps easing from here, what's sort of your expectation for the trend in asking rents through this year and into 2025 and maybe seasonality aside later this year, when do you expect positive asking rents to translate into positive new lease rate growth?

Austin Wurschmidt:

And then I guess with this move in asking rents, where does that put the portfolio today from a loss or gain to lease perspective?

Austin Wurschmidt:

That's helpful. Thanks for the time.

John Kim:

Thank you. Tim, in your prepared remarks, you mentioned absorption is the highest it's been since the third quarter of 2021. And I'm wondering what's driving this. A few years ago, we did have the strong net migration trends to your markets, but that seems to have softened a bit. So I just wanted to know what do you think is driving demand right now?

John Kim:

Okay. And I wanted to clarify your views on renewal rates. So you had 4.5% to 5% in the first half of the year. That's what you're expecting in the second half of the year. I think that's the answer you gave to Nick Yulico. But July opined to 4%. So I'm wondering why this month was relatively lower than what you're expecting. And are you basically expecting this to ramp up in the fourth quarter?

John Kim:

Got it. Thank you.

Haendel St. Juste:

Hey guys, thanks for taking my questions. So first one, I guess, is on the transaction market cap rates. Seemed like early this year, cap rates were closer to 6%. Now we're getting into the low 5%. Interest rates coming down a bit more I wouldn't necessarily call it confidence or clarity, but a better feeling of how fundamentals could be trending in the Sunbelt over the next 6, 12 months. I'm curious. Are sellers now more willing to engage in not only conversations about selling assets? Do you expect the cap rate to be lower from here? And then some color on how you're underwriting IRRs for the assets you bought in the second quarter. Thanks.

Haendel St. Juste:

Got it. Got it. Very helpful. You mentioned in your comments earlier that the rent to income in the portfolios around, I think you said 21%, the lowest in three years. I was curious if you're sensing any rent fatigue, any change in the move-outs due to rents you're seeing in the portfolio? And then can you add some color on concessions usage in the portfolio today, how that compares to last quarter or last year? Thanks.

Haendel St. Juste:

Got it. Got it. And one last one, I appreciate the commentary on the insurance costs coming in the commentary in the marketplace. So I'm curious if there's anything that perhaps you're doing any differently in your approach if you're perhaps self-insuring a bit more? Thanks.

Haendel St. Juste:

Great. Thanks, guys, and best of luck.

Alexander Goldfarb:

Hey, good morning, down there. Two questions. The first is bad debt. Can you just talk a bit about your resident credit profile now versus pre-pandemic? Are you back to where you were pre-pandemic? And if there are any markets in particular that are still elevated and thoughts on why any elevated markets are remain as such?

Alexander Goldfarb:

Okay. And just confirming what you said. You said normal bad debt is 30 to 40 bps and currently, you're 15 above that. I just want to make sure I heard that right.

Alexander Goldfarb:

Okay. And then second question is a lot of discussion on the call about the changes in your same-store assumptions changes in rent profile and occupancy. And yet big picture is your FFO mid-point stayed the same and that's despite $0.03 hurricane charge in the third quarter. So I mean it sounds like there's a lot of focus on same-store, but ultimately to earnings, it's almost a non-issue. So what's the best way you gave a lot of stats on rents, on revenue, occupancy, et cetera? But ultimately, it matters what you guys deliver on the bottom line. So what's really the key focus or the key driver of the FFO versus all these puts and takes?

Alexander Goldfarb:

Yes. And overall --

Alexander Goldfarb:

Thank you.

Adam Kramer:

Great. Thanks. I want to ask about the delta between the commenced and the signed leases in July?

Adam Kramer:

Yes. Just between the leases that were signed in July and the leases that were commenced or effective in July, what you reported?

Adam Kramer:

That's really helpful. Thank you. And then just as a follow-up, I wanted to ask about some of capital allocation from a high level, maybe a little bit of focus on this call on development and maybe the possibility of leaning a little bit more into that. So I guess, just kind of given kind of where acquisitions and cap rates are today and maybe that market showing some green shoots given the development opportunity that you talked about, how would you kind of stack rank those two and any other kind of capital allocation opportunities and priorities.

Adam Kramer:

Great. Thanks for the time.

Omotayo Okusanya:

Yes. Good morning. My question is more from a regulatory perspective. Again, you have President Biden up there kind of talking about implementing further rent control. We're going into an election cycle. Just curious what you think about that? And specifically, if you're also kind of hearing anything in any of your key states where you have exposure about potential rent control laws and kind of going into this current election cycle.

Omotayo Okusanya:

Thank you.

Ann Chan:

Hey, good morning. Quick question for me. Do you expect a reacceleration in growth of any expense line items heading into next year?

Ann Chan:

Thanks. And second question, Tim, can you share what your expectations are for new lease growth in Atlanta for this year? And when you believe the markets will start seeing a stronger rate and occupancy trends?

Ann Chan:

All right. Thank you.

Linda Tsai:

Yes. Hi, where are you sending out renewals for August? And what are you getting for those? And how does that compare to last year and historically?

Linda Tsai:

And then with rent to income dropping to 21%, do you track how much average incomes of your residents have increased over the past few years?

Linda Tsai:

Thanks.

Eric Bolton:

Okay. No further comments and we appreciate everyone joining us reach out if you have any other questions you'd like to ask. Thanks very much.

Andrew Schaeffer:

Thank you, Regina, and good morning, everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning with prepared comments are Eric Bolton, Brad Hill, Tim Argo and Clay Holder. DelPriore and Joe Fracchia are also participating and available for questions as well.

Brad Hill:

Thank you, Eric, and good morning, everyone. In preparation for what we believe will be a stronger leasing environment in 2025 through at least 2028, we continue to make progress in putting our balance sheet capacity to work to deliver future earnings growth.

Clay Holder:

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.22 per share, which was $0.02 per share above the midpoint of our first quarter guidance. About half of the favorability was related to the timing of real estate taxes, while the remaining outperformance is related to the collective timing of overhead cost, interest expense and nonoperating income.

Operator:

We will now open the call up for questions.

Tim Argo:

Austin this is Tim. Yes, I'll give you a little bit of an overview. I mean I think we're -- as I mentioned in my comments, with where we are in exposure, where we are with occupancy we feel like we're in a good place there. So we'll continue as we get into that, certainly, busier part of the season now, the push on new lease rent growth where we can and balance a little bit depending on property by property.

Tim Argo:

Yes. I mean there was a little bit more of a push towards occupancy, I would say, in late February and early March is based again looking at it on a targeted basis where exposure was. And that's late February or early March time frame is always the time of the year where you start to see lease expirations pick up and you're kind of waiting on that demand to pick up as it as it has and it starts to do in March.

Operator:

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

Tim Argo:

To the first question, yes, we have seen traffic pick up leads, lead volume, and we look at it kind of going back to the exposure factor. We look at leads for exposed unit, and that's as good as what it was. We've kind of talked about we haven't seen a normal year since probably 2018, 2019. So we're sort of exceeding those levels when you think about traffic volume and leads for exposed and all the things that we look at internally for demand.

Brad Hill:

Brad, this is Brad. Yes, I think relative to that comment, it's a realization that the high level of supply that we are seeing today is partly a result of cheap financing that's been available over the last couple of years and just realizing that in general, those times are behind us. And so getting back to a more normal supply environment going forward into the future.

Operator:

Your next question will come from the line of Josh Dennerlein with Bank of America.

Tim Argo:

Yes. This is Tim. I mean at a high level, concession usage is pretty similar to what we saw in Q4. We haven't seen it get materially worse or better. For us as a portfolio was about 0.5% of rents last quarter. It's about 0.4% of rents this quarter. At a market level, it obviously varies a little bit. I would say, again, not a lot of movement from last quarter.

Brad Hill:

This is Brad. Yes, I would comment that the yields that we're expecting on our new starts for this year are in the mid-6% range, which is consistent with what we're delivering today on our existing development portfolio. So that is a pretty good spread from where current cap rates are, call it, low 5s as I mentioned in my comments. So we're still in that call it, 150 basis points spread or so range with current cap rates, which feels really good to us.

Michael Goldsmith:

It seems like the quarter was generally in line with expectations just above the midpoint, yet demand was unseasonably strong. So does that mean that demand needs to stay at unseasonably strong levels to kind of hit the high point of the guidance going forward?

Michael Goldsmith:

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

H. Bolton:

And Michael, this is Eric. Just to add on to what Tim is saying. I think another thing to keep in mind is when you look at that negative 6% on new lease pricing versus 5% of renewal in terms of a lease-over-lease comparison, that implies, I think, in some people's mind a bigger dollar difference than what's at play really.

Eric Wolfe:

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

Eric Wolfe:

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

Eric Wolfe:

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

Operator:

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

Brad Hill:

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

Brad Hill:

Yes. I mean I think if you look at where we sit today, as we've said over the last few quarters, the transaction market has been quiet for a couple of years, but the supply is up. So we just feel like the need to transact continues to build while we're not seeing transactions I think the difficulty has been the volatility on interest rates has really slowed the market down from transactions occurring.

Daniel Tricarico:

And then just going back to the revenue outlook, the job growth numbers you talked about an initial guidance obviously seem pretty conservative now 4 months into the year, but no change to the revenue components in guidance. How should we be interpreting that?

Operator:

Our next question will come from the line of Haendel St. Juste with Mizuho.

Tim Argo:

Yes. And I'll add to that. I mean, we do track properties in our markets that are in lease-up and how quickly they're leasing up and that sort of thing. And right now that would suggest any concerns from that point. I mean, certainly, as we get later in this year and you get to the fourth quarter, things can change quickly based on what they're doing, but we're not seeing it right now, but that is part of why we certainly dial in, particularly on the new lease side that we think it will moderate back down as you get into the fourth quarter.

Haendel St. Juste:

And can you remind us, you mentioned the number of good markets that are hitting peak supply this quarter. Which markets are still left to hit peak supply amongst your larger markets?

Haendel St. Juste:

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

Operator:

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

Tim Argo:

Yes, for the next couple of months, and we're just wrapping up July now, but for the next couple of months, we're in the 4.6%, 4.7%, 4.8% range.

H. Bolton:

Adam, this is Eric. Just to add on to what Brad is saying. We spend a lot of time thinking about just how much development risk that we want to put on the platform. And one of the things that we centered around is the idea that we'd like to keep our exposure in forward funding obligations, if you will, no more than around sort of 5% of enterprise values, which based on sort of where pricing is today for us, that would put it at around $1 billion.

John Kim:

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

John Kim:

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

Tim Argo:

This is Tim, John. I don't think there's anything especially different in the resident. We look at all the sort of the resident demographics are pretty consistent with what they've been the last couple of years. But certainly, it's much more difficult to buy a house. And if you look at our markets in particular, given where interest rates are now, it's about 70% more expensive household than it is our average rent.

James Feldman:

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

James Feldman:

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

James Feldman:

Okay. Great. And then I guess just thinking about where we are in the cycle and the opportunities you're seeing if you think about where you may be buying, I mean, you've got your more supply-challenged markets or some of the larger MSAs then your footprint, you've also got access -- you've also got exposure in markets like Kansas City, Birmingham, Fredericksburg. Do you think the opportunities this cycle are going to show up in those types of markets more? And when we look back in 5 years and think about the portfolio footprint, maybe that's where you guys grow more? Or no, you want to stick with the larger population, faster job growth market as you build out the portfolio and put your capital to work?

Brad Hill:

Yes, it's going to be different based on each market. But I would say, in general, '24 is going to be flattish. But you also have to remember that on our deals that we're underwriting on an acquisition, the leases are predominantly new leases, which is different than our existing portfolio, but we're generally bringing all new leases into the portfolio.

Operator:

Your next question comes from the line of Alexander Goldvarg with Piper Sandler.

H. Bolton:

Well, we use a number of different sources to compile our view of what the demand horizon and the job growth is going to be. Obviously, a year or so ago, there was more nervousness surrounding the prospects of a more material slowdown in the economy. We have seen some moderation in '24 as compared to certainly '23 and '22, but broadly speaking, we've long believed that these Sun Belt markets had underpinnings associated with them surrounding employer stability and job growth and new jobs coming such that we felt pretty good about the job growth or about the employment markets broadly holding up.

Brad Hill:

Yes. This is Brad. I think there's really two components of that. I would say, number one, we have seen a number of loans, specifically in 2023. The last number I saw was 85% of the loans that were coming due, we're pushed. We're extended in 2023.

Linda Yu Tsai:

Just wondering if you're doing anything differently on the marketing side to drive traffic in the higher supply markets?

