Q3 2023 Mid America Apartment Communities Inc Earnings Call

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Speaker 1: Good morning ladies and gentlemen and welcome to the MAA third quarter 2023 earnings conference call. During the presentation all participants will be in a listening mode. Afterward the company will conduct a question and answer session. As a reminder this conference call is being recorded today October 26, 2023. I will now turn the call over to Adam Schafer, Senior Vice President, Treasurer and Director of Capital Markets of MAA for opening comments.

Good morning, ladies and gentlemen, and welcome to the MAA third quarter 2023 earnings Conference call.

During the presentation, all participants will be analyst note afterwards, the company will conduct a question and answer session.

I know this conference call is being recorded today October 26th 2023, I will now turn the call over to you Adam cheaper senior Vice President Treasurer, and director of capital markets and a a for opening comments.

Speaker 2: Thank you, Brittany, and good morning, everyone. This is Andrew Schafer, 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 DelProri, 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.

Thank you Britney and good morning, everyone. This is Andrew Schaffer, 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.

Rob I'm, sorry, Joe for Ikea, Brad Hill and playful.

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.

Speaker 2: Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statement section in yesterday's Arning's 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-gaft financial measures. A presentation of the most directly comparable GAAP financial measures, as well as reconciliation of the differences between non-gaft and comparable GAAP measures can be found in our Arning's release in supplemental financial depth.

The 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 and our earnings release and supplemental currently available on the for investors page of our website.

Speaker 2: Our earnings release and supplements are currently available on the For Investors page of our website at www.mac.com.

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Speaker 2: 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.

A copy of our prepared comments an audio recording of this call will also be available on our website. Later today. After some brief prepared comments the management team will be available to answer questions I will now turn the call over to Eric.

Thanks, Andrew and good morning, MAA is third quarter SSL performance was ahead of our expectations as the demand side of our business continues to capture good leasing traffic low resident turnover positive migration trends and strong collections performance.

Speaker 3: MAA's third quarter FFO performance was ahead of our expectations as the demand side of our business continues to capture good leasing traffic, low resident turnover, positive migration trends, and strong collections performance.

Speaker 3: During the quarter, we did see a higher impact from new supply deliveries across several of our larger markets, with the resulting impact showing up in pricing associated with new move-in residents.

During the quarter, we did see a higher impact from new supply deliveries across several of our larger markets with the resulting impact showing up in pricing associated with new move in residents.

Speaker 3: While we continue to believe that MAA's unique market diversification, a more affordable rent structure and an experience and capable operating platform will enable us to push back against some of this supply pressure, the high volume of new deliveries in several markets will continue to weigh on rent growth associated with new resident move-ins for the next few quarters.

We continue to believe that MAA is unique market diversification, a more affordable rent structure and an experienced and capable operating platform will enable us to push back against some of the supply pressure the high volume of new deliveries in several markets will continue to weigh on rent growth associated with new resident move.

<unk> for the next few quarters.

Speaker 3: Encouragingly, there is now clear evidence emerging that new supply deliveries are poised to meaningfully drop late next year into 2025. We have certainly worked through these supply cycles before and continue to believe that MAA is more extensive market and sub-market diversification, new AI and technology tools and an experienced operating team has us in a position to outperform our markets.

Encouragingly there is now clear evidence emerging that new supply deliveries are poised to meaningfully drop late next year into 2025, we have certainly worked through the supply cycles before and continue to believe that MAA is more extensive market and sub market diversification new new.

AI and technology tools, and an experienced operating team has us in a position to outperform our markets.

Speaker 3: As we have discussed previously, one of the benefits that typically emerges from a heavy supply cycle, particularly one that is characterized by higher interest rates, is an increasing volume of acquisition and external growth opportunities.

As we have discussed previously one of the benefits that typically emerges from a heavy supply cycle, particularly one that is characterized by higher interest rates is an increasing volume of acquisition and external growth opportunities.

Speaker 3: We have seen a shift take place with seller and developer pricing expectations.

We have seen a shift take place with seller and developer pricing expectations there.

Speaker 3: The more challenging lease of conditions coupled with higher interest rates that are likely to be with us for a while are generating more buying opportunities. As Brad will recap in his comments, the property acquisition we completed after quarter end is a good example of where we expect more opportunities to emerge specifically, a recently completed new development that is still in initial lease up with seller requirements to close within a short timeframe.

The more challenging lease up conditions, coupled with higher interest rates that are likely to be with us for a while are generating more buying opportunities.

As Brad will recap in his comments the property acquisition. We completed after quarter end is a good example of where we expect more opportunities to emerge specifically our recently completed new development that is still in initial lease up with sell our requirements to close within a short timeframe.

Speaker 3: Before turning the call over to the team to provide details surrounding our performance and market conditions, let me summarize what I believe are the four key takeaways in our report.

Before turning the call over to the team to provide details surrounding our performance and market conditions. Let me summarize what I believe are the four key takeaways in our report.

Speaker 3: First, demand across our markets remains solid and supportive of steady absorption of the new supply.

First demand across our markets remain solid and supportive of steady absorption of the new supply.

Speaker 3: Secondly, current high levels of new supply coupled with developer pressures related to a higher interest rate environment.

Secondly, current high levels of new supply, coupled with developer pressures related to the higher interest rate environment.

Speaker 3: will cause the leasing environment to remain competitive for the next few quarters, with new supply pressures expected to then decline.

Will cause the leasing environment to remain competitive for the next few quarters with new supply pressures expected to then decline.

Speaker 3: We expect to see an increasing number of compelling external growth opportunities in 2024. And fourth, MAA's long track record of performance and experience and working with markets with higher demand and supply dynamics. Now further supported by a stronger technology platform and a strong balance sheet with significant capacity has a company a very well-position as we work through the current cycle. And with that, I'll now turn the call over to Brad.

We expect to see an increasing number of compelling external growth opportunities in 2024.

And fourth MAA has long track record of performance and experience in working with markets with higher demand and supply dynamics.

Now further supported by a stronger technology platform and a strong balance sheet with significant capacity has the company very well position as we work through the current cycle.

And with that I'll now turn the call over to Brad.

Thank you, Eric and good morning, everyone.

Speaker 3: As anticipated, we saw an increase in 4-cell marketing activity emerge early in the third quarter. And while closed transactions are limited in number, we continued to see some upward pressure on cap rates on projects we tracked, with cap rates up by roughly 15 basis points from 2-2.

As anticipated we saw an increase in fore sell marketing activity emerge early in the third quarter.

And while closed transactions are limited in number we continued to see some upward pressure on cap rates on projects, we track with cap rates up by roughly 15 basis points from <unk>.

Speaker 3: As indicated in our earnings release, we recently closed.

As indicated in our earnings release relief recently closed.

Speaker 3: 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 specific date. So counter-party risk considerations were paramount to the seller.

The Phoenix market.

We began pursuing early in <unk> MAA Central Avenue is a 323 unit mid rise property that fits the profile.

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.

Speaker 3: Our familiarity with the market, speed of execution, and balance sheet strength that supports an ability to close all cash with no financing contingencies where all aspects of our offer that were very important to the sellers.

Our familiarity with the market speed of execution and balance sheet strength that supports <unk> ability to close all cash with no financing contingencies were all aspects of our offer and they were very important to the seller.

Speaker 3: Our pricing of approximately $317,000 per unit is substantially below current replacement costs.

Our pricing of approximately $317000 per unit is substantially below current replacement cost.

Speaker 3: 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.

And is expected to provide an initial stabilized NOI yield of five 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 as 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.

Speaker 3: Our transaction team is very active in evaluating other acquisition opportunities across our footprint. And Alan Clay have our balance sheeting great position to be able to take advantage of additional compelling opportunities as they continue to materialize later this year and into 2024.

Sure.

Our transaction team is very active in evaluating other acquisition opportunities across our footprint.

And Allen Klee 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.

Speaker 3: Despite pressure from elevated supply, our new properties in their initial lease up continue to deliver strong performance, producing higher NOIs and earnings than forecasted, creating additional long-term value for the company.

Despite pressure from elevated supply our new properties in their initial lease up continued to deliver strong performance producing higher NOI and earnings than forecasted, creating additional long term value for the company.

Speaker 3: 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 expectation.

These properties on average have captured in place rents, 15% above our original expectations for the five properties that are either leasing or we'll 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 <unk>.

Six 7% significantly higher than our original expectations.

Speaker 3: Leasing has progressed well at MA-Winmill Hill in Austin, and we expect this community to stabilize this quarter.

Leasing has progressed well at MAA Windmill Hill in Austin, and we expect this community has stabilized this quarter.

Speaker 3: We continue to advance pre-development 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.

We continue to advance pre development 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.

And a number of markets and 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.

Speaker 3: In the 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 costs 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.

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.

Speaker 3: Additionally, general contractors are indicating they have more capacity to start new projects, and in many cases with a larger pool of subcontractors available.

Additionally, general contractors are indicating they have more capacity to start new projects and in many cases with a larger pool of subcontractors available.

Speaker 3: 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 3,700 units.

In addition to the three projects mentioned that we expect to start over the next six months, we have five more projects representing approximately 1320 units that could be ready for a 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.

Speaker 3: We have optionality on when we start these projects, allowing us to maintain our patients 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.

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.

Speaker 3: Our development team continues to evaluate land sites as well as additional pre-purchase 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 that our projects and pre-development, our construction management team is focused on completing and delivering our remaining five under construction projects.

Our development team continues to evaluate land sites as well as additional pre purchase development opportunities in this more constrained liquidity environment. We are hopeful that we may find additional development opportunities to add to our future pipeline and.

In addition to continuously monitoring the construction market in evaluating cost at our projects in pre development or construction management team is focused on completing and delivering our remaining five under construction projects.

Speaker 3: 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.

During the third quarter the team successfully wrapped up construction on novel West Midtown in Atlanta, completing the delivery of all 340 units.

All I have in the way of prepared comments, so with that I'll turn the call over to Sam.

Speaker 4: Thanks Brad and good morning. Same store revenue growth for the quarter was essentially in line with our expectations with sequentially higher occupancy, offsetting sequentially declining new lease prices.

Thanks, Brad and good morning, same store revenue growth for the quarter was essentially in line with our expectations with sequentially higher occupancy.

Offsetting sequentially declining new lease pricing, increasing supply pressure did impact pricing in some of our <unk>.

Speaker 4: Increasing supply pressure did impact pricing in some of our markets, resulting in blended lease over lease pricing of 1.6%.

<unk>, resulting in a blended lease over lease pricing of one 6%.

Speaker 4: comprises of newly raised declining 2.2% and renewal rates increasing 5%. Average physical occupancy was 95.7% resulting in revenue growth 4.1%.

Apprised of new lease rates declining two 2% and renewal rates increasing 5%.

Average physical occupancy was 95, 7%, resulting in revenue growth of four 1%.

Speaker 4: The various metrics we measure related to demand remain strong. Employment markets remain stable with continued job growth across our Sunbelt markets.

The various metrics, we measure related to demand remained strong employment markets remained stable with continued job growth across our sunbelt markets.

Speaker 4: Net positive migration trends to our markets continue with moving through our footprint, footprint well ahead of move outs outside of our footprint and remain consistent with what we have seen the last several quarters.

Net positive migration trends through our markets continue with moving into storefront footprint well ahead of move outs outside of our footprint and remain consistent with what we have seen in the last several quarters resident turnover was down once again in the third quarter, a 4% decrease from prior year collections remained strong and consistent with prior.

Speaker 4: Resident Turner was down once again in the third quarter, a 4% decrease from prior year. Collections are rain strong and consistent with prior quarters.

Speaker 4: Our new resident rent income ratio remains low and in line with prior quarters. And our lead volume is consistent with what we would expect and in line with pre-pandemic levels.

<unk>, our new resident rent to income ratio remains low and in line with prior quarters and our lead volume is consistent with what we would expect and in line with pre pandemic levels.

Speaker 4: But as mentioned we did feel the impact on do supply in the third quarter which manifested itself in lower Neelie's pricing particularly beginning in August and September .

As mentioned, we did feel the impact from new supply in the third quarter, which manifested itself in lower new lease pricing, particularly beginning in August and September. This pressure was driven by higher concessions concession usage by developers in many of our markets with a resulting reduction in net pricing in a number of our direct market comps this peer pricing move.

Speaker 4: This pressure was driven by higher concessioned uses by developers in many of our markets with a resulting reduction in net pricing at a number of our direct marketing costs.

Speaker 4: This pure pricing movement obviously does impact market pricing and impacts our asking rents.

It obviously does impact market pricing and impacts our asking rents we.

Speaker 4: We believe the lingering higher interest rate environment, with the 10-year Treasury moving up quickly in the third quarter, is driving merchant developers to get more aggressive on pricing and is creating some pockets of pricing pressure.

We believe the lingering high interest rate environment with the 10 year Treasury moving up quickly in the third quarter is driving merchant developers to get more aggressive on pricing and is creating some pockets of pricing pressure historically with typical seasonality pricing trends.

Speaker 4: Historically, with typical seasonality, pricing trends, pricing tends to moderate some in Q3 as compared to Q2 and then moderate quite a bit more from Q3 to Q4, typically in the 200 basis point range. While we did see a greater degree of moderation in the third quarter as compared to the second quarter, with the solid demand factors mentioned previously, we expect less moderation than normal from Q3 to Q4.

Pricing tends to moderate some in Q3 as compared to Q2, and then moderate quite a bit more from Q3 to Q4 typically in the 200 basis point range, while we did see a greater degree of moderation in the third quarter as compared to the second quarter with a solid demand factors mentioned previously we expect less moderation of normal from.

Q3 to Q4.

Speaker 4: October to date, blend and lease over lease pricing is zero, which is within 10 basis points of what was achieved in September .

To date blended lease over lease pricing is zero, which is within 10 basis points what was achieved in September.

Speaker 4: and a lower rate of decline than the more typical 60 basis points.

And a lower rate of decline than the more typical 60 basis points.

Speaker 4: Average physical occupancy for October month to date remains strong at 95.6 percent, with exposure, which is a combination of current vacancy and units on notice to vacate, at 6.9 percent and in line with October of last year.

Average physical occupancy for October month to date remains strong at 95, 6% with exposure, which is a combination of current vacancy in units on notice to vacate at six 9% and in line with October of last year and.

Speaker 4: In addition to the demand factors mentioned, increased absorption through the third quarter in the Sunbelt markets provides further evidence of continued solid demand to help mitigate the impact of the continuing new deliveries. The amount of new supply that was absorbed in the third quarter in our markets was the highest it has been since the beginning of 2022.