Tim Argo:

Yes. I mean there's the one highlight that we talked about is something that we think will not only drive down marketing costs but increased demand and the traffic coming in that way. There's a smart home initiative that we've been talking about that we're wrapping up this year. I mean I think over the next 2, 3, 4 years, the biggest initiative in terms of what it can do for margin is continuing sort of our ubiquitous or full property WiFi.

Operator:

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

Operator:

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

Andrew Schaeffer:

Thank you, Carrie and good morning, everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning with prepared comments are Eric Bolton, Brad Hill, Tim Argo and Clay Holder. Al Campbell, Rob DelPriore, and Joe Fracchia are also participating and available for questions as well. Before we begin with our prepared comments this morning I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our 34x 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 supplements 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. I will now turn the call over to Eric.

Brad Hill:

Thank you, Eric, and good morning, everyone. As mentioned in our earnings release, we successfully closed on 2 compelling acquisitions during the fourth quarter at pricing 15% below current replacement costs. Both properties fit the profile of the type of properties we expect to continue to emerge throughout 2024. Properties in their initial lease up, with sellers focused on certainty of execution with the need to transact prior to a definitive deadline. Our relationships with the sellers and our ability to move quickly and execute on the transactions utilizing the available capacity on our line of credit without a financing contingency were key components of MAA being chosen as the buyer for these properties. MAA Central Avenue a 323-unit mid-rise property in the Midtown area of Phoenix and MAA Optimist Park a 352-unit mid-rise property in the Optimist Park area of Charlotte are expected to deliver initial stabilized NOI yields of 5.5% and 5.9%, respectively. We expect both properties to achieve further yield and margin expansion as a result of adopting MAA's more sophisticated revenue management, marketing and lead generation practices as well as our technology platform. Additionally, we expect to achieve operational synergies by combining certain functions with other area MAA properties as part of our new property potting initiative. Due to continued interest rate volatility and tight credit conditions, transaction volume remains tepid, down 50% year-over-year and 16% from the third quarter space. We continue to believe that transaction volumes will pick up later in 2024, providing visibility into cap rates and market values. For deals we tracked in the fourth quarter, we saw cap rates move up by roughly 35 basis points from third quarter. Our transaction team is very active in evaluating additional acquisition opportunities across our footprint with our balance sheet in great position to be able to take advantage of more compelling opportunities as they continue to materialize later this year. Our forecast for the year includes $400 million of new acquisitions, likely in lease up and therefore, dilutive until stabilization is reached. Despite pressure from elevated new supply, our two stabilized new developments as well as our development projects currently leasing continue to deliver good performance, producing higher NOIs and earnings than forecasted in our original pro-formas, creating additional long-term value. New lease rates are facing more pressure at the moment, but these properties have captured asking rents on average approximately 20% above our original expectations. Our four developments that are currently leasing are estimated to produce an average stabilized NOI yield of 6.5%. We continue to advance predevelopment work on several projects, but due to permitting and approval delays, as well as an expectation that construction costs are likely to come down. We have pushed the three projects that we plan to start in 2023 into 2024. We now expect to start between 3 to 4 projects this year, with 2 starts in the first half of the year and 2 starts late in the year. Encouragingly, we have seen some recent success in getting our construction costs down on new projects that we're currently repricing. As we have seen a meaningful decline in construction starts in our region, we're hopeful to see continued decline in construction costs as we progress through the year. Our team has done a tremendous job building out our future development pipeline. And today, we own or control 13 well-located sites, representing a growth opportunity of nearly 3,700 units. We have optionality on when we start these projects, allowing us to remain patient and disciplined. Any project we start this year, we'll deliver first units in 2026, aligning with the likely stronger leasing environment supported by significantly lower supply. Our development team continues to evaluate land sites as well as additional prepurchase development opportunities. In this constrained liquidity environment, it's possible we could add additional development opportunities to our future pipeline. The team has our portfolio in good position. Our broad diversification provides support during times of higher supply with a number of our mid-tier markets outperforming. As we ramp up activities in 2024, we're excited about the coming year. Beyond the new external growth opportunities just covered and as Tim will outline further, we continue to see solid demand and steady absorption of the new supply delivering across our markets and remain convinced that pricing trends will begin to improve late this year and into 2025. In addition, we continue to make progress on several new initiatives aimed at further enhancing our leasing platform to further position us to outperform local market leasing metrics during the supply cycle. Before I turn the call over to Tim to all of our associates at the properties and our corporate and regional offices. I want to say thank you for coming to work every day, focused on improving our business, serving our residents and exceeding the expectations of those that depend on us. With that, I'll turn the call over to Tim.

Clay Holder:

Thank you, Tim, and good morning, everyone. Reported core FFO for the quarter of $2.32 per share was $0.03 per share above the midpoint of our quarterly guidance and contributed core FFO for the full year of $9.17 per share, representing an approximate 8% increase over the prior year. The outperformance for the quarter was primarily driven by favorable interest and the performance of our recent acquisitions and lease-up during the quarter. Overall, same-store operating performance for the quarter was essentially in line with expectations. Same-store revenues were slightly below our expectations for the quarter as effective rent growth was impacted by lower lease pricing that Tim mentioned. Same-store operating expenses were slightly favorable to our fourth quarter guidance primarily from lower-than-expected personnel costs and property taxes. During the quarter, we invested a total of $20.7 million of capital through our redevelopment, repositioning and smart brand installation programs, producing solid returns and adding to the quality of our portfolio. We also funded $48 million of development costs during the quarter toward the completion of the current $647 million pipeline, leaving nearly $256 million remaining to be funded on this pipeline over the next 2 years. As Brad mentioned, we also expect to start to 3 to 4 projects over the course of 2024, which would keep our development pipeline at a level consistent with where we ended 2023, in which our balance sheet remains well positioned to support. We ended the year with nearly $792 million in combined cash and borrowing capacity under our revolving credit facility, providing significant opportunity to fund potential investment opportunities. Our leverage remains low with debt to EBITDA at 3.6x. And at year-end, our outstanding debt was approximately 90% fixed with an average of 6.8 years at an effective rate of 3.6%. Shortly after year-end, we issued $350 million of 10-year public bonds at an effective rate of 5.1%, using the proceeds to pay down our outstanding commercial paper. Finally, we did provide initial earnings guidance for 2024 with our release, which is detailed in the supplemental information package. Core FFO for the year is projected to be $8.68 to $9.08 or $8.88 at the midpoint. The projected 2024 same-store revenue growth midpoint of 0.9% results from rental pricing earned in of 0.5% combined with blended rental pricing expectation of 1% for the year. We expect blended rental pricing as to be comprised of lower new lease processing impacted by elevated supply levels and renewal pricing in line with historical levels. Effective rent growth for the year is projected to be approximately 0.9% at the midpoint of our range. We expect occupancy to average between 95.4% and 96% for the year and other revenue items, primarily reimbursement and fee income to grow in line with effective rent. Same-store operating expenses are projected to grow at a midpoint of 4.85% for the year, with real estate taxes and insurance producing most of the growth pressure. Combined, these 2 items are expected to grow almost 6% for 2024 with the remaining controllable operating items expected to grow just over 4%. These expense projections combined with the revenue growth of 0.9% results in a projected decline in same-store NOI of 1.3% at the midpoint. We have a recently completed development community in lease-up, along with an additional 3 development communities actively leasing. As these 4 communities are not fully leased up and stabilized and given the interest carry associated with these projects, we anticipate our development pipeline being diluted to core FFO by about $0.05 in 2024 and turning accretive to core FFO on later stabilization. We are expecting continued external growth in 2024, both through acquisitions and development opportunities. We anticipate a range of $350 million to $450 million in acquisitions, all likely to be in lease-up and not yet stabilized and a range of $250 million to $350 million in development investments for the year. This growth will be partially funded by asset sales, which we expect dispositions of approximately $100 million, with the remainder to be funded by debt financing and internal cash flow. This external growth is expected to be slightly dilutive to core FFO in 2024 and then again, turning to accretive to core FFO after stabilizing. We project total overhead expenses, a combination of property management expenses and G&A expenses to be $132.5 million at the midpoint, a 4.9% increase over 2023 results. We expect to refinance $400 million of bonds maturing in June 2024. These bonds currently have a rate of 4% and we forecast to refinance north of 5%. This expected refinance, coupled with the recently completed refinancing activities mentioned previously, results of $0.04 of dilution to core FFO as compared to prior year. That is all that we have in the way of prepared comments. So Carrie, we will now turn the call back to you for questions.

Joshua Dennerlein :

I appreciate all the color you provided on guidance. My first question would just be on the same-store revenue growth outlook. Can you provide us any more details on what would get you to the high and low end of guidance? And I guess, I'm really curious about what you would assume for the blended rate growth at the higher low end.

Joshua Dennerlein :

I appreciate that. And then there's a drag that you're assuming on the $400 million of acquisitions, is there a way to quantify that?

Brad Hill :

Josh, this is Brad. Just to add to that. Our assumption on the acquisitions is that obviously, as Clay mentioned, they're very similar to the ones we purchased last year. They're in lease-up. We're assuming about a 4.5% NOI yield contribution at the time of closing, given that those are in lease up and given the comments that Clay made about where our current commercial paper is and where our cost of debt is you can kind of do the math on what the dilution there is.

Austin Wurschmidt:

Great. Eric, you remain confident that new lease pricing is going to improve this year, but it really sounds like peak deliveries don't hit until around midyear. And we've really yet to see, I guess, leasing volume pick up, so with kind of that expectation of the improvement in new lease rates for the year, do you think that lease rates get better in the back half of this year versus last year on sort of a lease weighted basis? I know things deteriorate late in the year, but more interested in sort of that period of July through October.

Tim Argo:

Yes. I'll add on to what Eric was saying. If you go back to last year, I mean, our new lease pricing went slightly negative starting in July, and we got to progressively got more so throughout the year. So there is a comp component that plays into this as well. So I do think to answer one of your questions, Austin is that new lease pricing does look better at the end of 2024 as compared to the end of 2023 with those comps, with supply getting a little bit better. Now, I think the improvement won't be as clear to see because it is a lower demand time of the year when you get into November and December, but I think the trends will be positive and really start to play out in 2025.

Tim Argo:

I think likely new lease pricing probably doesn't go positive until 2025. I think it will get close to flat, probably in the middle of this year and the highest demand part of the year. But even in a normal year or a good year, we typically see new lease pricing is negative in the back part of the year. So I think likely, it's early 2025 as we see the flat pressure start to moderate more, so I think that's probably the most likely scenario for new lease pricing. As far as what changed, I mean, it was really, really to earn in, which is based on what we saw in November and December, as I mentioned in my comments, it is pricing really moderated quite a bit, particularly in November and December, which the way we calculate our earn in is just basically saying all right, all the leases that were in place at the end of December 31, if they all price the year for the rest of the year, what would our range growth be in that -- so the earnings more in the 0.5 range, a little bit lower than that range we talked about at NAREIT, but really driven by the new lease pricing in November and December and the pressure we saw from the developers and looking for occupancy and that sort of thing.

John Kim :

I wanted to follow-up on that comment you just made on the earn in that basically half of what you expected in November. I realize the blended rates probably seen in lower than expected. But you also mentioned, Tim, in your prepared remarks that the leasing volume was very light fourth quarter is only 16% of leases overall. I'm just trying to understand that impact of the fourth quarter leases and why earn in come down so much in September month?

John Kim :

But when you calculate earn in, do you just take the blended lease change for your entire portfolio and just not weighted by number of transactions, such as [inaudible] basically?

John Kim :

Okay. My second question is on acquisition yields, which your last 2 were at 55 and 59. How do you see that move towards this year when you see more acquisition activity occur? And your recent bond rate is done at 5.1%. How does that change your view on initial yields that are acceptable to you?

Operator:

And we'll take our next question from the line of Jamie Feldman with Wells Fargo.

Tim Argo:

Well, I mean I will say when we talked about construction starts that peaked somewhere around the middle of 2022 that is pretty consistent across our markets. There are a few that were a little bit later that or few a little bit earlier than that. So it is a relatively consistent supply wave in terms of the timing Obviously, some markets are getting a lot more supply than others, which drives under overperformance. I mean Austin is the market we talked about forever that is our weakest one right now. I mean it's just getting a tonne of supply, it's very widespread throughout the market, whereas some other markets a little more targeted. So that's 1 that has probably been the worst new lease performance right now. So I mean, I think a market like that will continue to struggle through most of 2024, probably be 2025 before it starts to see a little bit of improvement. But I would say that, again, sort of the cadence of supply is relatively consistent across most of our markets.