In addition to the demand factors mentioned increase absorptions Theres, a third quarter in our Sunbelt markets provides further evidence of continued solid demand to help mitigate the impact of the continuing new deliveries the amount of new supply that was absorbed in the third corner in our markets was the highest it has been since the beginning of 2022.

Speaker 4: Despite the new supply presser in some markets, our unique portfolio strategy to maintain a broad diversity of markets, some markets asset types and price points, is serving as well with many of our mid-tier markets, leading the portfolio and pricing performance, both in the third quarter and into October . The Vanna Trullston Richmond Greenville and Raleigh are examples of markets outperforming larger metros with more new supply of presser such as Al Sinem Phoenix.

Despite the new supply pressure in some markets our unique portfolio strategy to maintain a broad diversity of markets markets asset types and price points is serving us well with many of our mid tier markets, leading the portfolio and pricing performance both in the third corner and into October Savannah, Charleston, Richmond, Greenville, and Raleigh.

Ampligen markets outperforming larger metros with more new supply pressures, such as Austin and Phoenix.

Speaker 4: We expect that this market diversification combined with the continued strong demand fundamentals noted earlier will help continue to mitigate some of the impact of new supply as compared to a less diversified portfolio.

We expect that this market diversification combined with the continued strong demand fundamentals noted earlier will help continue to mitigate some of the impact of new supply as compared to a less diversified portfolio.

Speaker 4: Regarding redevelopment, we continued our various product upgrade initiatives in the third quarter.

Regarding redevelopment, we continued our various product upgrade initiatives in the third quarter for the third quarter of 2023, we completed nearly 2300 interior unit upgrades and are nearing completion on the smart home initiative with over 92000 units now with this technology.

Speaker 4: For the third quarter of 2023, we completed nearly 2300 interior unit upgrades and are nearing completion on the smart home initiative with over 92,000 units now with this technology.

Speaker 4: For our repositioning program, we have five active projects that have either begun repricing or will begin repricing in the fourth quarter with expected yields in the 8% range. Additionally, we are evaluating an additional group of properties to potentially begin construction later in 2023 or early in 2024 with a target to complete by early 2025.

Our repositioning program, we have five active projects that have either begun repricing or will begin repricing in the fourth quarter with expected yields in the 8% range. Additionally, we are evaluating an additional group of properties potentially begin construction later in 2023 for early in 2024 with a target to complete by early 2000.

<unk> 25, that's all I have in the way of prepared comments I'll now turn the call over to clients.

Speaker 4: That's all I have in the way of prepared comments. I'll now turn the call over to Clay.

Speaker 5: 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.

Thank you Tim and good morning reported core <unk> for the quarter of $2 29 per share was <unk> <unk> per share above the midpoint of our guidance. The outperformance was primarily driven by favorable interest and overhead costs during the quarter.

Speaker 5: The outperformance was primarily driven by favorable interest and overhead costs during the quarter.

Speaker 5: Overall, same store operating performance for the quarter was in line with our expectations.

Overall same store operating performance for the quarter was in line with our expectations.

Speaker 5: Same store revenues were slightly ahead of expectations as average occupancy was better than forecast.

Same store revenues were slightly ahead of expectations as average occupancy was better than forecasted.

Speaker 5: The increase in occupancy was all set by the moderation of effective rent growth on new move-in leases that Tim mentioned.

The increase in occupancy was offset by the moderation of effective rent growth on new move in leases or Tim mentioned.

Speaker 5: 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 commissions, which helped drive the improvements in occupancy.

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 commissions, which helped drive the improvements in occupancy.

Speaker 5: 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.

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 of.

Our projection for real estate taxes for the full year remains unchanged.

Speaker 5: During the quarter, we invested a total of $19.7 million of capital through our redevelopment, repositioning, and smart rent installation program.

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.

Speaker 5: Those investments continue to produce strongwood turns and add to the quality of our portfolio.

Speaker 5: We also funded just over $47 million of development costs during the quarter for the completion of the current $643 million pipeline, leaving $296 million remaining to be funded on this pipeline over the next two years.

We also funded just over $47 million of development costs during the quarter for the completion of the current $643 million pipeline, leaving $296 million remaining to be funded on this pipeline over the next two years.

Unknown Executive: Afterwards the company will conduct a question and answer session. As a reminder this conference call is being recorded today, today October 26, 2023.

Speaker 5: 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.

As Brian 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.

Brittany: I will now turn the call over to Adam Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MAA for opening comments. Thank you, Brittany and good morning everyone.

Speaker 5: We ended the quarter with $1.4 billion in combined cash and barring capacity under our revolving credit facility, providing significant opportunity to fund potential investment opportunities.

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.

Speaker 5: our leverage remains historically low with the debt to EBITDA ratio at 3.4 times, and at quarter end, our debt was 100 percent fixed for an average of just over seven years at a low average interest rate of 3.4 percent.

Our leverage remains historically low with a debt to EBITDA ratio of three four times at quarter end, our debt was 100% fixed for an average of just over seven years at a low average interest rate of three 4%.

Andrew Schaeffer: This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA.

Andrew Schaeffer: Members of the management team also participating on the call with me this morning are Eric Bolton, Tim Argo, Al Campbell, Rob DelPriore, Joe Frazier, 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 statement section in yesterday's earnings release and our 34 act filings with the SEC, which describes risk factors that may impact future results.

Speaker 5: In October , we refinanced $350 million of maturing debt, utilizing cash in 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.

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.

Speaker 5: That's all I have for my prepared comments, and I'll turn it over to Al to discuss Q4 guidance.

That's all I have for my prepared comments and I'll turn it over to al discuss Q4 guidance.

Speaker 6: Thank you, Clay. Good morning, everyone. Given the third quarter performance outlined by Clay, as well as expectations for the remainder of the year, we have updated and narrowed our guidance ranges for the year, which is detailed in the supplement to our release. Overall, the third quarter core FFO favorability, primarily related to overhead and interest costs, is expected to be essentially offset by higher than projected same store operating expenses for the remainder of the year, which I'll discuss a bit more in just a moment.

Thank you clay and good morning, everyone.

The third quarter performance outlined by clay as well as expectations for the remainder of the year, we have updated and narrowed our guidance ranges for the year, which is detailed in the supplement to our release.

Andrew Schaeffer: During this call, we will also discuss certain non-gap financial measures. A presentation of the most directly comparable gap financial measures, as well as reconciliation of the differences between non-gap and comparable gap measures can be found in our earnings release in supplemental financial data. Our earnings release and supplement are currently available on the four investors page of our website at www.mac.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.

Overall, the third quarter core <unk> favorability, primarily related to overhead and interest costs is expected to be essentially offset by higher than projected same store operating expenses for the remainder of the year, which I'll discuss a bit more in just a moment.

Speaker 6: That's where maintaining the mid-border of our court and FFO projection for the full year, a $9.14 per share, which reflects a 7.5% growth over the prior year.

Thus, we're maintaining the midpoint of our core <unk> projection for the full year of $9 14 per share, which reflects a seven 5% growth over the prior year.

Speaker 6: The midpoint of our total revenue growth projection for the year remains unchanged as the expected impact of pricing moderation, which is reflected in effective rent growth, is largely offset by the increase in projected average occupancy for the year.

The midpoint of our total revenue growth projection for the year remains unchanged as the expected impact of pricing moderation, which is reflected in effective rent growth is largely offset by the increase in projected average occupancy for the year.

Eric Bolton: I will now turn the call over to Eric. Thanks Andrew and good morning. MAA's third quarter, FFO performance, was ahead of our expectations as the demand side of our business continues to capture good leasing traffic, low resident turnover, positive migration trends and strong collections performance. During the quarter, we did see a higher impact from new supply deliveries across several of our larger markets with the resulting impact showing up in pricing associated with new move-in residents.

Speaker 6: However, we have increased our guidance for same-store operating expense growth for the full year by 45 basis points to 6.5% at the midpoint, primarily reflecting the continued pressure in labor costs partially related to building higher occupancy. Both personnel and repair maintenance costs are expected to moderate more as we move into 2024.

However, we have increased our guidance for same store operating expense growth for the full year by 45 basis points to six 5% at the midpoint, primarily reflecting the continued pressured and labor costs, partially related to building higher occupancy.

Both personnel and repair and maintenance costs are expected to moderate more as we move into 2024.

Speaker 6: While we maintained our full year guidance range for real estate taxes, we are impacted by some timing-related pressure during the fourth quarter as some of the initial favorability related to the Texas rate reduction is essentially offset by delays in litigation related to high valuations, which is being pushed into next year. We do expect real estate taxes overall to continue moderating over the next couple years as we work through the changing cap rate environment.

While we maintained our full year guidance range for real estate taxes were impacted by some timing related pressure during the fourth quarter as some of the initial favorability related to the Texas rate reduction is essentially offset by delays in litigation related to high valuations, which is being pushed into next year. We do expect real estate taxes overall to continue moderating over the next couple of years.

Eric Bolton: While we continue to believe that MAA's unique market diversification, a more affordable rent structure and an experience and capable operating platform, will enable us to push back against some of this supply pressure. The high volume of new deliveries in several markets will continue to weigh on rent growth associated with new resident move-ins for the next few quarters. Encouragingly, there is now clear evidence emerging that new supply deliveries are poised to meaningfully drop late next year into 2025.

As we work through the changing cap rate environment.

Speaker 6: We also reduced our total overhead cost projection for the year by $2 million to $126.5 million at the midpoint. And we removed our disposition expectations for the current year to reflect the current market conditions. So that's all that we have in the way of prepared comments. Brittany will now turn the call back to you for questions.

We also reduced our total overhead cost projection for the year by $2 million.

$126 5 million at the midpoint and.

We removed our disposition expectations for the current year to reflect the current market conditions.

Eric Bolton: We have certainly worked through these supply cycles before and continue to believe that MAA's more extensive market and sub-market diversification, new AI and technology tools and an experienced operating team has us in a position to outperform our markets. As we have discussed previously, one of the benefits that typically emerges from a heavy supply cycle, particularly one that is characterized by higher interest rates is an increasing volume of acquisition and external growth opportunities.

So that's all that we have in the way of prepared comments Brittney, we'll now turn the call back to you for questions.

Yes.

Speaker 1: We will now open the call up for questions. If you would like to ask a question, please press the star and the number one on your touchtone phone. If you would like to withdraw your question, you may press the pound key. We will take our first question from Michael Goldsmith with UBS. Your line is open.

We will now open the call up for questions have you would like to ask a question. Please press star one on your Touchtone phone and you would like to withdraw your question. Please.

Well take our first question from Michael Goldsmith with UBS. Your line is open.

Speaker 7: Good morning, thanks for taking my question. My question just on the impact of the merchant builders delivering a draw, fire supply, higher rate environment, it seems like it's changed the least of strategies. So thank you.

Good morning. Thank you for taking my question. My first question is just on the impact of the of the merchant builders delivering into a higher supply higher rate environment. It seems like it's changed the lease up strategy.

Eric Bolton: We have seen a shift take place with seller and developer pricing expectations. The more challenging lease of conditions coupled with higher interest rates that are likely to be with us for a while are generating more buying opportunities. As Brad will recap in his comments, the property acquisition we completed after quarter end is a good example of where we expect more opportunities to emerge specifically, a recently completed new development that is still in initial lease up with seller requirements to close within a short time frame.

Yes.

Speaker 7: Is the largest impact here that rental rates have moved lower and will remain lower longer? And so I guess then initial expectations, so will this, does this create more pressure in the near term and also for longer? Or is it just kind of a lower dip before it gets better, kind of seems like back half of 24, early 25?

The largest impact here that the rental rates.

The low hanging fruit.

Lower.

We will remain lower for longer.

And so I guess than the initial expectation so will this.

This is to create more pressure in the near term and also for longer or is it just kind of a lower before it gets better it kind of seems like back half of 'twenty four 'twenty five.

Speaker 4: I mean, I don't think it necessarily means longer, I think what did happen as we talked about it. It happened a little bit quicker, and I think the comments I made about the treasury and developers get more aggressive.

Eric Bolton: Before turning the call over to the team to provide details surrounding our performance and market conditions, let me summarize what I believe are the four key takeaways in our report. First, demand across our markets remains solid and supportive of steady absorption of the new supply. Secondly, current high levels of new supply coupled with developer pressures related to a higher industry environment will cause the leasing environment to remain competitive. For the next few quarters, with new supply pressures expected to then decline.

I mean, I don't think it necessarily mean longer I think what what did happen as we've talked about it it happened a little bit quicker than I think the comments I made about the treasury and developers get more aggressive calls that that moderation in new lease rates to occur a little bit earlier than we would've thought or a little bit quicker rally.

Speaker 4: cause that moderation in 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

But we don't see.

Much further deceleration I think what we see is with renewal rates continuing to be strong we're getting.

Speaker 4: 5% on what we've sent 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.

5% on what we've what we've.

Set out or what we've what we've got acceptance on for November and December in the 5% range the spread between new lease rates renewal rates.

Eric Bolton: We expect to see an increasing number of compelling external growth opportunities in 2024. And fourth, MAA's long track record of performance and experience and working with markets with higher demand and supply dynamics. Now, further supported by a stronger technology platform and a strong balance sheet with significant capacity has a company a very well position as we work through this. Thank you, Eric.

Pretty typical honestly for this time of the year and tends to gap out both.

Speaker 4: both in Q4 and Q1. I think as you get into later into 2024 there'll be some normal seasonality that'll narrow that gap but we'll be in this this supply environment for the next few quarters but don't don't expect materially worsening from here.

Both in Q4 and Q1.

You can get into later into 2024 there'll be some normal seasonality and then I'll narrow that gap will be in this.

For the next few quarters, but don't don't expect materially worsening from here.

Speaker 7: Got it. And are you seeing any difference in the performance between your class B properties, which are pretty steady discounted supply versus the class A, which should be competing more in line with where the new supply is coming in? Like, where's the pressure hitting the hood?

Got it and are you seeing any difference in the performance between year class B properties, which are priced at a discount to supply versus the class, a which would be competing more in line with where.

Brad Hill: Good morning, everyone. As anticipated, we saw an increase in 4 cell 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 2 to 2.

The new supply is coming in like whereas the pressure hitting numbers. Thank you.

Speaker 4: At a portfolio level, we're not seeing a huge difference between the performance of A's and B's. 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 plus, A minus assets where that gap is narrowed. But I do think that creates some opportunity longer term. Those new developments are going to have to stabilize at some point at higher rents, and that will create some opportunity there.