Jamie Feldman :

Okay. That's helpful. Yes. I mean the question is coming from -- I think most of you and most of your peers are thinking that by the end of the year, a lot of these markets are much better. So that's what I'm trying to figure out like what -- so maybe if you guys pick the market, like what do you think is going to be the market that has the most pain for the longest period combining both job growth projections and supply just so we can at least keep our eyes on that to see like this is the worst case.

Brad Hill :

Yes, I'll agree with all. I mean it's just -- it's getting a lot of supply and frankly, without the level of job growth that would be worse off than it is. So getting a tonnes of jobs, but not is going to take some time to work through.

Tim Argo:

Yes. I think just from a leverage standpoint, we would be comfortable moving it up to 4.5% to close to 5%. And of course, that would take a lot of time at this -- at the rate that we're looking at these coming through to get to that point. But we would be comfortable taking our leverage up to that point.

Tim Argo:

I think that gets to roughly $1.5 billion.

Dan Tricarico :

It’s Dan Tricarico on for Nick. Brad, you talked about the improving absorption in the back half of the year. Can you comment on what you're seeing on the demand side, job growth migration that gives you this confidence? Maybe the general economic outlook embedded in the guide? Maybe said another way, what household formation or job growth scenario gets you to the low end of guidance?

Tim Argo:

Yes. I'll add a couple of points there. I mean I think the job growth component and how much there is will be probably more likely the factor that determines to your original question, kind of high and low end, that sort of thing. I mean, I think we expect be in migration and all things Brad just noted to be there and that component of demand to be pretty consistent with what we've seen in the last couple of years. We've dialed in about 400,000 new jobs into our expectations for our markets for '24 that's down certainly from 2023, but still net positive and so expect job reprices in the subnet markets. And encouragingly, if you look at the national job growth numbers from January added, I think, about 350,000 new jobs in January. You compare that back to 2023, the average is about 250,000 a month. So while we do expect job growth to be down some to 2023, the early indications are that it's still holding up pretty well.

Brad Hill :

This is Brad. A couple of comments. On the development side, yes, we do have 3 to 4 starts that we expect this year. 2 in the first half. One of those is in Charlotte. The other one is in the Phoenix Chandler submarket of Phoenix. We've got 2 other ones that we're working on. One is a Phase II in Denver. The other 1 is a Phase II in Atlanta. And in terms of the yields we're seeing there, we are pushing those at the moment to -- we're repricing all of those trying to get the construction cost down to really get to a yield, call it, mid-6s. That's really what our goal is. We have had some success on the project in Charlotte, we've been able to get between 5% and 6% reduction in the construction costs, which really helps support our ability to get that yield. So we feel really good about where we are with those developments. And then the 2 that are late in the year are Phase 2 projects. So we're hopeful that the yields there continue to increase as we get further construction costs out of those as well. And I'm sorry, the second part of your question, Nick?

Brad Hill :

Yes, that asset performed extremely well for us. The average rents that we achieved on that asset were almost 24% higher than what we expected. So from a yield perspective, significantly outperformed what we expected. And part of that was you mentioned it's a suburban asset in Austin. Great execution on the property had 2 adjacent lease-ups going on at the same time as it, but we were very patient in how we leased that asset up. We didn't have to offer concessions to meet the market and really perform extremely well there. So I think given the execution on the construction side as well as the leasing side, we did not have to compete quite as much head-to-head with some of the competition that was in that market, and we've got pretty good results there.

Eric Wolfe :

So I understand your point on comps getting easier through the year, especially in the fourth quarter. But if the largest amount of supply is delivering in the middle of this year, it takes like a year to lease up. I guess why your brands start recovering sort of later this year before the developments are fully leased? Isn't there typically like a compounding effect of the supply?

Eric Bolton :

And as Tim mentioned, I mean, we also -- I mean, we assume that new lease pricing moderates in the fourth quarter, and that's also what's important to remember, that's also why we stagger our lease expirations the way we do such that we're repricing a smaller percent of leases of the portfolio in that holiday period of November and December. So I understand the point that you're making, but we feel like that we've accounted for that both in terms of our new lease-over-lease pricing performance expectations, seasonal patterns, if you will, but also just the way we manage lease expirations over the course of the year. So we think that we've got it dialed in appropriately. And we do think that as we get into again, it varies by market so much. So it's hard to make any real conclusive broad observations as it relates to the point that you're making. But we do think that there are certain markets for sure that we begin to see the supply pressures meaningfully moderate in terms of new coming in late in the year, and that begins to establish some early signs of recovery in that new lease pricing performance as we head into 2025.

Eric Wolfe :

And then just maybe a quick clarification on the earn in. Does that include your sort of loss or gain to lease a real-time changes in market rents? Or is it based purely off the leases signed up at one point in time? Just trying to understand if like real-time movings and market rents ends up impacting that earnings such that it's always going to end up being low end at the year-end.

Operator:

And we'll take our next question from the line of Rich Anderson with Wedbush.

Eric Bolton :

Two reasons. One, you don't have the holidays in January. I think nobody likes to move during Christmas and or thanksgiving. I think holiday effect is real. And I think it weighs on people's interest in moving. Secondly, I think that there are -- and we have seen some evidence to suggest that some developers were facing kind of a calendar year-end pressure point. And I think that we -- as we started to see in the early part of the fourth quarter as we were approaching year-end, developer lease-up practices were getting increasingly aggressive, as we're headed towards the holidays. And I think a calendar year-end and so I just think that developer practices got a little bit more aggressive in the holidays and approaching the year-end. I think that to some degree, there was some moderation on that and certainly, absent the holidays, even though it is cold and so forth. I think people's capacity to deal with the hassle of moving just improves a little bit better once you get past the holidays and therefore, traffic picked up.

Tim Argo:

Yes, I think that's a good reason.

Brad Hill :

Rich, this is Brad. Well, you're right, we do have a pretty big pipeline of projects that are ready that we could execute on. And really, it's just a matter of working the costs on those projects right now. I mean, as I mentioned, we are seeing early signs of coming down. On the project in Charlotte, call it, 5% to 6%. We do think we'll continue to see costs come down as we get later into this year. So while we do expect to start 3 or 4 projects this year, we have another 4 to 5 that are approved, were plans are nearly ready. And if costs came in, we could certainly pull the trigger on those. So we have the optionality to be able to do that. But we think it's prudent to be sure that the costs are in line. We do also agree with you that these line up very, very well from a delivery perspective into 2026. The other area where we are seeing opportunity that I think could yield itself more immediately, is in our prepurchase area. So we are talking with developers on a number of opportunities where projects are approved, entitled, plans are complete and in some instances, GMPs are already in place. But given some of the other liquidity constraints out there that I was talking about earlier, and pressures in other sectors, the equity or even the debt has pulled out of the project. So we are evaluating projects in that way. And so if we can find well-located opportunities with good partners that meet our return requirements, we'll definitely lean into that area a little bit more.

Alexander Goldfarb :

So two questions, and apologies about the clock in the background. The first one is, can you just talk a little bit about renewals? I think you said you expect them to be sort of 5%, but new rents down 3%, so an 8% spread. Can you just walk us through why that -- that seems a rather wide spread, but in your comments, you said that's sort of consistent with historic. So maybe you could just talk about that and why existing residents would accept an 8% spread versus new residents?

Alexander Goldfarb :

Okay. And then the second question is on the supply front, it only seems like a handful of your markets have supply issues, but pressure on new rent seems to be broad brushed. And yet, Sunbelt still as good economy, good jobs, good in migration. So how do you like we understand weakness in new rents in markets that have a lot of supply? But how do we interpret rent softness sort of portfolio wide, especially in the market that aren't beset by supply? And clearly, your price point seems to be affordable for the community. So I just want to understand the non-supply markets, why there's been pressure there as well?

Operator:

[Operator Instructions] We'll take our next question from the line of Michael Goldsmith with UBS.

Brad Hill :

Yes. Just a couple of things around expenses that I'd point to is, one, our uncontrollable expenses are really what's driving some of that expense growth whenever you kind of break that down. Real estate taxes are projected to grow at roughly 4.8% for the year. I think you saw that in our guidance. And then you have insurance that's growing at roughly 16% -- 15%, 16% for the year. So that continues to be a bit of a headwind for us as we go into 2024 and for all the same reasons that we've seen in previous years just as the market is trying to catch up there. Then when you get into some of our controllable expenses, really the biggest driver there is probably repair and maintenance, while the other items around expenses are pretty much right there at that overall growth rate of 4.1% or actually even slightly lower than that.

Michael Goldsmith :

And my follow-up is on concessions. How have concessions and competing properties trended? And are you offering any concessions that your stabilized property?

Operator:

And we'll take our next question from Haendel St. Juste with Mizuho Securities.

Tim Argo:

You cut out there a little bit but I know you said a gain lease, is that what you were saying?

Tim Argo:

Yes. I mean, like I said, the gap is a little wider right now, but I expect it to come in. We haven't seen any signs like say, going all the way out to April. We're still kind of in that 5% range. And obviously, depends on the mix and who's renewing his new lease. We typically -- our average stays somewhere in the 20-month range, some money leases and then they do on renewal and typically move it out. So all it is you're not renewing on top of renewing and top of renewing where that gap continues to get larger and larger. But as I said, we've always seen a gap there and a little bit wider right now, but I expect it to narrow as we get into the spring. But no concerns with where we sit here right now.

Haendel St. Juste :

I appreciate that Eric. I guess, I'm just thinking ahead and thinking of potentially that renewal rates would need to drop next year, how much CBD unless market rate growth does improve an increase maybe into the mid to single -- upper single-digit rate growth?

Haendel St. Juste :

One more. I appreciate the color you guys gave on the building box of same-store revenue, but could you give us some color on what you're assuming for bad debt, ancillary and for turnover?

Haendel St. Juste:

Fee income.

Haendel St. Juste :

And then one last one. I think it was last quarter, there's a lot of chatter around A versus B rental pricing and the impact that the new supply was having on that dynamic. Curious if there's any updated perspective, anything that you've seen in this past quarter or any updated views on the performance of A versus B in your portfolio is or has changed over the last quarter or so?

Operator:

And we'll take our next question from the line of Brad Heffern with RBC Capital Markets.

Brad Hill :

Yes, this is Brad. Those are pretty much in line with our expectations. Certainly, there's been a slowdown in the velocity in line with our overall portfolio kind of over the holidays and the winter months. But there's nothing material in terms of difference there versus what we expected. Our day break asset is leasing up a little bit slower and has been. But in general, all of our assets, and that's the one in Salt Lake City. But in general, all of our assets are leasing up pretty much in line with our expectations in terms of velocity, given the slowdown here over the winter season.

Tim Argo:

Our blended as we talked about is about 1%. And we really -- we expect market rent, if you will to be pretty consistent with where it is right now.

Tim Argo:

Yes, flat. 1% is what we're expecting in terms of our blending growth.

Adam Kramer :

Just wanted to -- I think we talked a little bit about capital allocation and potential opportunities with acquisitions or developments very similar question, and again, recognizing where the balance sheet leverage is. So I was just wondering about the opportunity or maybe the appetite for share buybacks here? Or is that something you can consider? And maybe kind of what it would take for that to be under greater consideration.

Adam Kramer :

Great. And you mentioned some of the tech investments and kind of the opportunity set there. Maybe just, I don't know, I wonder 2 there that you're very excited about and you're kind of able to share with the public?

Operator:

And we'll take our last question from the line of James Feldman with Wells Fargo.

Andrew Schaeffer :

Yes. Jamie, we paid that down in the first week of January with the bond issuance that we completed and that effective rate on that issuance was right up just north of 5%. The place we look to the next dollar is our commercial paper program. And right now, it's at roughly 5.5%, and so we'll keep an eye on that. And as rates are expected to decrease over the back half over the year, we expect that number to maybe come down a bit.

Andrew Schaeffer :

Yes, we've got a dropping down 25 basis points through halfway through the year and then another 25 basis points on the very back end of the year.

Andrew Schaeffer :

Just 50. 25 at the end this year.

Andrew Schaeffer :

Yes, there is some capitalization there. And when you look at our capital -- interest capitalized year-over-year, a slight increase, but pretty steady. But what really comes into play there is just the timing of the developments. In 2023, we delivered and leased up 2 developments in 2024. We're going to be delivering and leasing up 4 developments. And so you got a bit of a play there that's creating some headwind. And then in general, just the overall the rate at which we're capping that interest comes into play. You're looking at an effective rate, roughly 3.5% that we're capping and then we're borrowing at a higher rate today than what than what we've capped at previously.