At a portfolio level, we're not seeing a huge difference between the performance of <unk> I will say at a market level with some of our larger markets that are getting more of the supply we're seeing a little more pressure on some of those b plus a minus assets for that gas has narrowed.

Brad Hill: 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 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 seller.

We think that creates some opportunity longer term that as new developments are going to stabilize at some point at higher rents and that will create some opportunity there.

Speaker 3: But in some of our more mid-tier markets and smaller markets that aren't getting quite the supply pressure, we're not seeing that pressure. And I think it's worth noting that even at the

Some of our more mature markets and smaller markets that are getting quite the supply pressure. We're not we're not seeing that pressure and I think it's worth noting that even if the if the.

Speaker 8: The use of concessions is happening by some of the merchant developers in the third quarter the price gap between What we're seeing of the new product delivering in the market with those concessions as compared to the average rent Our portfolio is still a spread of $300. That's down a little bit from 350 that we we saw in Q2 But it's still pretty healthy spread there

The use of concessions that's happening by some of the merchant developers in the third quarter the price gap between what we're seeing of the new product delivering in the market with those concessions as compared to the average rent in our portfolio is still a spread of $300 that's down a little bit from $3 50 that we saw in <unk>.

Brad Hill: 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.

Q2, but it's still pretty healthy spread there.

Thank you very much good luck in the fourth quarter.

Okay.

Speaker 9: Thank you. We'll take our next question from Austin Warschmidt with eBank. Your line is open. 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.

Thank you we'll take our next question from Austin work Smith with Keybanc. Your line is open.

Thank you.

Last quarter, Eric you had mentioned that he really didn't expect new lease rate growth to drop off and kind of highlighted that demand remains strong. So I guess is it just been the cumulative impact of supply and concessions on lease ups, that's driven the softness in.

Brad Hill: Our transaction team is very active in evaluating other acquisition opportunities across our footprint. An Allen Clay have our balance sheeting 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 continue to deliver strong performance, producing higher NOIs and earnings than forecasted creating additional long term value for the company.

And really how does that change your view around how 2020 for market rent growth could shape up.

Well Austin I think that is.

As Tim alluded to I mean, the thing that frankly was a little bit surprising in the third quarter was.

Speaker 8: the more aggressive practices taking place by some of the merchant developers that was directly impacting some of our product in some of the larger markets. We do think that there's interesting we were looking at just sort of what happened during the third quarter in terms of the sort of rapid ramp up in the junior treasuries and I think as developed

The more.

More aggressive practices, taking place by some of the merchant developers that was directly impacting some of our product and some of the larger markets. We do think that there's it's interesting we were looking at just sort of what happened during the third quarter in terms of the sort of rapid ramp up in the 10 year treasuries and.

Brad Hill: 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 out performance, 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 and Austin, and we expect this community to stabilize this quarter.

And and I think as developers are facing particularly merchant builders, who are facing a more competitive leasing landscape with the reality of a prolonged high interest rate environment.

Speaker 8: are facing particularly merchant builders who are facing a more competitive leasing landscape.

Speaker 8: With the reality of a prolonged high interest rate environment, there was a motivation, if you will, to get pretty darn aggressive in trying to get leased up before we got into the holiday season. And so that affected market dynamics in some of our markets and I think, you know, caused new lease pricing to moderate a little quicker.

There was a.

Brad Hill: We continue to advance pre-development 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 the number of markets, in the 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 costs 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.

Our motivation if you will to get pretty darn aggressive in trying to get leased up before we got into the holiday season, and so that affected market dynamics in some of our some of our markets and I think <unk>.

Cause new lease pricing to moderate a little quicker than than we would have otherwise thought just because these merchant builders are a little bit of a urgency to get get stabilize sooner rather than later.

Speaker 8: than we would have otherwise thought just because these merchant builders are a little bit of an urgency to get stabilized sooner rather than later.

Speaker 8: And so I think that, you know, that performance we think likely, you know, probably continues at some level, probably for the next couple of quarters or so. As Tim mentioned, we don't, given the strong absorption that we see happening overall across our markets, it's hard to see it getting

And so I think that that that that.

The performance, we think likely.

Brad Hill: 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 3,700 units.

Probably continues at some level probably for the next couple of quarters or so as Tim mentioned, we don't but given the strong absorption that we see happening overall across our markets, it's hard to see it getting.

Speaker 8: you know, any worse than what we kind of saw in Q3. And then, you know, we're encouraged by the fact that October performance in the normal seasonal pattern that we see from Q3 to Q4, frankly, is better than what we have seen in the past. So, I mean, there are reasons for us to feel that, you know, we think that the environment we find ourselves in right now is likely to sort of continue for a while, probably through, I'm guessing through Q2 of next year.

Any any any worse than what we kind of saw in Q3 and then yeah. We're encouraged by the fact that October performance and the normal seasonal pattern that we see from Q4 to Q2 Q3 to Q4, frankly is better than what we've seen in the past. So I mean, there are reasons for us to feel that that we see.

Brad Hill: 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 pre purchased 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 and pre development, our construction management team is focused on completing and delivering our remaining five under construction projects.

That the environment, we find ourselves in right now is likely to sort of continue for a while probably through I'm guessing through Q2 of next year.

Speaker 8: By the time we get to Q3 of next year, comparing against this year, we think that the things start to feel a lot more comfortable. Now we'll have the compounding effect.

By the time, we get to Q3 of next year, we're comparing against this year, we think that the.

The things start to feel a lot more comfortable now will have the compounding effect of Q3, Q4, Q1 that will have to carry and kind of walk through revenue performance through most of next year, but but we think that there's arguments to be made that the supply demand dynamics that we see taking place right now are likely.

Speaker 8: of, you know, Q3, Q4, Q1 that we'll have to carry and kind of work through revenue performance through most of next year. But we think that there's arguments to be made that the supply demand dynamics that we see taking place right now are likely just going to hang where they are for the next few quarters, but not get materially weaker.

Ah hang where they are for the next few quarters, but not get materially weaker.

Brad Hill: During the third quarter, the team successfully wrapped up construction on novel West Midtown in Atlanta, completing the delivery of all 340 units.

Got it.

So.

I guess that kind of went to my second question was it sounds like.

Speaker 9: question was it sounds like you know you think demand remains stable from here which has actually been you know fairly strong I think even accelerated the last couple

Demand remained stable from here, which has actually been fairly strong I think even accelerated the last couple of quarters and help to absorb some of this supply.

Tim Argo: That's all I have in the way of prepared comments, so with that, I'll turn the call over to Tim. Thanks, Brad, and good morning. Same-store revenue growth for the quarter was essentially in line with our expectations with sequentially higher occupancy, offsetting sequentially declining new lease pricing, increasing supply pressure did impact pricing in some of our markets, resulting in blended lease of lease pricing of 1.6%.

Speaker 9: I mean, is it fair to say that you think you get some level of market rent growth, you know, positive next year, despite kind of this...

I mean is it fair to say that you think you get some level of market rent growth positive next year.

<unk> kind of this cumulative impact based on your thoughts on on how demand shakes out.

Speaker 8: Yeah, we do. I mean, assuming that, you know, the economy continues to hold up as it is, we continue to capture the sort of tailwind that we're seeing with low resident turnover, lower levels of moveouts to buy homes.

Yes, we do I mean, assuming that the economy continues to hold up as it is we continue to catch capture the sort of tailwind that we're seeing with low resident turnover lower levels of move outs to buy homes collections.

Tim Argo: Comprises of new lease rates declining 2.2% and renewal rates increasing 5%. Average physical occupancy was 95.7% resulting in revenue growth of 4.1%. The various metrics we measure related to demand remain strong. Employment markets remain stable with continued job growth across our Sunbelt markets. Net positive migration trends to our markets continue with moving through our footprint well ahead of move outside of our footprint and remain consistent with what we have seen in the last several quarters.

Speaker 8: I mean, there's just, you know, as I've said for many, many years, you know, to me, at the end of the day, what really drives performance over the long haul is the demand side of the business. And that's why we've always focused our capital in the way we have across these Sunbelt markets, believing that the demand dynamic, you know, continues to provide a foundation for how we like to create value and drive performance over a long period of time.

Continue to remain strong I mean, there is just.

As I've said for many many years.

To me in the end of the day, what really drives performance over the long haul is the demand side of the business and that can in these that's why we've always focused our our capital in the way we have across the sunbelt markets, believing that the demand dynamic continues to provide.

Our foundation for how we like to create value and drive performance over a long period of time, we have to deal with this periodic supply pressure.

Tim Argo: Resident turnover was down once again in the third quarter, a 4% decrease from prior year. Collections remain strong and consistent with prior quarters. Our new resident rent income ratio remained low and in line with prior quarters and our lead volume is consistent with what we would expect and in line with pre-pandemic levels. But as mentioned, we did feel the impact produced supply in the third quarter, which manifested itself in lower new lease pricing, particularly beginning in August and September.

Speaker 8: Yeah, we have to deal with this periodic supply pressure that comes from time to time. And that's kind of what we're dealing with right now. But because of the demand side being as strong as it is, the absorption continued to be where it is. And...

That comes from time to time, and that's kind of what we're dealing with right now, but but because of the demand side being as strong as it is absorption continues to be where it is and.

Speaker 8: because of the approach that we take with diversification across the region, we think there are things that we can do to help sort of mitigate some of the supply pressure that you otherwise might think would, you know, if you look at just overall market dynamics, we think that when you put the portfolio together the way that we have, that we can push back against some of these supply pressures when they do occur from time to time.

Because of the approach that we take with diversification across the region. We think there are things that we can do to help sort of mitigate some of the supply pressure that you otherwise might think.

Tim Argo: This pressure was driven by higher concessioned uses by developers in many of our markets with a resulting reduction in net pricing in the number of our direct market costs. This peer pricing move and obviously does impact market pricing and impacts our asking rent. We believe the lingering higher interest rate environment with the 10-year treasury moving up quickly in the third quarter is driving merchant developers to get more aggressive on pricing and is creating some pockets of pricing pressure.

If you look at just overall market dynamics, we think that when you put the portfolio together the way that we have that we can push back against some of these supply pressures when they do occur from time to time, So I think that we do.

We think that as we get into the back half of next year that we probably do start to see in supply supply levels start to moderate and in some of the developer pressure start to moderate we probably do start to see market rent growth turned positive on the new lease pricing and then as Tim mentioned, we continue to.

Tim Argo: Historically, with typical seasonality, pricing trends, pricing tens to moderate some in Q3 as compared to Q2, and then moderate quite a bit more from Q3 to Q4, typically in the 200 basis point range. While we did see a greater degree of moderation in the third quarter is compared to the second quarter. With the solid demand factors mentioned previously, we expect less moderation than normal from Q3 to Q4. October to date, blended lease over lease pricing is zero, which is within 10 basis points what was achieved in September, and a lower rate of decline than the more typical 60 basis points.

Get pretty solid performance on a renewal practices and if you go back over a number of years Youll see that our renewal practices have always been fairly strong and we take.

Speaker 8: fairly strong and we take

Speaker 8: You know, a certain approach to how we think about renewal pricing and, you know, we can change you to believe that that will remain a tailwind for us over the over the coming year.

There's a certain approach to how we think about renewal pricing and yes. We continue to believe that that will remain a tailwind for us over the over the coming year.

Thanks, Eric I appreciate the detailed response.

Okay.

Speaker 1: Thank you. We'll take our next question from Eric Wolfe with City. Your line is now open.

Thank you we'll take our next question from Eric Wolfe with Citi. Your line is now open.

Tim Argo: Average physical occupancy for October of the day remained strong at 95.6% with exposure, which is a combination of current vacancy and units on notice of AK, about 6.9% an in line with October of last year. In addition to the demand factors mentioned, increased absorption through the third quarter in the Sunbelt markets provides further evidence of continued solid demand to help mitigate the impact of the continuing new deliveries. The amount of new supply that was absorbed in the third quarter in our markets was the highest it has been since the beginning of 2022.

Speaker 10: Hey, thanks. I just wanted to follow up on that answer there. You said that you don't expect newly straight to get much worse from here. So 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 I continue to Q2 next year? Because it sounds like you're saying that. But the dynamic you're seeing today should continue to Q2 and then probably get better and to get in the back half of the year.

Okay.

Hey, Thanks, I just wanted to follow up on that on that answer. There. You said that you don't expect new lease rates to get much worse from here. So don't want to put words in your mouth, but does that mean youre sort of expecting like negative four to negative 5% new lease for the foreseeable future and should that continue through Q2 next year, because it sounds like youre, saying that with the dynamic.

Speaker 4: 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 percent new lease for the foreseeable future? And should that continue through Q2 next year? Because it sounds like you're saying that the dynamic you're seeing today should continue to Q2 and then probably get better as you get in the back half of the year. Hey, Eric. This is Tim. I mean, I do think new lease rates probably hang in this range for a few months. You know, obviously typically Q4 and Q1 are kind of the weakest in terms of seasonality and the amount of traffic.

Today as you continue to <unk>, and then probably get better as you get into the back half of the year.

Speaker 8: Hey, Eric, this is Tim. I mean, I do think new lease rates probably hang in this range for a few months. You know, obviously typically Q4 and Q1 are kind of the weakest in terms of seasonality and the amount of traffic and all that. But I do think we will see some level of, and Eric hit on this a little bit, some level of normal seasonality as we get into later into 24. So I think as we get into March and April and the spring and higher traffic volumes, that we'll see some acceleration in those new lease rates. And I don't expect much change in renewals. We've been pretty consistent with our renewal rates going back for several years. We think those will hold up, and we think the turnover rate remains low, which, you know, provides the renewal side with more of that blend when you think about blending lease over lease rates. So I think we're going to be in this range for a few months, but I don't think it sticks like that, you know, for the next 12 months or so. And we typically see the gap between new lease pricing and 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.

Hey, Aaron this is Tim.

I do think new lease rates probably Amos.

Tim Argo: Despite the new supply pressure in some markets, our unique portfolio strategy to maintain a broad diversity of markets, submarkets, asset types, and price points is serving as well with many of our mid-tier markets leading the portfolio and pricing performance both in the third quarter and into October. Savannah, Charleston, Richmond, Greenville, and Raleigh are examples of markets outperforming larger metrics with more new supply pressure such as all-centred Phoenix. We expect that this market diversification combined with the continued strong demands fundamentals noted earlier will help continue to mitigate some of the impact of new supply as compared to the West the first five portfolio.

Range for a few months, obviously typically Q4 and Q1 are kind of the weakness in terms of seasonality and the amount of traffic and all of that but I do think we will see some level.

And Eric hit on this a little bit of some level of normal seasonality as we get later into 'twenty four so I think as we get into March and April in the spring and higher traffic volumes that we will see some some acceleration in those new lease rates and I don't expect much change in renewals, we've been pretty consistent with our renewal rates going back for several years.

Years, we think those will hold up and we think the turnover rate remains low which.

Tim Argo: Regarding redevelopment, we continued our various product upgrade initiatives in the third quarter. For the third quarter of 2023, we completed nearly 2,300 interior unit upgrades in our nearing completion on the smart home initiative with over 92,000 units now with this technology. For our redesisting program, we have five active projects that have either begun repricing or will begin repricing in the fourth quarter with expected deals in the 8% range. Additionally, we are evaluating an additional group of properties to potentially begin construction later in 2023 for early in 2024 with the target to complete by early 2025. That's all I have in the way of preparing comments.

The renewal side with more of that Glenn when you think about blended lease over lease rate. So I think we're going to be in this in this range for a few months, but I don't think its things like that in the next 12.

And we typically see the gap between new lease pricing 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 patterns likely to repeat next year.

Speaker 10: That's really helpful. And I guess that's my second question, which is that historically I think you said there's been about five to 600 basis points of spread on undernules versus new leases. There's nothing that would sort of change that just based on the supply dynamic today. It's not going to get wider or ordinarily thin areas. It's probably going to be about the same spread as typical.

Got it that's really helpful.

I guess that that's my second question, which is that you know historically I think you've said there's been about five to 600 basis points of spread on renewals versus new leases theres nothing that would sort of change that just based on the supply dynamic today, it's not gonna get wider ore or necessary. There. It's just it's probably going to be about the same spread as it's typical.

Clay Holder: I'll now turn the call over to play. Thank you, Jim, and good morning. Reporting for the quarter of $2.29 per share was three cents per share above the midpoint of our guidance. The outperformance was primarily driven by favorable interest and overhead calls 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 all set by the moderation of effective rent growth on new move-in leases that Tim mentioned.

Speaker 10: Yeah, and the clarifier puts 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 base point range. Kind of similar to what we're seeing right now. And then squeeze down a call at 7800 and Q1 and then get more of that 500 base point range during the heart of the spring and summer. I don't really see, you know, that's the normal seasonality and we would expect that to be a good time to recover some levels. Got it. Okay. Thank you.

Yes.

And to clarify or put some color on that that 500 spread for us typically is what it is in the summer kind of Q2 Q3 range with renewables remaining pretty consistent historically Q4, Q1 Q4 is usually the biggest.

Usually in the 900 basis point range kind of similar to what we're seeing right now and then squeezed down to call. It seven 800 in Q1, and then get more in that 500 basis point range. During the heart of the spring and summer I don't really see.

Clay Holder: 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 calls came in higher than expected, primarily due to higher contract labor calls and higher lease and commissions, which helped drive the improvements in occupancy. The personnel calls 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's the normal seasonality, we would expect that.

Some of them to recur in some levels.

Got it okay. Thank you.

Speaker 11: Hey, you, Kio, we'll take our next question from Jamie. Fileman with both Fargo. Your line is open. Great. Thank you. And thanks for taking my question. So it sounds like you could see a ramp up here in acquisition, activity, investment activity. You know, you would mention being in acquisition at 317, for 317,000 per unit. You also talked about 5 1 1 2. And yield. And you think about field. I mean, what are the metrics that you care about? Is it price for units? Is it ASO accretion? Is it NAV accretion? And then how do you think about your cross the capital and the required spread to your cross the capital to put money to work?

Thank you we'll take our next question from Jamie Feldman with Wells Fargo. Your line is open.

Great. Thank you and thanks for taking my question. So it sounds like you could see a ramp up here in acquisition activity investment activity.

Clay Holder: 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 stronger turns and add to the quality of our portfolio. We also funded just over $47 million of development costs during the quarter. For the completion of the current $643 million pipeline, we had to pay $1 million.

Mentioned that Phoenix aggregating at 317.

17000 per unit you also talked about five 5% yield.

Do you think about deal I mean, what are the metrics that you care about is the price per unit is the <unk> accretion NAV accretion.

And then how do you think about your cost of capital and the.

Our required spread to your cost of capital to put money to work.

Speaker 8: Well, I mean, you know, I mean, the thing that we really prioritize more than anything is sort of what sort of stabilize yield.

Well I mean, I mean, the thing that we really.

Clay Holder: 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 in maturing debt, utilizing cash on our balance sheet and our commercial paper program.

Prioritize more than anything is sort of what sort of stabilize yield do we think we will get from making a new investment and how does that compare to our current cost of capital.

Speaker 8: Do we think we will get from making a new investment and how does that compare to our current cost to capital?

Speaker 8: And as you think about cost of capital to the day and look at where we are.

And as you think about.

Cost of capital today, and look at sort of where we are.

Speaker 8: able to put our balance sheet to work. It call it 5.5%. You think about...

Able to put our balance sheet to work at call. It five 5% you think about.

Speaker 8: you know, longer perspective on cost capital, you know, being a function of dividend yield and sort of FFO yield, core FFO yield. And you blend that. You're still in that kind of five and a half percent range. And so...

You know a longer perspective on cost of capital being a function of dividend yield and sort of.

<unk> yield.

Blend that you're still in that kind of five 5% range and so as we.

Clay Holder: Our current plan is to continue to be patient and allow interest rates and financing markets to stabilize before refinancing.

We think about this 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 tower long term to put that on the balance sheet.

Al Campbell: That's all I have for my prepared comments, and I'll turn it over to Al to discuss Q4 guidance. Thank you, Clay.

Al Campbell: Good morning, everyone. Given the third quarter performance, outlined by Clay, as well as expectations for the remainder of the year, we have updated and narrowed our guidance ranges for the year, which is detailed in the supplement to our release. Overall, the third quarter, Q4FFO, failure of building, primarily related to overhead and interest costs, is expected to be essentially offset by higher than projected same-store operating expenses for the remainder of the year, which I'll discuss a bit more in just a moment.

Initially.

Even though it's still in sort of the initial lease up to be able to break out on the balance sheet. It it 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. So from our revenue management practices and some of the cost efficiencies that will bring to bear on.

Speaker 12: its 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, you know, an operation that doesn't have those advantages, coupled with the fact, as Brad mentioned, this property is only less than half a mile from one of our other properties, and we will over the next year or so, you know, 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, you know, that we'll see that yield meaningfully go up from there. So, you know, we think at this point, you know, that that makes a lot of sense to us, and I think that, you know, we're going to continue to, we think, see more of that opportunity emerge over the coming year. Okay. And can you quantify?

Al Campbell: That's where maintaining the mid-border of our Q4FFO projection for the full year of $9.14 per share, which reflects a 7.5% growth over the prior year. The mid-border of our total revenue growth projection for the year remains unchanged as the expected impact of pricing moderation, which is reflected in effective rent growth, is largely offset by the increase in projected average occupancy for the year. However, we have increased our guidance for seems to are operating expense growth for the full year by 45 basis points to 6.5% at the mid-point, primarily reflecting the continued pressured and labor costs partially related to building higher occupancy.

An operation that doesn't have those advantages coupled with the fact as Brad mentioned this property is only it's less than a half a mile from one of our other properties and we will over the next year or so part of what we refer to as part of this property with the other and drive down some of the operating cost we think over the next couple of years, you know that we'll see that yield meaningful.

Speaker 8: We think over the next couple of years, you know, that we'll see that yield meaningfully go up from there. So, you know, we think at this point, you know, that makes a lot of sense to us. And I think that, you know, we're going to continue to, we think see more of that opportunity emerge over the coming year.

Really 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.

Speaker 11: Okay, and can you quantify how much you think the yield goes up with the revenue management and putting the MA touch on these assets?

Okay and can you quantify how much you think the yoga is that with the revenue management.

Al Campbell: Both personnel and repair maintenance costs are expected to moderate more as we move into 2024. While we maintained our full year guidance range for real estate taxes, we are impacted by some timing related pressure during the fourth quarter, as some of the initial favorability related to the Texas rate reduction, is essentially offset by the ladies and litigation related to high valuations, which is being pushed into next year. We do expect real estate taxes, overall, to continue moderating over the next couple of years as it worked through the changing caprod environment. We also reduced our total overhead cost projection for the year by $2 million to $126.5 million at the midpoint. And we removed our disposition expectations for the current year to reflect the current market conditions.

The MAA touch on these assets.

Speaker 8: You know, I'd probably put it at least a hundred basis point margin expansion to probably 200 somewhere in that range.

I'd, probably put it at least 100 basis point margin expansion to probably.

200 somewhere in that range.

Okay.

Speaker 11: And then secondly, you may have answered it with Eric's question, but just thinking about October , and what can you tell us about Brent, blended rent, new renewal rent so far in October .

And then secondly, you may have answered it.

Eric's question, but just thinking about October and then what can you tell us about rent blended rent new renewal rent so far in October.

Speaker 4: Yes, and so for October , as I mentioned, and the blended is right around zero that we're in about, negative five, three on New Least, and four on renewals as we stand right now.

Yes.

For October as I mentioned in our blended is right around zero and worrying about.

Five three on new lease and four four on renewals as we stand right now.

Al Campbell: So that's all that we have in the way of prepared comments.

Speaker 11: Okay. And then finally, for me, Atlanta specifically, can you talk about, I mean, you had kind of below average revenue growth there. Is that pressure on rents from supply? Or is that more about some of the issues you've mentioned in the past, fraud, you know, some of the other kind of unique factors to that market?

Brittany: Brittany will now turn the call back to you for questions. We will now open the call up for questions. If you would like to ask a question, please press the star under number one on your touchstone phone. If you would like to withdraw your phone, you may press the pound key.

Okay.

And then finally for me.

Atlanta, specifically can you talk about I mean, you had kind of below average.

Any growth there is that is that fair.

Pressure on rents on supply or is that more about some of the issues you've mentioned in the past fraud.

Michael Goldsmith: We'll take that first question from Michael Goldsmith with UBS. Your line is open. And so I guess an initial expectation.

Some of the other kind of unique factors to that market.

Speaker 4: Yeah, I mean, there's certainly a few unique factors in Atlanta and what you mentioned as part of that. I mean, pricing is a little bit weak. It's a little bit lower than I would say some of our portfolio average. They are 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 in the eye to the sea side.

Yes.

Certainly a few unique factors.

Atlanta, and what you mentioned as part of that.

Are you seeing pricing is a little bit weak.

A little bit lower than I would say is from our portfolio average they are 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 bit more on the occupancy side.

Speaker 4: 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, we talked about between the winter storm and the fire we had in Atlanta. We had a lot of down units that came on to our way first early seconds. So we were kind of working through that from an occupancy standpoint.

It is slowly improving we saw 40 basis points.

Eric Bolton: So will this this this is creating more pressure in the near term and also for longer or is it just kind of a lower gap before it gets better kind of seems like back half of 24 early 25. I mean, I don't think it necessarily means longer. I think what would did happen as we talked about it. It happened a little bit quicker. And I think the comments I made about the treasury and developers get more aggressive calls that that moderation and the least race to occur a little bit earlier than than we would have thought or a little bit quicker really.

The increase in occupancy from Q2 to Q3 in Atlanta.

A couple of unique circumstances that you mentioned one earlier, we talked about between the winter storm in a fire we had in Atlanta, we have a lot of down units.

Came on sort of late first early second.

Working through that.

Occupancy standpoint, and then that's been well documented by a lot of people some of the fraud concerns in Atlanta, and I think that's starting to work itself through as well in the core term, becoming a little more.

Speaker 4: And then has been well documented by a lot of people. Some of the fraud concerns at Atlanta. And I think that's starting to work itself through as well. The court term becoming a little more aggressive on that. And we've seen the number of skit-of-knicks 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 a lower term in terms of resident quality and ability to pay is much better. And we've also been able to in house training we've done and really focus on on fraud and account which seeing the number of people coming into the door. We think is with that scenario is much less which seen our.

A little more aggressive on that and we've seen skin.

Eric Bolton: But we don't see much further deceleration. I think what we see is with renew rates continuing to be strong. We're getting 5% on what we've what we've sent out or what we've what we've got acceptance on for November and December the 5% range. The spread between newly raised renew rates is pretty typical. Honestly, for this time of the year and tens of gap out both Q4 and Q1.

So we've 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 to in house training, we've done and really focus on fraud income we've seen.

The number of people coming into the door. We think is with that scenario is much less than we've seen are.

Speaker 4: The number of age balances we have in terms of residents is way down and just the amount of doing that we have in Atlanta is way down. So some U.S. circumstances there for sure, but we think it's headed in the right direction.

A number of age balances we have in terms of residents is way down and just the amount of joint wins, we had in Atlanta is way down.

Eric Bolton: I think as you get into later in the 2024, there'll be some normal seasonality that'll narrow that gap that will be in this supply environment for the next few quarters, but don't don't expect materially worsening from here. Got it.

Some unique circumstances, there for sure, but we think it's headed in the right direction.

Speaker 11: Okay, and as you think about those factors, is it if you pause on it being your largest market, and over the long term, is that a reason you'd want to shrink there or grow another market's more?

Okay and as you think about those factors does it give you pause on it being your largest market I mean over the long term is it.

Eric Bolton: And are you seeing any difference in the performance between your class B properties, which are pretty steady discounted supply versus the class A, which should be competing more in line with where the new supply is coming in? Like, where's the pressure hitting the hard. Thank you. At a portfolio level, we're not seeing a huge difference between the performance and A's and B's. I will say at a market level, some of our larger markets that are getting more of the supply.

Everything you'd want to shrink there to grow in other markets more.

Speaker 8: Well, I mean, we continue to look at all the markets. And we probably over the next number of years will probably see us continue to cycle some capital out of the Atlanta. It's going to be more driven by asset-specific decisions.

Well I mean, we continue to look at.

At all of the markets.

Probably over the next.

A number of years, you'll probably see us continuing to recycle some capital out of the Atlanta is going to be more driven by asset specific decisions.

Speaker 8: property-specific decisions. I mean, we continue to like the Atlanta market long-term. A lot of great, you know, job growth drivers and demand drivers in that market. It's like all the other markets. You know, 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

Uh huh.

Property specific decisions I mean, we continue to like the Atlanta market long term, there's a lot of great.