Andrew Schaeffer :

I mean it would have to be a pretty meaningful change in how that would lease up to really move the needle on that $0.05.

Andrew Schaeffer :

Yes. So our blended number is 1%. So that's the blended pricing we've got built into our revenue guidance, but our overall effective rent growth is the 0.85%. So that 0.85% includes the earn in that we've got for from 2023 plus the 1% of the blended that we're looking at for 2024.

Eric Bolton :

All right. Thanks, everybody, for joining us this morning, and I'm sure speak to many of you over the spring. Thank you.

Andrew Schaeffer:

Thank you, Brittney and good morning everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team also participating on the call with me this morning are Eric Bolton, Tim Argo, Al Campbell, Rob DelPriore, Joe Fracchia, Brad Hill, and Clay Holder. Before we begin with our prepared comments this morning I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our 34x 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 supplements 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. I will now turn the call over to Eric.

Brad Hill:

Thank you, Eric and good morning everyone. As anticipated we saw an increase in for-sale marketing activity emerge early in the third quarter. And while closed transactions are limited in number, we continue to see some upward pressure on cap rates on projects we track, with cap rates up by roughly 15 basis points from 2Q. As indicated in our earnings release, we recently closed the Phoenix market that we began pursuing early in 3Q. MAA Central Avenue is a 323-unit mid-rise property that fits the profile of the type of opportunities we expected to emerge. The property is in its initial lease-up and the seller was under some pressure to close on the sale by a specific date. So, counterparty risk considerations were paramount to the seller. Our familiarity with the market, speed of execution and balance sheet strength that supports an ability to close all cash with no financing contingencies were all aspects of our offer that were very important to the sellers. Our pricing of approximately $317,000 per unit is substantially below current replacement costs and is expected to provide an initial stabilized NOI yield of 5.5%. With the property nearing stabilization, we expect over the following year or so to capture further margin and yield expansion opportunities as a result of adopting MAA's more sophisticated revenue management practices and technology platform coupled with our future ability to achieve operational synergies with another MAA property that is only half a mile away. Our transaction team is very active in evaluating other acquisition opportunities across our footprint. And Al and Clay have our balance sheet in great position to be able to take advantage of additional compelling opportunities as they continue to materialize later this year and into 2024. Despite pressure from elevated supply our new properties in their initial lease-up continued to deliver strong performance producing higher NOIs and earnings than forecasted creating additional long-term value for the company. These properties on average have captured in-place rents 15% above our original expectations. For the five properties that are either leasing or will start leasing by the end of the year this rent outperformance which is partially offset by higher expenses including taxes and insurance is estimated to produce an average stabilized NOI yield of 6.7% significantly higher than our original expectations. Leasing has progressed well at MA Windmill Hill in Austin and we expect this community to stabilize this quarter. We continue to advance predevelopment work on several projects, but due to some permitting and approval delays three projects that we plan to start this year will likely instead start in early 2024. In a number of markets -- in a number of our markets, construction costs have been slower to adjust than we expected, but we continue to see signs that a broader reduction in cost is likely to come. Numerous consultants that we work with including architects and engineers have indicated their volume of work has significantly decreased in the last few months providing further evidence of a decline in new construction activity. Additionally, general contractors are indicating they have more capacity to start new projects and in many cases with a larger pool of subcontractors available. In addition to the three projects mentioned that we expect to start over the next six months, we have five more projects representing approximately 1,320 units that could be ready for construction start by the end of 2024. Our team has done a tremendous job building out our future development pipeline. And today we own or control 13 well-located sites representing a growth opportunity of nearly 3700 units. We have optionality on when we start these projects allowing us to maintain our patience and discipline when making capital deployment decisions. Any project we start in 2024 will deliver units into a stronger leasing environment with lower competitive supply in late 2025 and 2026. Our development team continues to evaluate land sites as well as additional prepurchase development opportunities. In this more constrained liquidity environment we are hopeful that we may find additional development opportunities to add to our future pipeline. In addition to continuously monitoring the construction market and evaluating costs at our projects in predevelopment, our construction management team is focused on completing and delivering our remaining five under construction projects. During the third quarter the team successfully wrapped up construction on novel West Midtown in Atlanta completing the delivery of all 340 units. That's all I have in the way of prepared comments. So with that I'll turn the call over to Tim.

Clay Holder:

Thank you Tim and good morning. Reported core FFO for the quarter of $2.29 per share was $0.03 per share above the midpoint of our guidance. The outperformance was primarily driven by favorable interest and overhead costs during the quarter. Overall same-store operating performance for the quarter was in line with our expectations. Same-store revenues were slightly ahead of expectations as average occupancy was better than forecasted. The increase in occupancy was offset by the moderation of effective rent growth on new move-in leases as Tim mentioned. As expected, we began to see some moderation in same-store operating expense growth during the third quarter. However, this moderation was less than what we had forecasted. Personnel costs came in higher than expected, primarily due to higher contract labor costs and higher leasing commission, which helped drive the improvements in occupancy. The personnel costs were partially offset by real estate taxes that were favorable to our forecast for the quarter. We received more information related to the Texas state legislation that was passed in the quarter that reduced property tax rates in the state. Our projection for real estate taxes for the full year remains unchanged. During the quarter, we invested a total of $19.7 million of capital through our redevelopment repositioning and smart rent installation programs. Those investments continue to produce strong returns and add to the quality of our portfolio. We also funded just over $47 million of development costs during the quarter toward the completion of the current $643 million pipeline leaving $296 million remaining to be funded on this pipeline over the next two years. As Brad mentioned, we also expect to start several new projects over the next 12 to 18 months which our balance sheet remains well positioned to support. We ended the quarter with $1.4 billion in combined cash and borrowing capacity under our revolving credit facility providing significant opportunity to fund potential investment opportunities. Our leverage remains historically low with the debt-to-EBITDA ratio at 3.4 times, and at quarter end our debt was 100% fixed for an average of just over seven years at a low average interest rate of 3.4%. In October, we refinanced $350 million of maturing debt utilizing cash on our balance sheet and our commercial paper program. Our current plan is to continue to be patient and allow interest rates and financing markets to stabilize before refinancing. That's all I have for my prepared comments and I'll turn it over to Al to discuss Q4 guidance.

Operator:

We will now open the call for questions. [Operator Instructions] We will take our first question from Michael Goldsmith with UBS. Your line is open.

Tim Argo:

I mean I don't think it necessarily means longer. I think what did happen as we talked about it happened a little bit quicker. And I think the comments, I made about the treasury and developers get more aggressive called that moderation of new lease rates to occur a little bit earlier than we would have thought or a little bit quicker really. But we don't see much further deceleration. I think what we see is with renewal rates continuing to be strong, we're getting 5% on what we've set out or what we've got acceptance on for November and December the 5% range. The spread between new lease rates and renewal rates is pretty typical honestly, for this time of the year and tends to gap out both in Q4 and Q1. I think as you get into later into 2024, there will be some normal seasonality that will narrow that gap, but we'll be in this supply environment for the next few quarters, but don't expect materially worsening from here.

Tim Argo:

At a portfolio level, we're not seeing a huge difference between the performance of As and Bs. I will say at a market level some of our larger markets that are getting more of the supply we're seeing a little more pressure on some of those B+ A- assets where that gap has narrowed. But I do think that creates some opportunity longer term. Those new developments are going to stabilize, at some point at higher rents and that will create some opportunities there. But in some of our more mid-tier markets, smaller markets that are getting quite the supply pressure we're not seeing that pressure.

Michael Goldsmith:

Thank you very much. Good luck in the fourth quarter

Austin Wurschmidt:

Great. Thank you. Last quarter Eric, you had mentioned, that you really didn't expect new lease rate growth to drop off and kind of highlighted that demand remained strong. So I guess, is it just been the cumulative impact of supply and concessions on lease-ups that's driven the softness? And really, how does that change your view around how 2024 market rent growth could shape up?

Austin Wurschmidt:

Got it. And so I mean I guess that kind of went to my second question was it sounds like you think demand remains stable from here which has actually been fairly strong. I think even accelerated the last couple of quarters and helped absorb some of the supply. I mean is it fair to say that you think you get some level of market rent growth positive next year, despite kind of this cumulative impact based on your thoughts on how demand shakes out.

Austin Wurschmidt:

Thanks, Eric. Appreciate the detail response.

Eric Wolfe:

Hey, thanks. I just wanted to follow up on the answer there. You said that you don't expect new lease rates to get much worse from here. So I don't want to put words in your mouth but does that mean you're sort of expecting like negative 4% to negative 5% new lease for the foreseeable future? And should that continue through Q2 next year? Because it sounds like you're saying that what the dynamic you're seeing today should continue to 2Q and then probably get better as you get into the back half of the year?

Eric Bolton:

And we typically see the gap between new lease pricing on renewal pricing sort of gap out the most in Q4 and Q1, and then it tends to narrow in Q2 and Q3. And we think that that seasonal pattern is likely to repeat next year.

Tim Argo:

Yes. And to clarify or put some color on that that 500 spread for us typically is what it is in the summer and kind of Q2, Q3 range with renewals remaining pretty consistent. Historically, Q4, Q1, Q4 is usually the biggest. It's usually in the 900 basis point range kind of similar to what we're seeing right now and then squeeze down to call it $700, $800 in Q1 and then get more on that 500 basis point range during the heart of the spring and summer. So, I don't really see -- that's the normal seasonality and would expect that to recurring some levels.

Operator:

Thank you. We will take our next question from Jamie Feldman with Wells Fargo. Your line is open.

Eric Bolton:

Well, I mean the thing that we really prioritize more than anything is sort of what sort of stabilized yield do we think we will get from making a new investment and how does that compare to our current cost of capital. And as you think about cost of capital today and look at sort of where we are able to put our balance sheet to work at, call it, 5.5%, you think about longer perspective on cost of capital being a function of dividend yield and sort of FFO yield, core FFO yield. You blend that, you're still in that kind of 5.5% range. And so as we think about deal that we did in Phoenix. I mean the opportunity to put a brand new asset on the balance sheet that is going to be we think a great performer for us long-term to put that on the balance sheet initially. Even though it's still in sort of an initial lease up to be able to bring it on the balance sheet at basically right at our cost of capital with full understanding that we've got some real operating upside opportunity that we can capture over the first year or so from our revenue management practices and some of the cost efficiencies that we'll bring to bear on an operation that doesn't have those advantages coupled with the fact as Brad mentioned, this property is only -- it's less than half off of one of our other properties and we will over the next year or so pod, what we refer to as pod this property with the other and drive down some of the operating costs. We think over the next couple of years that we'll see that yield meaningfully go up from there. So we think at this point that makes a lot of sense to us. And I think that we're going to continue to we think see more of that opportunity emerge over the coming year.

Eric Bolton:

I'd probably put it at, at least 100 basis point margin expansion to probably 200 somewhere in that range.

Tim Argo:

Yes, this is Tim. So for October as I mentioned the blended is right around zero. We're at about negative 5.3 on new lease and 4.4 on renewals as we stand right now.

Tim Argo:

Yes. I mean, there's certainly a few unique factors in Atlanta and what you mentioned as part of that. I mean it's pricing, pricing is a little bit weak. It's a little bit lower than I would say some of our portfolio average. There we're getting some of the supply pressure that a lot of the other markets are getting as well. I think what we're seeing in Atlanta is a little more on the occupancy side. No, it has -- it is slowly improving. We saw a 40 basis point increase in occupancy from Q2 to Q3 in Atlanta. But there are a couple of unique circumstances that you mentioned, one, if you remember earlier in the year we talked about between the winter storm and a fire we had in Atlanta. We had a lot of down units that came on sort of late first, early seconds. So we were kind of working through that from an occupancy standpoint and then, has been well documented by a lot of people at some of the fraud concerns in Atlanta. And I think that's starting to work itself through as well. The courts are becoming a little more -- a little more aggressive on that. And we've seen the number of cases [ph] that we had in that market is about double from where it was last year. So, create some pressure in the short-term on occupancy but certainly longer term, in terms of revenue quality and ability to pay is much better. And we've also been able through in-house training we've done and really focused on fraud income. We've seen the number of people coming into the door we think is with that scenario is much less and we've seen our number of age balances we have in terms of residence is way down and just the amount of delinquency we have in Atlanta is way down. So some unique circumstances there for sure, but we think it's headed in the right direction.