Eric Bolton: We're seeing a little more pressure on some of those B plus A minus assets for that gap is narrowed. I do think that creates some opportunity longer term that is new developments are going to stabilize at some point at higher rents and that'll create some opportunity there. But in some of our more new tier markets and smaller markets that aren't getting quite the supply pressure, we're not seeing that pressure. And I think it's worth noting that even if the use of concessions is happening by some of the merchant developers in the third quarter, the price gap between what we're seeing of the new product delivering in the market. With those concessions, as compared to the average rent, our portfolio is still a spread of $300. That's down a little bit from 350 that we saw in Q2, but it's still pretty healthy spread there.

Job growth drivers and demand drivers in that market is like all the other markets.

We'll go through periods of supply pressure from time to time, but the the demand dynamics there are pretty healthy and I think I think some of the things that Tim was alluding to that.

Speaker 8: 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 backlogged, if you will, and it's just taken 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.

We're unique to Atlanta really are attributable to some of the practices that we're adopting.

<unk> during the Covid years in the court systems, there got really sort of backlog if you will.

And it's just taken longer for that market to sort of work back to normal.

We see it happening, but we like we like the Atlanta market long term for sure.

Okay alright, thank you.

Unknown Executive: Thank you very much. Good luck in the fourth quarter. Thank you.

Speaker 1: Thank you. We will take our next question from Nick Yolaka with Gushabank Yolanda.

Thank you we will take our next question from Nick <unk> with Scotiabank. Your line is open.

Austin Wurschmidt: We'll take our next question from Austin Wurschmidt with T-Bank. Your line is open. 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 the man remains strong. So I guess it's just been the cumulative impact of supplying concessions on lease ups that's driven the softness and[inaudible] there's it's interesting. We were looking at just sort of what happened during the third quarter in terms of the sort of rapid ramp up in the junior treasuries and and and I think as developers are facing particularly merchant builders who are facing a more competitive leasing landscape with the reality of a prolonged high interest rate environment.

Speaker 12: Thank you. Good morning. I was hoping to get your lost police if you're able to quantify that.

Hi, Thanks, Good morning, I was hoping to.

Get your loss to lease if you're able to quantify that.

Speaker 4: Yeah, Nick, this is Tim. So a couple of comments there. If you look at sort of where

Yes.

So couple of couple of comments there if you look at sort of where where we are right now and whats going to earn in or be baked in for next year with pricing today, plus the pricing number assuming for Q4, probably a one to one and a quarter.

Speaker 4: Where we are right now and what's gonna 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 one and a quarter of baked in or earned in, if you will, little flow into 2024. Think about lost leads in just in terms of kind of where rents are right now.

Baked in our earned and if you will that will flow into 2024 talking about loss to lease and just in terms of kind of where rents are right now.

Speaker 10: It's probably about a negative one loss of lease given given what we've seen with Nilly's race right now. That's where I went to Pagot's in year and October . Okay, and it's very helpful.

Probably about a negative one off release, given given what we've seen with new lease rates right now, but that's where I would peg it sitting here in October.

Okay very helpful.

Speaker 12: Just wanted to question, going back to the acquisition in the five and a half percent.

Just one other question going back to the acquisition and the five 5%.

Speaker 12: initial stable yield. Is that number impacted by, you know, concessions reducing that yield? I don't know if there's any quantifier like whether that would be a, you know, higher yield absent, if there's concessions.

Initial stable yield is that number impacted by.

Concessions, reducing that yield if there's any way you can quantify like whether that would be a higher yield.

If theres concessions.

Speaker 3: Yeah, Nick, this is Brad. Yeah, I mean, that's inclusive of concessions. You know, 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, you know, your net effective rent. So assuming that we get the stabilization, we would see some strengthening there.

Yeah, Hey, Nick this is Brad yes.

Austin Wurschmidt: There was a motivation if you will to get pretty darn aggressive and trying to get leased up. Before we got into the holiday season and so that affected market dynamics and some of our some of our markets and I think you know caused a new lease pricing to moderate a little quicker than than we would have otherwise thought just because you know these these merchant builders are a little bit of urgency to get get stabilized sooner rather later and and so I think that that you know that that you know that performance we think likely you know probably continues at some level probably for the next couple of quarters or so as Tim mentioned we don't be given the strong absorption that we see happening overall across our markets.

That's inclusive of concessions you know the property is in lease up and its offering about a month to six weeks Jenny.

Generally on new leases and so that includes the impact of that so that would be your net effective rent. So.

Sumit that we get to stabilization, we would see some strengthening there.

Speaker 3: And the use of concessions would generally burn off on renewals. We're not generally using concessions on these properties. We would also see some expansion in that yield at that point.

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.

Okay, great. Thanks.

Speaker 1: Thank you. We will take our next question from John Kim with BMO. Your line is open.

Thank you we'll take our next question from John Kim with BMO. Your line is open.

Speaker 11: Thanks good morning. I was wondering if you could talk about the impact of rising interest rates on leasing demands and landlords' behavior. I know you commented that demand has been strong. You had the occupancy pick up in the third quarter. So when you discuss newly-screwed rates of minus 4% in September and minus 5.3 in October , it seems to come inside, which the interest rate environment just wanted to get your comments on that.

Thanks, Good morning.

I'm wondering if you could talk about the impact of rising interest rates on leasing demand and Glenn or behavior.

Austin Wurschmidt: It's it's hard to see it getting you know any any any worse than what we kind of saw in Q3 and then we know we're encouraged by the fact that that October performance in the normal seasonal pattern that we see from Q3. Q3 to Q4 frankly is better than what we've seen in the past so I mean there are reasons for us to feel that that you know we think that the environment we'll find ourselves in right now is likely to sort of continue for a while probably through I'm guessing through Q2 of next year by the time we get to Q3 of next year comparing against this year we think that the thing things start to feel a lot more comfortable now we'll have the compounding effect of you know Q3 Q4 Q1 that we have to carry and kind of work through revenue performance through most of next year but but we think that that there's arguments to be made that the supply demand dynamics is that we see taking place right now are likely just what I hang where they are for the next few quarters but not get materially weaker.

I know you commented that that demand has been strong you had occupancy pick up in the third quarter, but when you.

When you discuss new lease growth rates of minus 4% at September minus five three in October it seems to coincide with the interest rate environment I just wanted to get your comment on that.

Speaker 8: I think, you know, what we think is at play here is that in this environment, with a lot of these...

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.

Speaker 8: Properties currently in Lisa, the Lisa environment and the financing environment that they are facing today.

The lease up environment and the financing environment that they are facing today.

Speaker 8: is most assuredly not what they contemplated when they started construction two years ago.

Is most assuredly not with the contemplated when they started construction two years ago.

Speaker 8: And as a consequence of that, I believe that what is happening is that some of the...

And as a consequence of that.

I believe that what is happening is that some of the merchant built product is.

Speaker 8: 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 .

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.

Austin Wurschmidt: Got it. And so, 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 quarters and helped absorb some of this 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?

Speaker 8: because you know it's probably they're they're probably late in their timeline in terms of what they forecast and what they under wrote.

Cause it's probably they're probably in late in their timeline in terms of what they forecast and what they underwrote.

Speaker 8: And certainly they are going to face a 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 and interest rates.

And certainly they are going to face a exit or refinancing that is going to be different than what was contemplated and.

And while there may have been some early hope that we would start to see moderation in interest rates by this time and I think that that hope is now gone and we likely are in this rate environment. We're in today for quite some time moving forward. So I just think that all of that has combined to create.

Speaker 8: 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.

Austin Wurschmidt: Yeah, we do. I mean, assuming that, you know, the economy continues to hold up as it is, we continue to capture the sort of tailwind that we're seeing with low resident turnover, lower levels of moveouts to buy homes, collections continue to remain strong. I mean, there's just, you know, as I've said for many, many years, you know, to me, in the end of the day, what really drives, you know, performance of the long haul is the demand side of the business.

Speaker 8: So I just think that all that is combined to create, we knew in a highly supply environment that lease up pressure exists.

We knew in our highly supply our high supply environment that lease up pressure exist, 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.

Speaker 8: 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.

Austin Wurschmidt: And that can, in these, that's what we're seeing. That's why we've always focused our capital in the way we have across some belt markets, believing that the demand dynamic, you know, continues to provide a foundation for how we like to create value and drive performance over a long period of time. Yeah, we have to deal with this periodic supply pressure that comes from time to time, and that's kind of what we're dealing with right now, but because of the demand side being as strong as it is, the absorption continuing to be where it is.

Pricing practices in an effort to attract new residents and.

Speaker 8: and leasing traffic and so I think that that's what's it play here. I think that once we sort of work through this this scenario that you know it as we've been talking about the supply picture starts to get a lot better meaningfully better and you know we think that we just got to put our head down and operate through this for the next two in next couple of quarters or so.

And leasing traffic and so I think that that's what's at play here.

I think that once we sort of worked through this this scenario that.

As we've been talking about the supply picture starts to get a lot better meaningfully better and we.

We think that well.

We just got to put our head down and operate through this for the next two and next couple of quarters or so.

Speaker 11: Can you comment on your turnover rate, which declined 40 basis points and remains in your historically low level, and how you are able to maintain this turnover rate with all the new suppliers coming online, and if you're contemplating offering confessions on.

Can you comment on your turnover rate, which declined 40 basis points and remains near historically low levels and.

Austin Wurschmidt: And because of the approach that we take with diversification across the region, we think there are things that we can do to help sort of mitigate some of the supply pressure that you otherwise might think would, you know, if you look at just overall market dynamics, we think that when you put the portfolio together, the way that we have that we can push back against some of these supply pressures when they do occur from time to time. So I think that, you know, we think that as we get into the back half of next year that we probably do start to see supply, you know, supply levels start to moderate.

How are you.

We're able to maintain this.

Turnover rate with Albany supply that's coming online.

If you're contemplating offering concessions on it at all.

Speaker 8: I mean, as far as the turnover, I mean, we expect it. We certainly didn't really expect turnover to go 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-outs by house is way down. So we don't see that, you know, 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. And 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 side. Encouragingly, I'll add in the third quarter, the move-outs that we had that occurred due to rent increase.

Hey, John this is Pat.

As far as the turnover I mean, we expected.

I didn't really go up.

With all the factors, we see applying I mean between move out to buy a house and move outs for job change those are far and away. Our two biggest reasons for move outs and as expected.

Austin Wurschmidt: And some of the developer pressure start to moderate, we probably do start to see, you know, market rent growth, you know, turn positive on the newly pricing. And then as Tim mentioned, you know, we continue to get pretty solid performance on our renewal practices. And if you go back over, you know, a number of years, you'll see that our renewal practices have always been fairly strong. And we take, you know, a certain approach to how we think about renewal pricing and, you know, we can change you to believe that that will remain a tailwind for us over the over the coming year. Thanks Eric. Appreciate the detailed response. Thank you.

Move outs by our house is way down so we don't see that again, given the interest rate environment, we don't see that changing anytime near term some of the other things.

Move out our turnover last year are down so I would expect as we get into 2024 that theres not a lot of change in terms of turnover certainly no significant.

Increase in turnover.

So I think that serves us well in the renewable side that started when we needed to look and do anything more than we're doing now.

Encouragingly I'll add in the third quarter the move outs that we had that occurred due to rent increase.

Tim Argo: We will take our next question from Eric Wolfe with city. Your line is now open. Hi, thanks. I just want to follow up on that answer there. You said that you don't expect newly straight 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 I continue to Q2 next year, because it sounded like you're saying that with the dynamic exchange today, you continue to Q2 and then probably get better and you get in the back half of the year.

Speaker 8: were half of what they were in Q3 of last year.

Half of what they were in Q3 of last year.

Speaker 8: So, you know, what's really at play here on the turnover is just, you know, people are buying houses.

So.

Whats really at play here on the on the turnover is just people are buying houses.

Speaker 11: Great, thank you everyone and Al, congratulations on your retirement.

Great. Thank you everyone and al Congratulations on your retirement.

Speaker 6: Yeah, thank you, John . I'm excited about the prospects of the future, but also excited about what the company is going to do the next few course years as well.

Yeah. Thank you John I'm excited about the prospects for the future I'm also excited about what the company is going to do the next next few quarters and years as well.

Speaker 1: You leave the company in good hands. Thank you. Thank you. We'll take our next question from Josh Daryen with Think of America.

He leaves the company in good hands. Thank you.

Thank you.

Thank you we'll take our next question from Josh <unk> with Bank of America.

Tim Argo: Hey, Eric, this is Tim. I mean, I do think new lease rates probably hang in this range for a few months, you know, obviously typically Q4 and Q1 are kind of the weakest in terms of seasonality and the amount of traffic and all that. But I do think we will see some level of an error on this little bit of some level of normal seasonality is we get into later in the 24 something because we get into March and April in the spring and the entire traffic volumes that will see some some acceleration in those new lease rates.

Speaker 13: Yeah, hey guys, just wanted to follow up on a comment you made. It sounded like you were a bit surprised just by the competition from the new supply. I guess, what is most surprising to you?

Yeah, Hey, guys.

Just wanted to follow up on a comment you made it.

Sounds like you're a bit surprised by that.

The competition from the new supply I guess I guess.

What is most surprising to you.

Speaker 8: but we're not surprised by the by the competition from the supply what was surprised by is

Well, we're not surprised by the by the competition from new supply, but we're surprised by is.

Tim Argo: And I don't expect much change of renewals. We've been pretty consistent with our renewal race going back for for several years. We think those will hold up and we think the turnover rate remains low, which provides the renewal side with more of that blend when you think about blend of lease or lease rate. So I think we're going to be in this range for a few months. I don't think it sticks like that for the next 12 months.

Speaker 8: how aggressive some of the merchant developers have gotten.

How aggressive some of their merchant developers have gotten.

Speaker 8: in an effort to expedite their lease up, sooner than getting stabilized as quick as possible. And as I comment on.

In an effort to expedite their lease up.

Sooner than is getting.

Getting stabilized as quick as possible.

I commented on we think that that is related to what is clearly now an indication relating to interest rate trends and we saw we saw the behavior with lease ups and concessions begin to shift a bit in August and September.

Speaker 8: We think that that is related to what is clearly now an indication relating to interest rate trends. And, I mean, we saw the behavior with lease ups and concessions begin to shift a bit in August and September as the 10-year treasurer really started moving up to 5 percent, close to 5 percent. And I think it just, you know, triggered an urgency in developers.

Tim Argo: And we typically see the gap between new lease pricing or new 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.

The 10 year treasure really started moving up to 5% close to 5% and I think it just trigger.

Tim Argo: Got it, that's really helpful. And I guess that's my second question, which is that historically I think you said there's been about five to six hundred basis points of spread on undernules versus new leases. There's nothing that would sort of change that just based on the supply dynamic today. It's not going to get wider or ordinarily dinner. It's just it's probably going to be about the same spread as typical. Yeah, and the clarifier put some color on that, that 500 spread for us typically is what it is.