Eric Bolton :

Well ,I mean, we continue to look at all the markets we probably over the next number of years we'll you'll probably see us continue to cycle some capital out of the Atlanta. It's going to be more driven by asset-specific decisions, property-specific decisions. I mean, we continue to like the Atlanta market long-term. A lot of great job growth drivers and demand drivers in that market. It's like all the other markets they will go through periods of supply pressure from time to time. But the demand dynamics there are pretty healthy. And I think some of the things that Tim is alluding to that were unique to Atlanta really are attributable to some of the practices that were adopted during the COVID years and the court systems there got really sort of backlog if you will and it's just taking longer for that market to sort of work back to normal. We see it happening. But we like the Atlanta market long term for sure.

Operator:

Thank you. We will take our next question from Nick Yulico with Scotiabank. Your line is open.

Tim Argo :

Yes, Nick, this is Tim. So a couple of comments there. If you look at sort of where we are right now and what's going to earn in or be baked in for next year with pricing today plus the pricing that we're assuming for Q4 probably have one to 1.25 of baked in or earned in if you will that will flow into 2024. Think about loss lease and just in terms of kind of where rents are right now it's probably about a negative one of lease given what we've seen with new lease rates right now that's where I would peg it in year in October.

Brad Hill :

Hi. Nick, this is Brad. Yes I mean that's inclusive of concessions. The property is in lease-up and it's offering about a month to six weeks generally on new leases. And so that includes the impact of that. So that would be your net effective rent. So assuming that we get to stabilization we would see some strengthening there and the use of concessions would generally burn off on renewals. We're not using -- generally using concessions on these properties. We would also see some expansion in that yield at that point.

Operator:

Thank you. We will take our next question from John Kim with BMO. Your line is open.

Eric Bolton :

I think what we think is at play here is that in this environment with a lot of these merchant-built properties currently in lease-up the lease-up environment and the financing environment that they are facing today is most assuredly not what they contemplated when they started construction two years ago. And as a consequence of that I believe that what is happening is that some of the merchant-built product is in a rush to get stabilized as quickly as possible preferably before we even get into the holiday season which is why I think there was a lot of noticeable shift that took place in August and September because it's probably -- they're probably late in their time line in terms of what they forecast and what they underwrote. And certainly they are going to face an exit or refinancing that is going to be different than what was contemplated. And while there may have been some early hope that we would start to see moderation in interest rates by this time. I think that hope is now gone. And we likely are in this rate environment we are in today for quite some time moving forward. So I just think that all that is combined to create we knew in a highly high supply environment that lease-up pressure exists but I think it's just been a little bit more intense because of what's going on with the interest rate environment. And therefore, it's manifesting itself in more competitive pricing practices in an effort to attract new residents and leasing traffic. So I think that that's what's at play here. I think that once we sort of work through this scenario that as we've been talking about the supply picture starts to get a lot better, meaningfully better. And we think that we just got to put our head down and operate through this for the next -- in the next couple of quarters or so.

Tim Argo:

Hey, John. This is Tim. I mean, as far as the turnover I mean, we expected -- we certainly didn't really expect to turn over to scale up with all the factors that we see at play. I mean, between move-outs by house and move-outs for a job change those are far and away our two biggest reasons for move-outs. And as expected the move out by house is way down. So we don't see that again given the interest rate environment, we don't see that changing any time near term. Some of the other things that drove move out or turnover up last year are down. So I would expect as we get into 2024 that there's not a lot of change in terms of turnover certainly no significant increase in turnover, so I think that serves us well on the renewal side, that certainly we wouldn't need to look and do anything more than we're doing now on that renewal.

John Kim:

Great. Thank you, everyone, and Al congratulations on your retirement.

John Kim:

We have the company in good hand. Thank you.

Operator:

Thank you. We'll take our next question from Joshua Dennerlein with Bank of America.

Eric Bolton:

Well, we're not surprised by the competition from new supply. What we're surprised by is how aggressive some of the merchant developers have gotten in an effort to expedite their lease-up sooner than getting stabilized as quick as possible. And as I've commented on,k we think that that is related to what is clearly now an indication relating to interest rate trends. And we saw the behavior with lease-ups and concessions begin to shift a bit in August and September as the 10-year treasury really started moving up to 5% close to 5%. And I think it just triggered a urgency and developers that have lease-up projects on their books to get stabilized and get out of it or get it as soon as possible. So I think that that's what's a play here. And that -- so the -- that was probably the only thing that it was. The only thing I can point to that was a bit of a surprise. We expect the demand to remain solid and it is as Tim alluded to our desorption numbers across our markets are really strong. We've not seen any moderation on the demand side of the curve. We knew the supply picture. I mean there is no secret about that. We've seen that coming for the past year or so. So no real surprises there. It's really just the behavior of some of these lease-up projects and the motivation that they have to get leased up sooner rather than later. And I think that that goes right back to what I've just mentioned is that the recognition that the high rate environment we find ourselves in the interest rate environment is likely to be with us for a while. And I think it just prompted some actions on behalf of developers to get drop pricing introduce more concessions higher concessions drive down net effective pricing quicker which affected market dynamics to some degree.

Eric Bolton:

It's hard to say for sure, but the short answer is no I don't think so. [indiscernible] that is I think that where there is an urgency that's come into equation and a higher level of urgency by developers. I think to some degree a lot of it may be time to some calendar year-end pressures that they may be thinking about. I think that that perhaps is at play here a bit. When you think about supply levels being where they are, we don't it's -- of course it varies a lot by market. And we think that -- that the supply levels and deliveries that are taking place are likely to be fairly consistent to where they are right now for the next couple of quarters or so call it through Q2 of next year. And so it's hard to pinpoint it exactly but I don't think that there is a material change in the supply dynamic that we're seeing today. I don't think there's a material change in the demand dynamic that we see taking place today. And I think that the only change was if you will just that lease-up pressure that I think some of the developers were feeling given what's going on with the interest rates. And I think perhaps that there is some at least some of them that are facing some calendar year-end obligations that they're trying to think through as well.

Joshua Dennerlein:

All right. Thanks guys.

John Pawlowski:

Clay do you expect any notable acceleration or deceleration in the major expense categories throughout the next year?

John Pawlowski:

Roughly 6% property tax growth rate do you expect it to kind of bounce around this level for the foreseeable future?

John Pawlowski:

Okay. Last one for me Tim. Hoping you can give us a sense for what new lease declines in October look like in a few of the most heavily supplied markets. I'm just curious what the kind of the bottom tranche of the portfolio looks like.

John Pawlowski:

For the most heavily supplied markets.

John Pawlowski:

Okay. Thank you for the time.

Brad Heffern:

Hey good morning everybody. It seems like the message here is that there are a few weak quarters ahead but the things are expected to get better in the back half of 2024. I'm just curious if you can give more color around what gives you confidence in that timing you do obviously have supply peaking in mid-2024, but it does still look elevated into 2025 and then the lease-ups don't end when the deliveries fall off. So curious for any thoughts there?

Bradley Heffern:

Okay. That’s all I have. Thanks.

Connor Mitchell:

Thanks for taking my question. So you can just discuss the rising labor cost a little bit and maybe that's especially with third-party vendors. So just thinking about that it'd be fair to presume that your markets are strong economically which would bode well for demand. So thinking about the big picture would it be fair to say that demand and rent growth are healthy enough to offset the rising labor costs?

Connor Mitchell:

Okay. That's helpful. And then maybe sticking with demand. You've referenced that demand is really the driving force align supply comes and goes. Could you just maybe rank how bike historically how strong demand is in the pace of demand in this year and maybe heading into the year-end compared to previous years in cycles?

Tim Argo:

I was just going to make one point that at a high level we've done some research and with some of our third-party data as you go back the last five years or so or really, really the last five or 10 years. The highest supplied markets which tend to have been in the Sunbelt have also been some of the best rate growth markets and that's because of the demand side. So we have historically over the long term demand has more than offset the supply picture. Now we have an elevated supply picture right now that's put that out of the balance at least for a temporary time. But as we get into late next year and over the long term historically has shown and we believe continue to show all the demand fundamentals show that over the long term that demand outpaces the supply.

Connor Mitchell:

Okay. I appreciate the color. And maybe if I could just sneak one more in. Going back to Atlanta. Did you mention that you're recapturing some of the units due to the fraud issues? Or would you be able to provide a time line on when you would recapture those units? Thanks.

Connor Mitchell:

All right. Great. Thank you very much.

Unidentified Analyst:

Thanks. Good morning. So getting back to the acquisition strategy I think one of the problems over the years is they bought when they should be selling and they've sold when they should be buying. So, what you're saying is interesting. I'm wondering the speed by which this strategy can unfold. You talked about the implied cost of your equity. If you were -- your balance sheet is obviously very attractive, but perhaps inefficiently so at 3.4 times debt that leaves $1.3 billion or so of more debt you could put on just to get to 4.5 times. So maybe that's untouchable now in the rate environment. But I'm just curious you've got the amount to finance this. Could this be some sizable activity at this point? Or do you think it will be more like one-off asset by asset like non needle-moving type of stuff for the time being?

Unidentified Analyst:

Okay. Great. And then second question maybe to Tim or others, but on the October spread between new and renewal, pendulum on these sort of growth numbers always swings too wide. I don't think anyone expected 20%-plus type of rent growth a year ago and maybe this is surprising to the downside. When you think about the first half of 2024, should we be conditioning all of us investors and analysts for negative blended number at least for the first half of the year when you think about that pendulum factor or is zero your kind of number from this point forward you're not giving guidance but is there a range of sort of surprise factor that could bring that into negative territory at least for a period of time next year?

Unidentified Analyst:

Great, good enough. And congrats to Al, good luck to you.

Operator:

Thank you. We will take our next question from Anthony Powell with Barclays. Your line is open.

Brad Hill:

Hi, Anthony, this is Brad. I mean, I think a couple of things. One, keep in mind that what we saw in the third quarter was very limited in terms of transactions. Certainly we -- as I mentioned in my comments we saw activity -- marketing activity pick up a bit early in the third quarter, but a lot of that has not closed at this point really just a handful of projects closed and we saw those cap rates come up a little bit. But to Eric's point earlier about the availability of capital for well-located properties in good markets, we continue to see strong bedsheets for those. And so and we're still seeing cap rates in the low 5% range for those well-located assets. I would expect to see pressure on cap rates. But really it's going to depend on how that liquidity shows up for those assets to bid on them. But certainly given the severe movement that we've seen in the 10-year. And agency debt today is in the 6.5%, 6.75% range, we would expect some upward movement in cap rates but to what degree is going to depend on the liquidity picture, the fundamentals of the properties locations things of that nature. So it's really hard to say where that goes from here.

Tim Argo:

Well, I think certainly they're aware. I mean the transparency now with what's on websites and social media and everything else and all the different marketing avenues and advertising platforms that certainly they're aware and you can see down to a unit level a lot of times on websites. But probably tell a new phenomenon. It's been that way now at least for the last couple of years. So I think there's a component of the renewal side of just you've hopefully provide them with good resident service. They're happy where they're living. They're happy with the manager and their owner. And there are some friction costs involved as well. It’s pain to move, it’s expensive to move. So there are some things from a customer service and a friction cost standpoint that are meaningful. But overall as we talked about I'll see turnover changing much from where it is now. So I don't think that becomes any more of an outsized pressure than it has been.

Operator:

Thank you. We will take our next question from Wes Golladay with Baird. Your line is open.

Brad Hill:

Well, again as we touched on a little earlier I mean, we think that the opportunity to put capital work as we did with the Phoenix acquisition is the appropriate and best value creation from a long-term perspective, particularly given where the initial yield is and the opportunity we have we think over the next couple of years to really improve that yield meaningfully. So we continue to believe that remaining patient with the balance sheet capacity we have and looking for what we are expecting to be even more compelling opportunities as we move forward with some of the distress in the market from some of these merchant builders that the longer-term value creation associated with some of these acquisitions is going to make a lot more sense. As Brad mentioned, we do have -- of opportunity teeing up on the development front but we control the timing on that. And we do think that we're going to see some moderation begin to take place with the construction cost and we think the yields there are going to get better. So we -- and as I say we've got the luxury of making controlling the timing of when we elect to pull the trigger on those projects. And of course, these projects if we were to start anything next year, I mean, it's going to deliver in '26 and '27 and it's going to be we think healthier leasing environment at that point. So we're going to be patient but we think that some of the external growth opportunities that we have in front of us over the coming couple of years is the best sort of value creation opportunity that we have in terms of how to put this balance sheet capacity to work.

Eric Bolton:

Well we pay attention to those opportunities when they come out. More often than not what we have found is the asset quality is not really what we want to do and not of interest to us. And a lot of the aggressive buying and high leverage buying that took place over the last few years. A lot of it was associated with sort of a lower price point product to our current portfolio and just -- we haven't found it to be particularly compelling to add to our balance sheet.