Triggered a urgency and developers.

Speaker 8: that have leased up projects on the books to, you know, get stabilized and get out of it or get it, you know, as soon as possible. And so I think that that's what's at play here and that. And so the, the, that was probably the only thing that or it was the only thing I can point to that was a bit of a surprise. We expected demand to remain.

That have lease up projects on their books to get stabilized and get out of it or get it.

As soon as possible and so I think that that's that's what's at play here and that is so so the.

That that was probably the only thing that it was the only thing I can point to that that was a bit of a surprise we expected demand to remain.

Tim Argo: In the summer, it's kind of Q2, Q3 range with renewals remaining pretty consistent. Historically, Q4, Q1, Q4 is usually the biggest. It's usually in the 900 base point range, kind of similar to what we're seeing right now, and then squeeze down to call it 7800 and Q1, and then get more of that 500 base point range during the heart of the spring and summer. But don't really see, you know, that's the normal seasonality, and we would expect that to recur in some levels.

Speaker 8: Solid and it is as Tim alluded to our sorts the absorption numbers across our markets are you know really strong We've not seen any any any moderation on the demand side of the curve You know we knew the supply picture. I mean there was no secret about that I mean we we see that coming for the past year or so so no real surprises there

Solid and it is as Tim alluded to our absorption desorption numbers across our markets are really strong we've not seen any any any moderation on the demand side of the curve. We knew the supply picture I mean, there's no secret about that.

Unknown Executive: Okay, thank you.

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 just mentioned is that the.

Jamie Feldman: We'll take our next question from Jamie Feldman with both Fargo. Your line is open. Great, thank you, and thanks for taking my question. So it sounds like you could see a ramp up here in acquisition activity and that's an activity. You know, you would mention being exact position at 317 for 317 thousand per unit. You also talked about five and a half percent yield. And do you think about the yield? I mean, what are the metrics that you care about?

The recognition that the high rate environment, we found ourselves in an 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.

Speaker 13: and 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, you know, get, you know, drop pricing, introduce more concessions, higher concessions, drive down net effective pricing quicker, which affected market dynamics to some degree. Okay. I appreciate that, Collar. And maybe just a follow-up on that. If I think through it, I'm pretty sure peak deliveries are still in 2024. Is your assumption that this aggressive behavior kind of continues? Because, I mean, I would assume that there's more...

Get get dropped pricing introduce more concessions higher concessions drive down net effective pricing quicker, which affected market dynamics to some degree.

Speaker 13: Okay, appreciate that color and maybe just follow up on that if I if I

Okay I appreciate that color and maybe just a follow up on that if I may.

Jamie Feldman: Is it price per unit? Is it pay for full accretion? Is it NAV accretion? And then how do you think about your capital and the required spread to your capital to put money to work? Well, I mean, you know, I mean, the thing that we really prioritize more than anything is sort of what sort of stabilize yield. Do we think we will get from making a new investment? And how does that compare to our current cost of capital?

Speaker 13: I'm pretty sure peak deliveries are still in 2024.

It's really pretty sure peak deliveries or so in 2024.

Is your assumption that this aggressive behavior kind of continues because.

Speaker 13: Is your assumption that this aggressive behavior kind of continues?

Speaker 13: You know, I assume that there's more properties coming online and the interest rates keep going higher. They would want to...

Seeing that there's more properties coming online and interest rates keep going higher they would want to kind of lease up as quick as possible.

Speaker 13: we stop as quick as possible did you think that's cut competition gets

Do you think this competition gets.

Speaker 13: or is heavier in 2024? Maybe that's the question.

Or is.

Heavier in 2024.

Yeah. That's my question there.

Jamie Feldman: And, you know, as you think about cost of capital today and look at sort of where we are able to, you know, put our balance sheet to work. It call it five and a half percent. You think about, you know, longer perspective on cost of capital, you know, being a function of dividend yield and sort of FFO yield core FFO yield. And you blend that. You're still in that kind of five and a half percent range.

Speaker 8: You know, it's hard to say for sure, but the short answer is no. I don't think so.

Yes.

It's hard to say for sure, but the short answer is no I don't think so.

Speaker 8: or that is I think that where there is an urgency that's come into the equation and a higher level of urgency by developers.

For that is I think that where there is an urgency this come into the equation.

Then 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.

Speaker 8: 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 perhaps is at play here a bit. When you think about supply levels being where they are, we don't...

I think that you know that.

That perhaps is at play here a bit when you think about supply levels being where they are we don't.

Jamie Feldman: And so, you know, as we think about this 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, long term, to put that on the balance sheet. You know, initially even, you know, even though it's still in sort of initial lease up to be able to bring it on the balance sheet.

Speaker 8: you know, it's it's, you know, of course, it varies a lot by market. And, you know, we think that that the supply levels in 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.

It's of course, it varies a lot by market and.

We think that.

That the supply levels 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.

Speaker 8: And so it's hard to pinpoint it exactly, but I don't think that there is material change in the supply dynamic that we're seeing today.

Jamie Feldman: It basically right at our cost of capital with full understanding that we've got some real operating upside opportunity. 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, you know, an operation that doesn't have those advantages coupled with the fact as Brad mentioned. And this property is only it's less than half a mile from one of our other properties.

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.

Speaker 8: I don't think there's a material change and the demand dynamic that we see taking place today. I think, 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, you know, perhaps that there is some, at least some of them that are facing some calendar year and obligations that they're trying to think through as well.

I don't think there's a material change in the demand dynamic that we see taking place today.

I think Dan I think that the only change was if you will just.

That lease up pressure that I think some of the developers we're feeling given what's going on with interest rates and I think perhaps that there is some at least some of them.

Jamie Feldman: And we will over the next year or so, you know, pod what we refer to as pod this property with the other and drive down some of the operating cost. We think over the next couple of years, you know, that we'll see that yield meaningfully go up from there. So, you know, we think at this point, you know, that makes a lot of sense to us. And I think that, you know, we're going to continue to we think see more of that opportunity emerge over the coming year.

We are facing some calendar year in obligations that they are trying to think through as well.

Speaker 3: Josh, this is Brad. I'll add color in two ways to that. Number one is just remember that...

Hey, Josh this is Brad I'll add color in two ways to that number one is just to remember that <unk>.

Speaker 3: Developers are incentivized to lease up and sell quickly. Their IRRs are impacted.

Developers are incentivized to lease up and sell quick quickly. They're irr's are impacted obviously the sooner they sell an asset and I think partly what's happened on these.

Jamie Feldman: Okay, and can you quantify how much you think the yield goes up with the revenue management and putting the MA touch on these assets? You know, I'd probably put it at, you know, at least a hundred basis point, Mars expansion to probably 200 somewhere in that range. Okay, and then secondly, you may have answered it with Eric's question, but just thinking about October, I mean, what can you tell us about? Rent, you know, blended rent, new renewal rent so far, not October?

Speaker 3: Obviously the sooner they sell an asset and I think partly what's happened on these projects is according to our math, you know, generally they have to be about 90% occupied to cover their current debt service coverage through their cash flow without having to go back to their partner and ask for capital. So I to Eric's point, I think once the 10 year hit that psychological level of 4%

Projects is according to our math generally they have to be about 90% occupied to cover their current debt service coverage through their cash flow without having to go back to their partner and ask for capital So to Eric's point I think once.

The 10 year hit that psychological level of 4%.

Speaker 10: It was a realization that sales values are gonna be impacted so the sooner they could get to that point, the better for their IRR calculations and also for the waterfalls in those projects. So I think that's driving to Eric's point by the end of the year and a quicker process of leasing up the cover debt service coverage and get to the point where they could transact, you know, the asset in order to drive higher waterfall promotes to themselves.

It was a realization that <unk>.

Sales values are going to be impacted so the sooner they could get to that point the better for their IRR.

Calculations and also for the waterfalls in those projects. So I think that's driving to Eric's point by the end of the year and a quicker process of leasing up to cover debt service coverage, you can get to the point, where they could transact.

Jamie Feldman: Yes, and so for October, as I mentioned, and the blended is right around zero, we're in about negative five, three on New lease and four, four on renewals, as we stand right now. Okay, and then finally, for me, Atlanta, specifically, can you talk about, I mean, you had kind of below average revenue growth there. Is that, is that pressure on rent from supply, or is that more about some of the issues you mentioned in the past, fraud, you know, some of the other kind of unique factors to that market?

The asset in order to drive higher waterfall promotes to themselves.

Alright, thanks, guys.

Speaker 1: Thank you and we will take our next question from John Pawlowski with Green Street. Your line is open.

Thank you and we will take our next question from John Pawlowski with Green Street. Your line is open.

Speaker 14: Thanks. Good morning. Clay, do you expect any notable acceleration or deceleration in the major expense categories throughout the next year?

Thanks, Good morning, Clay do you expect any notable acceleration or deceleration in the major expense categories throughout the next year.

Jamie Feldman: Yeah, 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. They are 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 in the occupancy side.

Speaker 5: We do expect that there will be some moderation and operating expenses going into next year. You saw on the report that personnel costs and repair and maintenance costs were higher than what we had expected or projected. But we still do expect that those to continue to moderate as we move into next year.

We do expect that there'll be some moderation in operating expenses going into next year you saw in the report that.

Personnel costs, and repair and maintenance cost where were higher than what we had expected or projected.

But we still do expect those to continue to moderate as we move into into next year.

Jamie Feldman: 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. Earlier in the year, we talked about between the winter storm and the fire we had in Atlanta, we had a lot of down units that came on to our way first early seconds. We were kind of working through that from an occupancy standpoint, and then has been well documented by a lot of people, some of the fraud concerns in Atlanta, and I think that's starting to work itself through as well.

Speaker 14: It's roughly 6% property tax growth rate. You expect it to kind of bounce around this level for the foreseeable future.

Okay.

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

Speaker 5: Probably, that will probably moderate a little bit as well, you know, as this current environment that we're seeing with high prices and valuations, as those begin to kind of taper down, that should work its way through the real estate taxes. And so we'd expect to see some moderation there as well. How fast that will play through, that remains to be seen.

Probably that will probably moderate a little bit as well.

Is this current environment.

<unk> that we're seeing with high prices evaluations as those begin to kind of taper down that should work its way through the real estate taxes, and so we'd expect to see some moderation there as well how fast that'll play through that remains to be seen.

Speaker 4: Okay. Last one from AID Tim. So, you can give us a sense for what newly declined and October looked like in a few of the most heavily supplied markets. I'm just curious what kind of bottom Toronto portfolio looks like today. New lease rates are October that.

Okay last.

Jamie Feldman: The courts are becoming a little more aggressive on that, and we've seen the number of skip of nicks that we've had in that market is about double from where it was last year. So, creating some pressure in the short term on occupancy, but certainly a lower term in terms of resident 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 and account we've seen the number of people coming into the door.

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

New lease rates for October.

You are saying.

For the for that most heavily supplied markets.

Speaker 4: Yeah. I mean, Austin continues to be the worst. We've talked about that for a while. Austin is in the high negative single digits and is our worst market in terms of new lease pricing. You know, we're, like I said, same store level. It's right around three or right around five for October . Tampa's a little bit higher, but Austin is the one that kind of stands out above all.

I mean, Austin content continues to be the worse that we've talked about that for a while Austin is high.

Jamie Feldman: We think with that scenario is much less, and we've seen a number of age balances we have in terms of residents is way down, and just the amount of doing that we have in Atlanta is way down. So, some unique circumstances there for sure, but we think it's headed in the right direction. Okay, and as you think about those factors, is it if you pause on it being your largest market, and over the long term, is that a reason you'd want to shrink there or grow another market's more?

High negative single digits, and as our worst market in terms of new lease pricing.

We are in the 5% same store level is right around right around five.

Over.

Tampa is a little bit higher.

Austin is one that.

Kind of stands out.

Paul.

Okay. Thank you.

Speaker 1: Thank you. We will take our next question from Brad Heffern with RBC Capital Market. Your line is open.

Sure.

Thank you we'll take our next question from Brad Heffern with RBC capital market. Your line is open.

Jamie Feldman: I mean, we continue to look at all the markets, and we probably, over the next number of years, you'll probably see us continue to cycle some capital out of the Atlanta. And 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. You know, they will go through periods of supply pressure from time to time, but the demand dynamics there are pretty healthy.

Speaker 4: It seems like the message here is that there are a few weak quarters ahead, but that things are expected to get better in the back half of 24. I'm just curious if you can get more color around what gives you confidence in that timing. You do obviously have supply peaking in mid-24, but it does still look elevated into 25. And then the lease-ups don't end when the deliveries fall off. So I'm curious for any thoughts there.

Hey, good morning, everybody. It seems like the message here is that there are a few weak quarters that had but things are expected to get better in the back half of 'twenty. Four 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 'twenty four but it does still look elevated into 25, and then the lease up down and when the deliveries.

Fall off so curious for any thoughts there.

Speaker 8: Well, I think that, you know, what I would point to Brad is that the Syracuse just, you know, we continue to see a lot of support on the demand side.

Well I think that.

But I would point to Brad is this Eric is just we continue to see a lot of support on the demand side.

Jamie Feldman: 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 backlogged, if you will. And it's just taken 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. Okay, all right, thank you.

Speaker 8: and the absorption rates that we see taking place remain very healthy.

And the absorption rates that we see taking place remain very healthy.

Speaker 8: And so I think that all the factors that are sort of supporting the demand side of the business, the employment markets, low turnover, solid collections performance, wage growth

And so I think that all the factors that are sort of supporting the demand side of the business the employment markets low turnover solid collections performance wage growth.

Unknown Executive: Thank you.

Speaker 8: All those factors, you know, continued net positive migration trends, all those factors continue to look, you know, solid. And there's nothing that we can see suggesting that, you know, moderation is set to occur in that regard. I think that as we sort of work through the current pipeline of deliveries,

All of those factors.

<unk> net positive migration trends all of those factors.

Continue to look solid and Theres nothing that we can see suggesting that moderation is set to occur in that regard.

Nick Yulico: We will take our next question from Nick Yulico with Joshua Dennerlein, Open. Thanks, good morning. I was hoping to get your lost police if you're able to quantify that. Yeah, Nick, there's 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 one and a quarter baked in or earned in, if you will, little flow into 2024. Think about lost police in just in terms of kind of where rents are right now.

I think that as we sort of work through the current pipeline of deliveries.

Speaker 8: that, you know, some of the behavior that is occurring right now likely starts to moderate a little bit.