Eric Bolton:

Thank you, Wes. Appreciate it.

Linda Tsai:

Just one really quick one. Can you remind us of what's causing higher fraud in certain markets? Is it demographic shift technology? And then what are mitigation strategies.

Eric Bolton:

And Linda I'd add a couple of things to that. I do think that new technology that's available to people today has probably fostered some opportunity and techniques and certain capabilities in this area that are different certainly than where they were years ago and probably a little bit harder to detect. And we've made some modifications in our approval processes and how we screen that is now much more effective at that. And the other thing, I would just comment on that you alluded to is -- it's important to recognize that where we have seen this has really been pretty isolated. We've called out Atlanta and frankly just a few properties in the Atlanta market where we saw this in a pickup in a noticeable way. I wouldn't suggest that this is a pervasive practice that we see happening across the portfolio in a lot of different markets. It was really more of an isolated scenario. It happens to be Atlanta where we have a lot. But -- and as Tim mentioned we see the trends changing there as a consequence and improving as a consequence of some of the changes that we've made in our approval processes.

Operator:

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

Operator:

That conclude today's program for participation. You may disconnect at any time.

Andrew Schaeffer :

Thank you, Aaron, and good morning, everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team also participating on the call with me this morning are Eric Bolton, Tim Argo, Al Campbell, Rob DelPriore, Joe Fracchia, and Brad Hill. Before we begin with our prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking 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 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.

Brad Hill :

Thank you, Eric, and good morning, everyone. As we've seen each quarter over the past year or so, second quarter transaction activity remains muted versus normal levels. Volatility and uncertainty in the debt market continued to cause the majority of sellers to postpone their sales processes, leading to a drop of more sale inventory on the market. For high-quality, well-located properties in our region of the country, there continues to be strong investor demand, causing cap rates to adjust slower than interest rate movements alone would indicate. Having said that, we have seen an average buyer cap rates move up to 4.9% in the second quarter from 4.7% in the first quarter, with most cap rates ranging between 4.75% and 5.25%. We continue to believe we're likely to see more compelling acquisition opportunities later this year and into next. So we remain patient as we wait for the market to continue to adjust. We are actively reviewing a number of acquisition opportunities, but with no potential acquisitions under contract at the moment. We've lowered our acquisition forecast for the year to $200 million at the midpoint. Our acquisition team remains active in the market and now and the team have our balance sheet in great shape and ready to quickly support any transaction opportunity should it materialize. Due to the lower funds needed for expected acquisitions, we've also lowered our disposition forecast for the year to $100 million at the midpoint. Our properties in their initial lease up continue to outperform our original expectations, producing higher NOIs and higher earnings and creating additional long-term value for the company. These properties are navigating the increased supply pressure well and on average, have captured in-place rents 22% above our original expectations. For the 4 properties that are either leasing or we'll start leasing in the third quarter, this retinol performance, which is partially offset by higher taxes and insurance is estimated to produce an average stabilized NOI yield of 7.2%, which is significantly higher than our original expectations for these properties. Early leasing is going well at Novel Daybreak in Salt Lake City and Novel West Midtown in Atlanta, and we expect to start leasing at Novel Val Vista in Phoenix in the third quarter. During the second quarter, we also reached stabilization at MAA LoSo in Charlotte. Despite permitting and approval processes that are taking a bit longer than we anticipated, predevelopment work continues to progress on a number of projects. we expect 3 projects will be ready to start construction in the back half of 2023, if we see sufficient adjustments to construction costs and rents to support our NOI yield expectations. These projects include 2 in-house developments, 1 in Orlando and 1 in Denver and 1 prepurchased joint venture development in Charlotte. We've pushed back the start of the Phase 2 to our West Midtown prepurchased development in Atlanta to the 2024 due to the approval process taking longer than anticipated. The team continues to work through the increased prepurchase development opportunities that have been presented to us, and we're hopeful we will be able to add additional currently unidentified development opportunities to our pipeline. Any project we start over the next 12 to 18 months would likely deliver in 2026 or 2027, and should be well positioned to capitalize on what we believe is likely to be a much stronger leasing environment, reflecting the significant slowdown in new starts expected over the balance of 2023 and 2024. Our construction management team remains focused on completing and delivering our 6 under-construction projects, and we're doing a tremendous managing these projects and working with our contractors to minimize the impact of inflationary and supply chain pressures as well as labor constraints on our development costs and schedules. During the quarter, the team successfully completed and accepted delivery of the combined 249 units and Novel Daybreak in Salt Lake City and Novel West Midtown in Atlanta. That's all I have in the way of prepared comments. So with that, I'll turn the call over to Tim.

Al Campbell:

Okay. Thank you, Tim, and good morning, everyone. Reported core FFO for the quarter, $2.28 per share was $0.02 per share above the midpoint of our quarterly guidance. The outperformance was primarily driven by favorable interest in overhead costs during the quarter, and a large portion of the overhead cost favorability is timing related with the cost now expected to be incurred in the back half of the year. Overall, same-store operating performance for the quarter was essentially in line with expectations. As Tim mentioned, blended lease pricing continues to outperform original expectations for the year and build stronger-than-expected longer-term revenue but was primarily offset in the second quarter by average occupancy slightly below forecast. Also, as expected, we began to see moderation in same-store operating expense growth during the second quarter with the growth of personnel, repair and maintenance and real estate expenses, tax expenses, excuse me, which combined represents 70% of total operating costs, all reflecting moderation from the prior quarter. We expect moderation for these items to continue through the remainder of the year, particularly for real estate taxes, which we'll discuss more with guidance in just a moment. As mentioned in the release, our annual property and casualty insurance programs renewed on July 1, and with combined premium increase of approximately 20%, which is in line with our prior guidance. During the quarter, we invested a total of $26.3 million of capital through our redevelopment, repositioning and smart reinstallation programs producing strong returns and adding to the quality of our portfolio. We also funded just over $51 million of development costs during the quarter toward the completion of the current $735 million pipeline, leaving $344 million remaining to be funded. As Brad mentioned, we also expect to start several new deals over the next 12 to 18 months, likely expanding our development pipeline to be closer to $1 billion, which our balance sheet remains well positioned to support. We ended the quarter with $1.4 billion in combined cash and borrowing capacity under our revolving credit facility, providing significant safety and future opportunity. Our leverage remains historically low, the debt-to-EBITDA at 3.4x, and our debt is currently 100% fixed for an average of 7.5 years at a record low 3.4%. We do have $350 million of debt maturing in the fourth quarter but our current plan is to remain patient and allow interest rates and financing markets to continue stabilizing over the next few quarters before refinancing with long-term debt. And finally, given the second quarter's earnings performance and expectations for the remainder of the year, we are revising our core FFO and several other areas of our guidance previously provided. With the blended pricing outperformance achieved through the second quarter, we are increasing the midpoint of our effective rent growth guidance to 7.4%, a 25 basis points increase. This is offset by a decrease in our physical occupancy guidance, which is now projected to average 95.5% for the full year, a 30 basis points decrease. Though this trade-off support slightly higher rental earning going forward, our total revenue growth guidance for this year remains unchanged at the midpoint of 6.25%. In early July, the Texas state legislature passed the tax overhaul which significantly rolled back property tax rates across the state to effectively redistribute a budget surplus. Given aggressive property valuations, we had previously anticipated rate rollbacks in Texas, where we have now added a specific reduction for this legislation, which lowers our overall same-store real estate tax growth rate for the year by 50 basis points to 5.5% at the midpoint and that's $0.02 per share to core FFO for the year. There's still limited information regarding exactly how individual counties and municipalities will push this change through but our guidance now includes our early estimate of this overall impact, which is expected to be ongoing. In summary, we are increasing our core FFO projections for the full year to a midpoint of $9.14 per share, which is an increase of $0.03 per share. This increase is primarily comprised of a carry-through of $0.01 per share from the second quarter performance -- outperformance as well as the $0.02 per share addition related to the Texas legislation. As Brad mentioned, we also revised our transaction volume expectations for the current year to reflect current market conditions. So that's all we have in the way of prepared comments. So Aaron, we will now turn the call back to you for any questions.

Eric Wolfe:

Apologies if I missed this in your remarks, but could you just tell us the blended rent growth you're expecting sort of for the full year now, that's been revised upward and then what that would be in the back half of the year as well?

Eric Wolfe:

Got it. Makes sense. And then you mentioned that new lease rates did come up as you expected in the second quarter, as you would expect, seasonally but there's still a pretty wide gap between new lease and renewal rate growth. So I was just trying to understand what your sort of expectation would be for new lease growth in the back half of the year? And then thinking through whether that's actually a good sort of proxy for market rent growth should the 2 kind of be around the same?

Operator:

And we will go next to Jamie Feldman with Wells Fargo.

Tim Argo:

Yes. This is Tim. It's -- the Bs are still outperforming a little bit. I would call it kind of a 40 to 50 basis point gap between what -- how we would define As versus Bs, and that's pretty consistent on the new lease side and the renewal side. So I think it's as part of the portfolio structure that we expect those markets that can be more of the B assets perform well and some of the supply or in most markets, the supply coming in, hasn't been quite as impactful on some of the more B assets. They've typically been much higher price, more urban-style assets and at a much higher rent than particularly some of the B assets.

Tim Argo:

Yes. So there's a few things that we typically look at as a leading indicator of demand. You obviously have job growth at a macro level, which continues to be pretty strong and certainly stronger in a lot of the Sunbelt markets and then more granularly, we look at exposure, lead volume, what we call lead per exposed unit, which is really a combination of those 2 metrics and then also looking at what our renewal accept rates are. So on lead volume and leads for exposed, it's not at the level it was in '22, which was record demand. But as I noted in the comments, you go back to kind of the 2018, 2019 time frame when we saw more normal, if you will, demand scenario, we have -- our lead volume leads per exposed is quite a bit higher than those times. So that's encouraging that our renewal accept rates remained strong and higher to that period as well. We have 60% accept rate for July, 58% for August and 43% for September, which is at or above where we would expect or we would like to see it. And then a couple of other metrics, rent-to-income continues to stay consistent, stay lower, actually dropped a little bit from what it was in Q1, turnover remains low and reasons people moving out to buy house is way down. So all of those various factors, while not quite at the level we've seen with the record performance last year, still healthy and stronger than typical year, if you will.

Jamie Feldman :

Okay. That's very helpful color. And then finally for me, your comments about expenses moderating into the back half of the year, certainly encouraging. As you think about '24 and the key line items, do you have a sense like do you think all of them will be down in terms of your expense growth rate?

Jamie Feldman :

Any ballpark?

Operator:

And we will move then to Austin Wurschmidt with KeyBanc Capital Markets.

Tim Argo:

Also, this is Tim. On the occupancy front, we've kind of -- we've been hanging in that 95.5% range for really all of the first half of the year, which we've been comfortable with, as we mentioned, with pricing being a little bit better than we thought. So we're willing to make that trade-off with the compounding growth we can get from rents. As we moved into July, I can see it moderated a little bit. There is some unique circumstances in Atlanta that we can talk about that's driving that down a little bit, if you kind of pull Atlanta out of that number, we'd be right back to 95.5% on occupancy, which we're comfortable being in that range. So it hasn't it hasn't moved the needle. I don't think I'm a new lease rate a little bit. I mean there is some supply pressure that we've talked about. But outside of that, I don't think there's anything specifically tied to occupancy necessarily.

Austin Wurschmidt :

Got it. No, that's helpful. It sounds like that occupancy and maybe even some of the frictional vacancy is like redevelopment was picking up a little bit from where you had originally expected. Second question, when you look across some of your larger markets, obviously, new lease growth is modestly positive. But when you kind of look across the large markets where you're feeling some of the supply pressure more acutely, are there any that are notable gain to lease today that you'd kind of highlight that we should be a little bit more focused on moving forward?

Austin Wurschmidt :

A couple of months are noticeably above market rents. Yes.

Austin Wurschmidt :

Or those that are at that kind of negative 1%-ish range?

Operator:

We will go next to Brad Heffern with RBC Capital Markets.

Tim Argo:

No, I don't think it's primarily supply. I mean, supply is somewhat widespread across several of the larger markets in particular. And then it's nuanced to by market, obviously, and depending on where our portfolio is relative to some others. I mean, Charlotte is a good example. It's getting high level of supply, similar to some of these other markets, but it's performed well, and it's just kind of where our portfolio is positioned versus where the supply is coming in. So generally, I'd say supply, again, going back to the demand side. If you look at job growth across our markets compared to national averages, we're pretty consistently higher than average across all those markets. So there's obviously nuances by market but nothing notable outside of that.

Al Campbell:

So Brad, this is Al. And we've talked about for, I think, several quarters now. Certainly, we love the strength of our balance sheet, but our leverage is really below where we want long term at this point. We've been patient to allow opportunities come to us. So in our credit rating at A minus, 4.5 would be something you could be very confident so we're a full turn below that right now. So significant opportunity there, but willing to be patient to allow Brad to find the right investments.

Operator:

And we will move next to Michael Goldsmith with UBS.

Tim Argo:

Well, one nuance there. The new lease pricing has done what we expected. It didn't decelerate or it didn't accelerate less than we expected. It accelerated a little bit less than what we've seen in the last couple of years, but in line with, if not slightly better than expectations. And so what we've seen is new lease pricing accelerate, just not quite as much as it may do in a lower supplied environment. So I think at the same time, given all the fundamentals we're seeing and the various metrics we talked about earlier, don't quite expect that new lease rate to drop off quite as much as it might normally for kind of the same reason been accelerated as much. So that's kind of how we see it playing out. But really have been as if not better than expected.

Tim Argo:

Not really anything, Michael. It's probably taken a little bit longer for us to get an answer on the renewal side, but ultimately, as I mentioned, our renewal accept rates are better than they were a couple of years ago in a similar environment and kind of where we expect to see them. Our conversion rates are in line with period as well. So nothing notable other than -- I mentioned the leads are down a little bit from what we saw last year, but we would have expected that with the growth we saw last year.

Alex Goldfarb :

So just trying to put a bow on the supply. It's obviously been a big topic. If I hear correctly from what you're saying, it sounds like it's really only Phoenix and Austin where it's really an issue. Atlanta has maybe as another market, just given the occupancy dip that you talked about. But otherwise, the balance of your portfolio, it sounds like yes, there's supply, but it's not really competitive with you guys. You feel comfortable with the in-migration, the economic growth, the job growth to be comfortable with your rents. So is that sort of the main takeaway that the supply is really limited to maybe 2 or 3 markets for you guys, and that's it. All the other markets are fine. I just sort of want to encapsulate this.

Alex Goldfarb :

Okay. And then the second question is your guidance for the second quarter is rather wide. And I'm assuming you guys are pretty conservative route, but [$2.18] on the low side, just low, obviously. So should we expect a decline quarter-to-quarter? Or are there some oddball things that could come up that would drive like I'm just trying to think why would FFO go down? And maybe you'll say, hey, it's a onetime item. There's some sort of tax impact or returns or something like that, that we're going to see.

Operator:

And we will take our next question from Nick Yulico with Scotiabank.

Tim Argo:

Yes. A couple of things going there. I mean Atlanta is experiencing a decent amount of supply. It's not quite as high as some of our other markets, but relative to what Atlanta typically gets there. There is some supply pressure. But a couple of other things impacting that. You mentioned one of them. We had sort of late first quarter, early second quarter over the course of 2 or 3 months. We had about 100 units come back online in Atlanta, which was a mixture of some units that were down to storm damage and then a fire at one of our properties. And so pulling those back into the portfolio and meaning to lease those up had some impacts. And then secondly, which is hinders us a little bit in the short term, but is positive on the long term is Atlanta and the counties there have started to progress some on evictions and filings and doing court dates and kind of working through that whole process, which has been a real laggard in terms of our markets for working through that. So we actually year-to-date have seen about 140 more [Indiscernible] and skips this time versus the same period last year. So a good thing, as I said, long term, and we are seeing a little bit better payment progress there, but it kind of doubled down on some of the occupancy pressure there. Revenue and pricing has held in okay. It's a little bit below the market, but not are a little bit below the portfolio but not too bad. And overall, we obviously still feel good about it long term, but just running through a little bit of pressure right now.

Tim Argo:

Yes. So for our portfolio, concessions are running about -- cash concessions are about 0.5% of rents. It's ticked up a little bit, but not significantly. I mean we do tend to net price with our pricing systems who don't use a ton of concessions. But broadly, at a market level and what we're seeing some of the competitors. I would say you're at a month free is about where we're at in several of the larger markets. And for most, that is more kind of in-town central areas of the markets, you might see a little bit more if there's a lease up in the area, but we're not seeing any more than a month and a half or so in any of our markets. Austin is one where it's a little unique in that we're actually not seeing a lot of concessions kind of in the Central Austin but more in the suburbs where there's quite a bit of supply. That's one where concessions are a little more prevalent in the suburbs versus other markets where it's more urban and fill.

Nick Yulico :

Great. If I could just follow up on the investment activity and being more patient there. I know you gave some commentary on this. But is that more of a view that, hey, cap rates seem like they're too low to where you're penciling they should make sense? Or is it also just a view that, hey, at some point, we're not sure exactly where market rents are going in some areas, there is supply coming. Maybe there's an opportunity to wait. You mentioned talking to merchant developers and just trying to kind of tie together, I guess, valuation versus a view on, hey, fundamentals are becoming a little bit uncertain because of supply.

Operator:

And we will move next to John Kim with BMO Capital Markets.

Al Campbell:

John, this is Al. I think the important point there, we didn't cover today, we've talked about it a bit in the past is that there is a little bit of dilution in that total revenue from the pricing line because there's other income components that are about 10% of our revenue stream that aren't growing, if they call it 7%. And so they're going 2% to 3%. And so that dilutes it some. So that's probably the difference there. But in general, the math that you laid out was the 5.5% carry in plus half of the pricing performance we've gotten this year, which is we've talked about was 3% -- 3.5% blended pricing, half of that. That gives you pretty close to the effective rent growth expectation we have this year and then those other income items dilute that just a bit.

Al Campbell:

I'm just saying that the guidance is -- we think the guidance is accurate. There are things other than effective rents that are affecting that total revenue, John. There's items that are other income related that are growing call it, 2% to 3% that bring that down. So if you're looking at total revenue, I think the -- we brought it in just because we narrowed it, which we typically do, just because we have a little more information getting closer to the end of the year, but that midpoint of 6.25% in total revenue, we still feel that's the right number.

Rob DelPriore:

Yes, John, this is Rob. Yes, in part, the cost -- the property insurance premium is a big driver of it. It was up about 33%, and that was offset by a much smaller increase in our casualty lines, automobile workers' comp, general liability. So the balance result, as you said, was about 20%. We did have some changes on the retentions this year, about $1 million on our per occurrence and a couple of million dollars on our aggregate then we do have a separate freeze event deductible because of some of the events that were happening in the Southeast. But overall, we feel like the retentions that we have are appropriate given the balance sheet strength we have and the spread of risk across the portfolio, given the geographic disbursement. And then as we've done for several years, we did take a portion of the primary insurance that we've got about $10 milllion of self-retention there that we feel very comfortable with, with an insurance product that caps our loss over 3 years at $15million or so. So I feel like we're in really good shape there relative to the strength of the balance sheet.

John Pawlowski :

Brad or Eric, I just had a follow-up question regarding the glimpses and signs of better acquisition opportunities you're starting to see. Can you just give me a sense for whether you're seeing notable signs and broad-based sign of capitulation on pricing from merchant builders struggling with higher debt service costs on their lease ups?

Eric Bolton:

And John, I would tell you, as you get later in the year and you get into the slower leasing season sort of during the holidays and Q1 of next year, a lot of these lease-ups are going to see more pressure. Just leasing traffic is not as robust during that time of the year. And so we do think that we're heading into an environment where more likely than not pressure will build for some of the lease-up projects that are happening out there, and that may trigger some opportunity.

Tim Argo:

Yes. I mean, it obviously varies by market. There are some doing much better than others. But I would say and depending on what -- which market you divide in mid-tier versus not, you're probably somewhere in 100 to 150 basis point blended spread. So year-to-date, we're seeing several that are in that 4.5% to 5% range compared to our upper 3s overall portfolio. So I do think 100 to 200 basis points spread is probably about right.

Rob Stevenson :

I know you have quite a lot of data on your residents. Do you have the data on the percentage of residents with student loans outstanding? And what do you think the resumption of payments is going to have impact wise on ability to pass-through future rent increases in '24?

Rob Stevenson :

Okay. And then, Al, how are you reading Texas in terms of this property taxes going forward? Is this just a onetime distribution of the surplus? Or are you expecting to see fundamental changes there and lower levels of property taxes in Texas going forward?

Rob Stevenson :

And any other markets where you're seeing property taxes trending above or below your expectations from earlier this year?

Operator:

And our next question comes from Anthony Powell with Barclays.

Tim Argo:

Yes. I think I would expect renewals to remain above new, and that's not unusual. I mean, what we saw last year where new lease rates were quite a bit higher than renewals is more the exception than the norm. And so with renewals, you've got obviously, somebody that has lived with you and hopefully you provided good resident service and have an asset that they enjoy living in, and so there's some friction costs to move and all that. So typically, we would see renewals pretty consistently above new leases. So I don't expect it to get down to the new lease level.

Tim Argo:

Yes. I mean it's difficult to nail down to a quarter, but I think our belief right now is kind of peaking early 2024 and then starting to trend down and then really set up for a good position as we get into 2025 in terms of lower deliveries.

Eric Bolton :

We appreciate everyone joining us this morning and obviously follow up with any other questions that you may have. And that's all we have this morning. So thank you for joining us.

Andrew Schaeffer:

Thank you, Phyllis and good morning everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team also participating on the call with me this morning are Eric Bolton, Tim Argo, Al Campbell, Rob DelPriore, Joe Fracchia, and Brad Hill. Before we begin with our prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our 1934 Act filings with the SEC, which describe risk factors that may impact future results. During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data. Our earnings release and supplement are currently available on the For Investors page of our website at www.maac.com. A copy of our prepared comments and an audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. I will now turn the call over to Eric.

Tim Argo:

Thanks, Eric and good morning, everyone. Same-store growth for the quarter was ahead of our expectations with stable occupancy, low resident turnover and rent performance slightly ahead of what we expected. Blended lease-over-lease pricing of 3.9% reflects the normal seasonality pattern that we expected. And while we did return to a more typical seasonal pattern in Q1, it is worth noting that the blended lease-over-lease pricing captured was higher than our typical Q1 performance. As discussed last quarter, we expected new lease pricing to show typical seasonality and that the renewal pricing which lagged new lease pricing for much of 2022 would provide a catalyst to first quarter pricing performance. This played out as expected with new lease pricing down slightly at negative 0.5%, and renewal pricing increasing positive 8.6%. Alongside the strong pricing performance average daily occupancy remained steady at 95.5% for the first quarter contributing to overall same-store revenue growth of 11%. The various demand factors we monitor were strong in the first quarter and continued that way into April. 60-day exposure which represents all current vacant units plus those units with notices to vacate over the next 60 days at the end of Q1 was largely consistent with prior year at 7.7% versus 7.9% in the first quarter of last year. Furthermore in the first quarter, lead volume was higher than last year and quarterly resident turnover was down driving the 12-month rolling turnover rate down 30 basis points from 2022. April to-date trends remain consistent as exposure remains in line with the prior year and occupancy has remained steady at 95.5%. Blended lease-over-lease pricing effective in April is 4.1% with new lease pricing beginning to accelerate up 110 basis points from March at plus 0.2% and renewal pricing remaining strong at 7.9%. We expect renewal pricing to moderate some against tougher comps as we move into the late spring and summer, but simultaneously expect some seasonal acceleration in new lease-over-lease rates. We expect new supply in several of our markets to remain elevated in 2023 putting some pressure on rent growth. But as mentioned the various demand indicators remain strong and we expect our portfolio to continue to benefit from population growth, new household formations and steady job growth. In addition, we expect resident turnover to remain low as single-family affordability challenges support fewer move-outs. MAA's unique market diversification of portfolio strategy coupled with a more affordable price point as compared to the new product being delivered also helps lessen some of the pressures surrounding higher new supply deliveries. During the quarter, we continued our various product upgrade initiatives. This includes our interior unit redevelopment program, our installation of smart home technology and our broader amenity-based property repositioning program. For the first quarter of 2023, we completed over 1,300 interior unit upgrades and installed over 18,000 smart home packages. We now have about 90,000 units with smart home technology and we expect to finish out the remainder of the portfolio in 2023. For our repositioning program leases have been fully or partially repriced at the first 13 properties in the program and the results have exceeded our expectations with yields on cost in the upper teens. We have another seven projects that will begin repricing in the second and third quarters and are evaluating an additional group of properties to potentially begin construction later in 2023. Those are all of my prepared comments. I'll now turn the call over to Brad.