That.

Some of the.

Some of the behavior that is occurring right now likely starts to moderate a little bit.

Speaker 8: and some of the more stressed leapsops get sort of work through the system and in some of the developers on or the most pressure, if you will.

And some of the more.

Stressed.

Lease ups gets sort of work through the system and in.

Some of the some of the developers are the most pressure if you will sort of get worked through the system and and then of course as we start to get into the back half of next year.

Speaker 8: sort of get work through the system. And then a car, you know, as we start to get into the back half and next year, you know, we've been through a complete cycle if you will with this pressure.

Nick Yulico: It's probably about a negative one lost police given what we see in Newly's race right now, but that's where I would peg it this year in October. Okay, it's very helpful. Just one other question. Going back to the acquisition in the five and a half percent initial stable yield, is that number impacted by, you know, concessions reducing that yield? I don't know if there's any quantifier like whether that would be a higher yield accident if there's concessions.

Yeah.

We're cycle, we've been through a complete cycle, if you will with this pressure.

Speaker 8: and the comparisons to the prior leases and the comparisons to the prior year start to get a little bit more tolerable, if you will. So I just think that, you know, we feel like that we've got, you know, call it two or three quarters of this environment. And you've got seasonal patterns at play here, too. You recognize that Q3

The comparisons to the prior leases and the comparisons to the prior year start to get a little bit more tolerable. If you will so I just think that we feel like that we've got call. It two to three quarters of.

Of of.

This environment, you've got seasonal patterns at play here too you recognize that Q3 is the point of the year, where moderation has typically always occurred anyway from a from a leasing perspective, and then sort of.

Nick Yulico: Yeah, Nick, this is Brad. Yeah, 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 the stabilization, we would see some strengthening there in 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. Okay, great. Thanks.

John Kim: Thank you.

Through Q4, and then by Q1, particularly in February and particularly in March things start to pick up and then you get into the spring and the summer and the.

And the absorption rate picks up even more so I think that to have what we have now happening in one of the weaker quarters of the year from a seasonality perspective and early on in the delivery.

Speaker 15: that to have what we have now happening in one of the weaker quarters of the year from a seasonality perspective, and early on in the delivery sort of pressure pipeline, I think that it gives us some reason to comfort that by the time we get to the back half and next year, the conditions start to change a bit. Okay, that's all I have. Thanks. the variety thing labor cost a little bit, maybe that's especially with third party vendors. So just thinking about that, we'd be fair to presume that

You know sort of pressure pipeline I think that.

It gives us some some reason too.

<unk> that by the time, we get to the back half of next year the conditions start to start to change a bit.

Eric Bolton: We'll take our next question from John Kim with BMO. Your line is open. Thanks good morning. I was wondering if you could talk about the impact of rising interest rates on leasing demands and landlords' behavior. I know you commented that demand has been strong. You had the opportunity to pick up in the third quarter. So when you discuss newly growth rates of minus 4% in September and minus 5.3 in October, it seems to coincide with the interest rate environment. I just wanted to get your comment on that.

Speaker 16: OK. That's all I have. Thanks.

Okay. That's all I had thanks.

Speaker 1: Thank you. We'll take our next question from Connor Mitchell with Piper Sandler. Your line is open.

Thank you we'll take our next question from Conor Mitchell with Piper Sandler Your line is open.

Speaker 15: And he takes to take my question. So you guys discussed the rising labor cost a little bit. Maybe that's especially with third party vendors. So just thinking about that, we'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 cost?

Hey, Thanks for taking my question.

So you guys discuss the rising labor cost a little bit and maybe thats, especially with third party vendors. So just thinking about that it would be fair to presume that.

The markets are strong economically.

Tim Argo: 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 to place in August and September because it's probably they're probably late in their timeline in terms of what they forecast and what they underrode.

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.

Well I mean.

Speaker 8: you know, the the demand is strong. But, you know, in terms of revenue growth, I mean, the problem we're facing is or the challenge we're facing is just just a lot of supply in the pipeline right now. And that that's what's really that sort of supply demand dynamic.

Yes.

The demand is strong but.

In terms of.

Revenue growth I mean, the problem, we're facing is or the challenge were facing is just a lot of supply in the pipeline right now and Thats whats really.

That sort of supply demand dynamic.

Speaker 8: is not as strong as it had been, and so that's what's really creating this spread, if you will, between sort of...

Is not as strong as it has it had been and so that's what's really creating this spread if you between if you will between sort of <unk>.

Speaker 8: rent growth and what we see taking place with growth rate and labor costs is quite a lute too. We are seeing

Rent growth in what we see taking place with the growth rate and in labor costs as clay alluded to we are seeing.

Speaker 8: at least with our own hiring practices that we are starting to see a little moderation begin to show up and we do think as we get into NAM is bread alluded to, we're seeing a lot of evidence out there with...

At least with our own sort of.

Tim Argo: And certainly, they are going to face a 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 and interest rates by this time, I think that 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 supply environment that lease up pressure exists.

<unk> practices that we are starting to see.

A little moderation began to show up in <unk> and.

And we do think as we get into and as Brad alluded to we're seeing a lot of evidence out there with.

Speaker 8: Some of the people we talked to, various vendors and architects and others we work with on the development side, that, you know, the construction...

Some of them.

People, who we talk to various vendors.

<unk> architects and others, who work with on the development side that.

The construction.

Speaker 8: workforce is starting to have a little bit more availability and is not quite as much in demand. And that, to some degree, affects our labor costs as it relates to our maintenance operation.

Our workforce is starting to have a little bit more availability and it's not quite as much in demand and that to some degree effects are labor costs.

Tim Argo: But I think it's just been a little bit more intense because of what's going on with the interest rate environment. And more competitive placing practices and an effort to attract new residents and leasing traffic. And so I think that that's what's at play here.

Relates to our maintenance operation. So we do think as clay alluded to we do think that that we likely are looking at some moderation in labor costs from the growth rate that we're seeing today, we expect some moderation on that as we get into next year.

Speaker 8: Yeah, we do think, as Clay alluded to, we do think that we likely are looking at some moderation in labor costs from the growth rate that we're seeing today. We expect some moderation on that as we get into next year.

Tim Argo: 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 to the next couple of quarters or so.

Speaker 15: That's helpful. And then maybe sticking with demand. You reference that demand is really the driving force a line supply comes and goes. Could you just maybe rank how, or historically, how strong demand is in the pace of demand in this year and maybe heading into the year end compared to previous years and cycles?

Okay. That's helpful and then maybe sticking with demand.

You've referenced that demand is really the driving force align supply comfort goes could you just maybe rank how break historically, how strong demand is in the pace of demand.

Tim Argo: Can you comment on your turnover rate which declined 40 basis points and remains in your historically low level and how you are able to maintain this turnover rate with all the new suppliers coming online and if you're contemplating offering confessions on or not? I mean, as far as the turnover, I mean, we expected, we didn't really expect turnover to go up with all the factors that we see in play, I mean, between move outs by house and move outs for a job change, those are far and away are two biggest reasons for move outs and as expected, the move outs by house is way down so we don't see that, you know, again given the interest rate environment, we don't see that changing any time near time, some of the other things that drove the move out or turnover up last year or 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 and so I think that serves as well on the renewal side that certainly wouldn't need to look and do anything more than we're doing now on that renewal.

This year, maybe heading into the year and compared to previous years in cycles.

Speaker 4: Well, I mean, it's just...Tim, you want to...anything you can... Yeah, I mean, I was just going to make one point, but at a high level, we've done some research and with some of our third-party data, if you go back the last five years or so, or really, really the last five or ten years,

Well I mean this is.

Tim you want to.

I was just going to make one point at a higher level, we've done some research and with some of our third party data. If you go back the last five years or so.

Really really last five or 10 years, the highest supplied markets, which tend to have been in the sunbelt have also been some of the best rent gross margins and thats because of the demand side. So we have historically over the long term demand has more than offset the supply picture.

Speaker 4: The highest supply markets, which tend to have been in the Sunbelt, have also been some of the best rent growth markets, and that's because of that demand side. So, you know, 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 balance, at least for a temporary time, but as we get into late next year and over the long term,

Elevated supply picture right now.

Out of a balanced at least for a temporary time, but as we get into late next year and having long term historically, it's shown and we believe continues to show all the demand fundamentals.

Speaker 8: and we believe continues to show all the demand fundamental show that we will all in turn that demand outlases supply. I can't tell you compared to sort of the migration numbers that we saw, kind of throw the COVID years out, which were a bit unusual, but the level of net immigration that we see happening right now.

Over the long term that demand outpaced supply I can't tell you compared to sort of the the migration numbers that we saw kind of throw the COVID-19 years out.

Which were a bit unusual, but the but the level of net in migration that we see happening right now is still higher than it than it than it was.

Tim Argo: And I encourage really, I'll add in the third quarter, the move outs that we had that occurred due to rent increase were half of what they were in Q3 of last year, so you know, what's really at play here on the turnover is just, you know, people are buying houses.

Speaker 8: is still higher than it was, you know, historically higher than it was before before COVID and so.

Historically higher than it was before before Covid and so.

Speaker 8: you know, these these Sunbelt markets continue to offer a lot of things that employers are looking for. And and so, you know, that that

These sunbelt markets continue to offer a lot of.

Things that employers are looking for and.

And so that that that component of the demand cycle I think is better than it historically has been I will also tell you that the move outs to home buying and the tailwind that we're getting on demand as a consequence of that have never been as strong either and so there are some.

John Kim: Great, thank you everyone and Al, congratulations on your retirement. Yeah, thank you, John. I'm excited about the prospects for the future, but also excited about what the company is going to do the next few quarters and years as well. You leave the company in good hands. Thank you.

Speaker 8: component of the demand cycle, I think is better than it historically has been. I will also tell you that the move-outs to home buying and the tailwind that we're getting on demand as a consequence of that have never been this strong either. And so there are some unique variables out there right now that continue to support demand at a level that is stronger than what we've seen historically.

Josh Daryen: We'll take our next question from Josh Daryen with Think of America. Yeah, hey guys. Just wanted to fall, but I comment you made. I'm feeling like you're a bit surprised just by the competition from the new supply. I guess what is most surprising to you? Well, we're not surprised by the competition from the 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 as you know, getting stabilized as quick as possible.

There are some.

Unique variables out there right now that continue to support demand at a level that is stronger than what what we've seen historically.

Speaker 15: Okay, appreciate the color and maybe if I could just speak one more and 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 timeline on when you would recapture those units? Thanks.

Okay I appreciate the color and maybe if I could just sneak one more in going back to Atlanta.

You mentioned that you're recapturing some of the units due to the fraud issues or would you be able to provide a timeline on when you would recapture those units okay.

Thanks.

Speaker 4: Well, I mean, it's an ongoing process. I think what we've seen is that, you know, for a period from COVID.

Well I mean, it's.

It's an ongoing process I think what we've seen is that for a period from COVID-19 up until really early this year the counties in Atlanta, specifically have been really slow.

Speaker 4: Up until really early this year, the counties in Atlanta specifically have been really slow to act or take any action whatsoever and so we've seen that start to accelerate. Fulton County is still a little bit of an issue, but Cobb and DeKalb have increased their activities, so we see it starting to happen.

<unk> R or take any action whatsoever.

Josh Daryen: And as I comment on, we think that that is related to what is clearly now in indication relating to illustrate trends. And I mean, we saw the behavior with lease ups and concessions begin to shift a bit in August and September as the 10 year treasure 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.

We've seen that start to accelerate.

The county is still a little bit of an issue, but Tom in the cab.

We have increased our activities.

It's starting to happen but.

Speaker 4: And I think we've gotten through a lot of it, but it'll continue over the next few months. And I think as we get into later next year, we're back into more of a normal situation in terms of Atlanta. Like I said, we've done a lot of work to make sure we're not exacerbating the problem by letting any potential fraudulent people come in the front door.

And I think we've gotten through a lot of it but it'll it'll continue over the next few months and I think as we get into.

Later next year, we're back into more of a normal situation in terms of Atlanta lifestyle. We've done a lot of work to make sure. We're not exacerbating the problem by by letting any any potential fraudulent people coming in the front door.

Speaker 15: All right. Great. Thank you very much.

Josh Daryen: And so I think that that's that's what's it play here and that and so so the the that that was probably the only thing that or it was the only thing I can point to that was a bit of a surprise. We expected demand to remain solid and it is as Tim alluded to our sorts of the solution numbers across our markets are, you know, really strong. We've not seen any any any moderation on the demand side of the curve, you know, we knew the supply picture.

Alright, great. Thank you very much.

Speaker 17: Thank you. We'll take our next question from Rich Anderson with Whitbush. Your line is open. Hey, thanks. Good morning. So getting back to the acquisition strategy, I think, you know, one of the problems we've reached over the years is

Yes.

Thank you we'll take our next question from Rich Anderson with Wedbush. Your line is open.

Hey, Thanks, good morning.

So getting back to the acquisition.

Strategy I think one of the problem.

For the years is.

Speaker 17: They they bought when they should be selling and they've sold when they should be buying so you know what you're saying Is interesting I'm wondering the speed by which this this strategy can unfold You talked about the implied cost of your equity if you were your balance is Obviously very attractive, but perhaps inefficiently so at 3.4 times debt That that leaves 1.3 billion or so more debt you could put on just to get to 4.5 times maybe that's untouchable now You can in the right environment, but I'm just curious. Yeah, you've got generals deliver a fine at this could could this be some Some sizeable activity at this point or do you think it'll be more like one off? As if I asked it like not needle moving type of stuff for the time

The big block when they should be selling and they've sold when they should be buying and so what youre, saying is interesting I'm wondering the speed by which this strategy can unfold.

Josh Daryen: I mean, there was no secret about that. I mean, 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 the motivation that they have to get leased up sooner rather than later. And I think that that goes right back to what I just mentioned is that the you know, the recognition that you know, the high rate environment when found ourselves in an interesting environment is likely to be with us for a while.

You're talking about the implied cost of your equity.

Your balance sheet is obviously very attractive, but perhaps inefficiently. So at three four times.

With that.

That leaves $1 3 billion or so or more that you can put on just to get to four and a half maybe.

Maybe that's not touchable, nowadays and the rate environment, but I'm just curious you've got some narrow sliver.

This could just be some some sizable activity at this point or do you think it'll be more like one off asset by asset.