Al Campbell:

Thank you, Brad and good morning, everyone. Reported core FFO per share of $2.28 for the quarter was $0.06 above the midpoint of our quarterly guidance. About half of this favorability was related to the timing of certain expenses, which are now expected to be incurred over the remainder of the year, primarily related to real estate taxes. Operating fundamentals overall were slightly favorable to expectations for the quarter producing about $0.01 per share of favorability. And the remaining outperformance is related to overhead and net interest costs for the quarter. Our balance sheet remains in great shape, providing both protection from market volatility and capacity for strong future growth. We received an upgrade from Moody's during the quarter bringing our investment-grade rating to the A3 or A- level with all three agencies. We expect the favorable ratings to have a growing positive impact on our cost of capital as we work through future debt maturities. During the quarter, we also closed on the settlement of our forward equity agreement providing approximately $204 million net proceeds towards funding our development and other capital needs. We funded $38 million of redevelopment, repositioning and smart home installation costs during the quarter producing solid yields. We also funded just over $65 million of development costs during the quarter toward the projected $300 million for the full year. As Brad mentioned, we expect to start several new deals later this year and early next year, likely expanding our development pipeline to over $1 billion, for which our balance sheet is – remains well positioned to support. We ended the quarter with record low leverage, our debt to EBITDA of 3.5 times with over $1.4 billion of combined cash and available capacity under our credit facility with 100% of our debt fixed against rising interest rates for an average of 7.7 years and with minimal near-term debt maturities. And finally in order to reflect the first quarter earnings performance, we are increasing our core FFO guidance for the full year to a midpoint of $9.11 per share, which is a $0.03 per share increase. We're also slightly narrowing the full year range to $8.93 and $9.29 per share. Given that the majority of the Q1 same-store outperformance was timing related and the bulk of the leasing season is ahead of us, we are maintaining our same-store guidance ranges as well as all of the key ranges for the year. So that's all we have in the way of prepared comments. So Phyllis, we will now turn the call back over to you for questions. Phyllis, we'll now turn the call back over to you for questions.

John Kim:

Thank you. Eric and Tim both mentioned in your prepared remarks that the more affordable price point is one of the reasons why you have such strong demand. And I'm wondering if there's any notable difference between your A and B product as far as demand or performance?

John Kim:

Okay. My second question is on the premiums that you're getting on renewals versus the new leases signed. I think it was 900 basis points in the first quarter, a little bit lower than 800 basis points in the second quarter so far. It still seems like a record amount as far as that premium you're getting. And I'm wondering when you think it goes back to the norm. At what level do you think it's fair premium on renewals?

John Kim:

That’s great color. Thank you.

Austin Wurschmidt:

Hey, good morning everybody. Eric, you have highlighted that the price point does provide you some insulation as it relates to new supply. And certainly job growth has surprised to the upside earlier this year. If we start to see job growth slow, does that become more concerning as supply begins to ramp? And does pricing power just become more challenging for you later this year and maybe into early 2024?

Austin Wurschmidt:

No. That's all very helpful. And then just for my follow-up for projects that are in lease-up today have you kind of -- have you seen any slowdown in the pace of lease-up or absorption for those? And where are concessions today for yes assets in lease-up? Thank you.

Austin Wurschmidt:

Thanks everybody.

Chandni Luthra:

Hi. Good morning. Thank you for taking my question. You guys talked about in your prepared remarks that cap rates are still going strong for good quality product. Could you remind us where they are tracking at the moment? And then, as you think about your own opportunity set down the line as you think about distressed opportunities emanating from the current supply situation and lending markets. Where would cap rates need to be for you to be comfortable buying and getting in the market?

Chandni Luthra:

That's very helpful. Thank you. And for my follow-up, as we think about new supply from a geographic standpoint, what are the markets where you're seeing most pressure? And how are you thinking about balancing occupancy versus pricing in those markets?

Chandni Luthra:

Great. Thanks for taking my question.

Michael Goldsmith:

Good morning. Thanks a lot for taking the question. Earlier you talked about the B product outperforming A product on a portfolio level. I was wondering if we can dive into a market or two to just kind of better understand some of the dynamics of what you're seeing in the A product versus the B product? And then, also, within that, can we talk about kind of like the larger markets that you're in versus the smaller markets? And if A versus B is performing differently in the large ones versus the smaller ones? Thanks.

Michael Goldsmith:

Got you. And then, my follow-up question, just on the -- we talked about the job market and how the portfolio may react to that. I guess, my question is more related to just the in-migration to the Sunbelt. And what's that looking like versus pre-COVID levels? And are there any markets that you're seeing, where it is stronger or weaker in-migrations?

Michael Goldsmith:

And when you say going forward, does that mean for the rest of 2023, or is that kind of for the intermediate term?

Michael Goldsmith:

Thank you, very much.

Nick Yulico:

Thank you. Good morning. I was hoping to get a little bit of a feel for how the new lease growth on signings is differing by market. Just sort of an order of magnitude between better versus weaker markets, if you can give a little color on that.

Nick Yulico:

That's helpful. Thanks. Do you mind also just maybe saying which markets are the better versus weaker in that range?

Nick Yulico:

Thanks. That's helpful. Just last question is on Atlanta. If you look the occupancy there is a bit lower than the rest of the portfolio. Can you just talk about what's going on there? And I guess also on Packing, I think you were saying that that's a market where suburban is doing better than urban. And so I'm not sure if it's -- if there's any sort of supply impact there that you're dealing with on occupancy or what's driving that? Thanks.

Nick Yulico:

Appreciate it.

Alan Peterson:

Hi, everybody. Thanks for the time. Tim, I was just hoping you can shed some light on your planning for peak leasing. And if you're anticipating in some of your weaker markets whether or not you're going to have to use concessions to maintain occupancy call out the Austins or the Phoenixes of the world.

Alan Peterson:

Understood. And that's on your assets or other competing assets nearby?

Alan Peterson:

Appreciate that. And Brad just one follow-up on your prepared remarks about debt and equity capital starting to dry up. The cost of buckets of capital out there where are some of your private peers the most concerned about when sourcing new financing today? What are some of the -- whether it be the banks or life insurance companies what buckets of capital right now are the ones that are seeing the most impact there?

Alan Peterson:

Appreciate that. Thanks for your time today guys.

Rob Stevenson:

Good morning, guys. Eric or Brad, you guys added Orlando land parcel this quarter. But overall how aggressively are you going to be in adding additional land parcels for development at this point? And are you seeing any relief in terms of the costs of land? Some of the peers have spoken about more office sites and vacant movie theaters and as such being sold for apartment development allowing for better deals. Curious as to what you're seeing in terms of that.

Rob Stevenson:

Okay. That's helpful. And then, Tim or Al, where is bad debt or delinquency today? And how does that compare to the historical periods pre-COVID in recent comparable periods?

Rob Stevenson:

And is there any markets in particular that you're seeing any material higher amounts in?

Rob Stevenson:

Okay. Thanks guys. Appreciate the time.

Omotayo Okusanya:

Hello, can you hear me?

Omotayo Okusanya:

Yes. Hi, everyone. Hoping you can help me understand the increase in guidance a little bit better. Again you kind of talked about in 1Q you had some OpEx kind of tailwinds that could potentially become headwinds going forward. So you're not changing same-store NOI. But so trying to really understand what was that slide into is number one? And then number two, it sounds like based on spring leasing fees and you see the FFO guidance with them.

Omotayo Okusanya:

Got you. Okay. That's helpful. And then can you just talk a bit about kind of new lease spreads for the quarter? Again that was kind of -- it was negative. Just kind of see as the thoughts there whether it really is a supply issue whether there's a bit more of a demand issue and how we should kind of think about that kind of especially going into like your core spring leasing season?

Omotayo Okusanya:

Thank you.

Barry Luo:

This is Barry Luo on for Haendel St. Juste. My first question was on property taxes. I was just wondering how that was trending versus expectations since Cato's release in the back half?

Barry Luo:

Got Okay. Thank you. And just we get Texas in particular so noticing a significant expense decline sequentially so 11% for Fort Worth and I think 6% for Austin. Is some of that being driven by property tax relief, or what's kind of driving that? Thanks.

Barry Luo:

So – well, I was more looking at like the sequential decline from 4Q in Fort Worth versus 1Q in Fort Worth looks like somewhere [indiscernible]

Tim Argo:

Yes. I think the sequential decline all those Texas markets, I think was pretty much real estate tax relief. Just the timing of accruals and settlements, and all that it can be pretty volatile from quarter-to-quarter, but normalizes over the course of the year.

Barry Luo:

Got it. Thank you.

Alexander Goldfarb:

Thank you. And good morning, down there. So two questions. First, just going back to the supply just because it's a big topic that always comes up with the Sunbelt. You guys, articulated a lot of how your portfolio is doing. Would you say, it's more just your rent versus new supply, or would you say, it's more just proximity meaning that your properties are less of -- end up less likely to be near where the new supply is? Meaning that, the new supply is in other parts of the market and therefore, like where you cited some supply-heavy markets where you guys actually did well, it's because just proximity in general your portfolio doesn't line up where a lot of the new product is being built. I'm just trying to understand.

Alexander Goldfarb:

Okay. Second question is, on insurance certainly a hot topic especially in Florida and Texas with big premium jumps. Are you guys seeing opportunities where some of your smaller players or maybe some of the merchant recent new developments may have -- they may not have underwritten 50% type premium increases and therefore that could gin up some buying opportunities? Do you think that you would see that potentially people having to sell because of insurance pressure?

Alexander Goldfarb:

Okay. Thank you.

Wes Golladay:

Hey, good morning everyone. Just had a quick question on capital allocation. I know your stock's yielding low six to maybe mid-6 implied cap. So how do you view a potential buyback versus starting new developments at this part of the cycle?

Wes Golladay:

Okay. And then maybe if we can go to that topic of distress. I mean, a lot of the private owners right now do you feel that they may be upside down and the banks are just extending the opportunity right now, or do they have significant equity just need maybe a capital infusion?

Wes Golladay:

Great. Thanks, everyone.

Eric Wolfe:

Just to follow up to your answer there a moment ago. You mentioned your balance sheet is just in incredible shape. I don't think I've -- can remember seeing an apartment company at sort of mid-three times leverage down to probably low three times later this year. So my question is really sort of what would it take what type of opportunity would you need to see, before you'd be willing to take your leverage back up to a more normal sort of five times amount? And I guess, if a portfolio came across that was like in say the 5.5% to 6% range, would that be interesting enough to allow you to take your leverage back up?

Al Campbell:

I'll just add just quickly that Eric that's a very good point you make that really our target -- long-term target is closer to 4.5 times to 5 times on the EBITDA coverage. I mean, we're providing opportunity right now as Eric mentioned and hopefully they will find those expect to be able to find those. And long term our target is in line with what you mentioned.

Al Campbell:

I'm going to start with it and Tim can give some more details. What I would say primarily is, one, we need to see the bulk of leasing season happen as it comes. So we're providing opportunity to see that and get more information. We're encouraged certainly by what we saw in the first quarter. And I think secondly, the biggest point would be, we do expect to see that seasonality in the most acute if you would in the fourth quarter. That's typically what it is in a normal year. That's sort of what we're expecting. So we could see that new lease pricing be a little more negative in that fourth quarter because the holiday season and demand just really shuts down in that period. So that's what we provided for in our forecast I think at this point.

Eric Wolfe:

Got it. Thanks for your time.

Jamie Feldman:

Right. Thank you and good morning. I want to go back to your comments about 11% of leases written in the first quarter were new people moving into Sunbelt. Can you provide more color on that data point across the different markets? And I guess I'm thinking more about maybe some of the larger MSAs versus the smaller MSAs.

Jamie Feldman:

Interesting. And then I guess similarly if you think about the lay-up activity I guess those are also the markets where you've seen the most growth in tech jobs or jobs that might be most at risk. Can you talk at all about how lay-up activity might be impacting the different types of MSAs and even at statistics specifically? Just trying to kind of think through the next 12 months or so.

Jamie Feldman:

Okay. Thank you. And then I know you talked about insurance and taxes on the expense side. Just as we think about your guidance for the year any other variables or line items on the expense side that maybe you don't feel quite as confident or maybe there could be some changes there? I know you got your insurance coming up in July your renewal.

Jamie Feldman:

Okay. All right. Great. Thank you.

Linda Tsai:

Hi. Maybe just as a short follow-up to that last question. In terms of rationale for move-out job transfers and buying a new home has the balance of these reasons shifted since 4Q and any regional trends you'd highlight?

Linda Tsai:

Okay. Thank you.

Eric Bolton:

Well no additional comments to add. So we appreciate everyone joining us and I look forward to seeing everyone at NAREIT. Thank you.