Josh Daryen: And I think it just pumpkin some actions on behalf of developers to, you know, get, you know, drop pricing, introduce more concessions, higher concessions, drive down that effective pricing quicker, which affected market dynamics to some degree. Okay, appreciate that color and maybe just a follow up on that, if I think through it, I'm pretty sure peak deliveries are still in 2024, is your assumption that this aggressive behavior kind of continues? Because, you know, I assume that there's more properties coming online and the interest rates keep going higher, they would want to kind of lease up as quick as possible. Do you think this competition gets, I guess, heavier in 2024? Maybe that's the question there.

Not needle moving type of stuff for the time being.

Speaker 8: Well, we hope it will be needle-moving. We're optimistic, Rich, that, you know, that there will be certainly more buying opportunity emerging over the coming year. Now, having said that...

Well, we hope it will be needle moving.

We are optimistic rich that.

There will be certainly more buying opportunity emerging over the coming year now having said that.

Speaker 8: There are a lot of people with a lot of dry powder right now, and I think multifamily real estate is still viewed as an attractive commercial real estate asset class, and everybody understands the need for housing in the country, and I think there's a more healthy appreciation for these Sunbelt markets, perhaps, than there has been in a number of years.

There are a lot of people with a lot of dry powder right now and and I think multifamily real estate is still viewed as an attractive commercial real estate asset class.

And everybody understands the need for housing in the country and and I think there's a more healthy appreciation for the sunbelt markets. Perhaps there has been in a number of years.

Speaker 8: And so, you know, we think that while the opportunity to buy in the transaction market gets better, we think that it will also potentially be pretty competitive. We would hope to, you know, going back to the last recession, 2008-2009, the two years coming out of that.

Eric Bolton: You know, it's hard to say for sure, but the short answer is no, I don't think so, or that is, I think that where there is an urgency that's come into the 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, you know, that perhaps is at play here a bit, you know, when you think about, you know, supply levels being where they are, we don't, you know, it's, it's, you know, of course, it varies a lot by market.

So.

We think that.

While the opportunity to buy in the transaction market gets better we think that it will also potentially be pretty competitive.

We would hope to.

Going back to the last recession 2008, 2009, the two years coming out of that.

Speaker 8: downturn. We bought 7,000 apartments over a two-year period of time. I think I don't see that getting repeated, but we do think that the opportunity set will be more plentiful for us going over the coming year than it has been certainly for the last four or five years in this higher-rate environment. Some of the private equity players are not going to be quite as be able to be quite as aggressive.

Downturn, we bought 7000 apartments over two year periods of time, I think I don't see that getting repeated but we do think that the opportunity set will be more plentiful.

For us going over the coming year than it has been certainly for the last four or five years.

Eric Bolton: And, you know, we think that the supply levels in 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 to call it through Q2 of next year. And so it's hard to pinpoint it exactly, but I don't think that there is 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 this higher rate environment. Some of the private equity players are not going to be quite as being able to be quite as aggressive as they have been there's more of a sort of an equilibrium in terms of cost of capital between us and the and in the private guys are given their higher use of debt and <unk>.

Speaker 10: as they have been. There's more of a sort of an equilibrium in terms of cost of capital between us and the private guys, given their higher use of debt. And you're right. I mean, we've got a lot of capacity on the balance sheet. We're anxious to put it to work, but we're going to remain disciplined about it. But we do think that the opportunities definitely start to pick up, and we're hopeful it will be significant. Okay, great. And then second question.

And you're right I mean, we've got a lot of capacity on the balance sheet, we're anxious to put it to work, but we're going to remain disciplined about it but we do think that the opportunities.

Eric Bolton: I think, and I think that the only change was if you will, just that that 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, you know, 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.

Definitely start to pick up and we're hopeful it will be insignificant okay, great and then second question.

Speaker 17: be to Tim or others, but on the October spread between new and renewal.

Maybe to Tim or others, but.

On the October spread between new and renewal.

Speaker 17: You know, the 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, you know, all of us investors and analysts for negative blended number, at least for the first half of the year? When you think about that, you know, pendulum.

Pendulum.

On the sort of growth numbers always swings too wide I don't think anyone expected, 20% plus type of rent growth.

Brad Hill: Josh, this is Brad. I'll add color in two ways to that. Number one is just remember that developers are incentivized to lease up and sell quickly. Their IRRs are impacted. Obviously, the sooner they sell an asset. And I think partly what's happened on these projects is according to our math. Generally, they have to be about 90% occupied to cover their current debt service coverage through their cash flow without having to go back to their partner and ask for capital.

A year ago and maybe this is surprising to the downside when you think about the first half of 2020 for should we be conditioning.

All of us investors and analysts for.

For negative blended number at least for the first half of the year when you think about that.

Angela.

Speaker 17: factor or a zero, you're kind of number from this point forward. You're not giving guidance, but is there a range?

Factor or zero Youre kind of number from this point forward youre, not giving guidance, but is there a range of of sort of surprise factor that could bring that into the negative territory at least for us for a period of time next year.

Brad Hill: So to Eric's point, I think once the 10 year hit that psychological level of 4%. It was a realization that sales values are going to be impacted. So the sooner they could get to that point, the better for their IRR. Calculations and also for the waterfalls in those projects. So I think that's driving to Eric's point by the end of the year and a quicker process of leasing up the cover debt service coverage. You get to the point where they could transact, you know, the asset in order to drive higher waterfall promotes to themselves. Out of things, guys.

Speaker 17: of sort of surprise factor that could bring that into negative territory, at least for a period of time.

Speaker 4: Zero is what we have dialed in for Q4 in terms of our forecast, which, as we said, is kind of where we sit right now for October .

Zero is what we have down after Q4 in terms of our forecast, which as we said, it's kind of where we sit right now for October.

Speaker 4: And Q1, typically, compared to Q4, if I'm thinking about sort of normal environment or historical environment, it's usually pretty similar. I do think, you know, I think you can see those numbers move a little bit on the margins, up or down, in terms of blended going slightly negative or slightly positive. I do think.

In Q1 typically competitive.

If I'm thinking about sort of normal environment or historical environment.

Usually pretty similar.

I do think I think you can see those numbers move a little bit on the margins up or down in terms of blended Cohen.

Negative or slightly positive I do think as.

John Paul Oskie: Thank you, and we will take our next question from John Paul Oskie with Green Street. Your line is open. Thanks for the morning.

Speaker 4: As we get, as I mentioned earlier, as we get into the spring, I think you start to see some normal seasonality in terms of new lease rates. You're not going to jump up to positive three or four all of a sudden, but I do think you'll see some some acceleration. So there'll be some bans, but I don't think it's, I don't think it's widely different than what you talked about because we do, we do think renewals remain pretty consistent.

As we get as I mentioned earlier as we get into the spring I think you start to see some normal seasonality in terms of the new lease rates are not going to jump up to a positive three or four hours.

Clay Holder: Clay, do you expect any notable acceleration or deceleration in the major expense categories throughout the next year? We do expect that there will be some moderation and operating expenses going into next year. You saw on the report that personnel costs and repair and maintenance costs were higher than what we had expected or projected. But we still do expect those to continue to moderate as we move into next year.

And Youll see some some acceleration so there'll be some bands and I don't think it's I don't think it's wildly different than what you talked about it because we do we do think renewals remained pretty consistent.

Speaker 4: And with where we see turnover going, that'll blend in as a little bit bigger factor in terms of that overall blended rate as compared to new leases.

Where are we see turnover going that'll that'll blend that is all the bigger factor in terms of the overall blended rate as compared to new leases.

Speaker 18: And congrats, Al. Good luck to you. Thanks, Rich. I appreciate it, man. Thank you. We'll take our next question from Anthony Powell with Barclays. Your line is open. Hi. Good morning. A quick question on the transaction environment. I think you mentioned that you saw cap rates increase by 15 basic points in the third quarter.

Okay, good enough and congrats al.

Sure.

Thanks, Rich I appreciate it man.

Clay Holder: Is roughly 6% property tax growth rate expected to kind of bounce around this level for the foreseeable future? Probably that will probably moderate a little bit as well. As current environment that we're seeing with high prices and valuations, as those begin to kind of taper down, that should work its way through the real estate taxes. And so we expect to see some moderation there as well. How fast that'll play through that remains to be seen.

Thank you we'll take our next question from Anthony Powell with Barclays. Your line is open.

Hi, Good morning, a quick question on the transaction environment. I think you mentioned that you saw cap rates increased by 15 basis points the third quarter.

Speaker 18: given where interest rates have gone and given where public market, you know, stocks have gone, I would have expected that to maybe expand a bit more, so.

Given where interest rates have gone and given where public market stocks not I would expect that that maybe maybe a bit more so.

Speaker 18: Where do you think cap rates go the next few quarters as you speak to former capital here?

Or do you think cap rates go the next U.

Quarters that you seek to deploy more capital here.

Speaker 3: Hey, Anthony, this is Brad. I mean, I think a couple of things. One, keep in mind that, you know, what we saw in the third quarter.

Hey, Anthony this is Brad I mean, I think Keith a couple of things one keep in mind that what we saw in the third quarter.

Tim Argo: Okay, last one for me, Tim. Hope you can give us a sense for what newly declined in October look like in a few of the most heavily supplied markets. I'm just curious, but the kind of the bottom trunk of the portfolio looks like the way. New lease rates are October, that's what you're saying. For the most heavily supplied markets. Yeah, I mean, Austin continues to be the worst that we've talked about that for a while.

Speaker 3: was very limited in terms of transactions. Certainly, as I mentioned in my comments, we saw activity, marketing activity, pick up a bit early in the third quarter, but.

It was very limited in terms of transaction certainly we as I mentioned in my comments, we saw activity marketing activity pick up a bit early in the third quarter, but.

Speaker 3: 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

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.

Speaker 3: the availability of capital. You know, for well-located properties in good markets, we continue to see, you know, strong bid sheets for those. And so, you know, we're still seeing cap rates in the low 5 percent 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

The availability of capital for well located properties in good markets, we continue to see strong bedsheets for those and so.

Tim Argo: Austin is in the high negative single digits and is our worst market in terms of the new lease pricing. You know, we're like said, second store level. It's right around three or right around five for October. Tampa's a little bit higher than all soon as the one that that kind of stands out above above all.

No.

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.

Unknown Executive: Okay, thank you for the time. Sure. Thank you.

Speaker 3: the severe movement that we've seen in the 10 year in, you know, agency debt today's in the, you know, six and a half, six and three quarter range. We would expect some upward movement and 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, you know, where that goes from here.

The severe movement that we've seen in the 10 year.

Brad Huffer: We'll take our next question from Brad Huffer with RBC Capitol Market. You're like it's open.

And agency debt today is in the 656 and three quarter range, we would expect some upward movement in cap rates, but to what degree is going to depend on.

Eric Bolton: Hey, good morning, everybody. It seems like the message here is that there are a few week quarters ahead, but that things are expected to get better in the back half of 24. I'm just curious if you can get more color around what gets you confidence in that timing. You do obviously have to apply peaking in mid 24, but it does still look elevated into 25 and then the lease up stone end when the deliveries fall off.

The liquidity liquidity picture the fundamentals of the property's locations things of that nature. So it's really hard to say where that goes from here.

Speaker 18: Got it. Thanks. And maybe I'm turnover and renewal. Renewal rent growth. How aware are a tenant typically of a high supply growth environment like this? And are you seeing tenants come to you and ask for rent declines? Seeing tenants move out to newer buildings? And is that a risk next year as more of these apartments are delivered in your market?

Got it thanks, and maybe I'm turnover and renewal renewal rent growth.

Our where our tenants typically you have a hydro black with environment like this and are you.

Eric Bolton: So curious for any topic. Well, I think that, you know, what I would point to Brad is that this Eric is just, you know, we continue to see a lot of support on the demand side. And the absorption rates that we see taking place remain very healthy. And so I think that all the factors that are sort of supporting the demands by the business, the employment markets, low turnover, you know, solid collections performance wage growth.

Jean tenants come to you and ask for rent declines being tenants.

Move outs to newer buildings and is that a risk next year as more of these apartments are delivered in the market.

Speaker 4: Well, I think certainly they're aware of 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 the unit level a lot of times on websites. But I only have so, so, really new phenomena has been that way now at least for the last couple of years.

I think certainly they are aware of.

Apparently now with what's on websites and social media and everything else and all the different <unk>.

<unk> avenues in advertising.

Platform certainly they are aware.

Eric Bolton: All those factors, you know, you continue net positive migration trends. All those factors continue to look solid and then there's nothing that we can see suggesting that, you know, moderation is set to occur in that regard. I think that as we sort of work through the current pipeline of deliveries that, you know, some of the some of the behavior that is occurring right now likely starts to moderate a little bit, and some of the more stressed lease-ups get sort of work through the system and some of the developers on are the most pressure, if you will, sort of get work through the system.

You can see that a lot of time on.

I don't think that's necessarily a new phenomenon, it's been that way now at least in the last couple of years.

Speaker 4: You know, I think there's a component on the renewal side of just...

I think there is a component on the renewal side.

Speaker 4: You know, you've hopefully provided them with good resident service. They're happy where they're living. They're happy with the manager and their owner. And, you know, there are some friction costs involved as well. It's a pain to move. It's expensive to move. So there's some things from a customer service and friction cost standpoint that are meaningful. But, you know, overall, as we talked about, I don't 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. For more information, visit www.FEMA.gov

Hopefully providing them with good resident service are happy where they are living theyre happy with it.

The manager and our owner and there are some friction costs involved as well.

<unk> expenses of news.

Some things from a customer service.

Friction cost standpoint that are meaningful.

Overall, as we talked about I'll.

Turnover changing much from where it is now I don't think that it becomes more of an outsized pressure than it has been.

Alright, thank you.

Speaker 1: Thank you. We'll take our next question from Wes Golojang with Bear. Your line is open.

Thank you we'll take our next question from Wes Golladay with Baird. Your line is open.

Eric Bolton: And then of course, as we start to get into the back half of next year, we've been through a complete cycle, if you will, with this pressure. And the comparisons to the prior leases and the comparisons to the prior year start to get a little bit more tolerable if you will. So I just think that we feel like that we've got, call it two or three quarters of this environment. And you've got seasonal patterns that play here too.

Speaker 8: Hey, good morning, everyone. I have a question on the capital allocation front. I mean, is there a point where buybacks have maybe become a top priority when you consider, you know, where development yields are penciling in and acquisition yields? I mean, they seem pretty thin, you know, where the 10 years trading and typically acquisition cap rates have been, you know, north of 100, 200 basis points over the 10 years. So, it seems like there's going to be an upward pressure in the private market. Well, again, you know, as we touched on a little earlier, I mean, you know, we think that the opportunity to put capital to work, as we did with the Phoenix acquisition,

Hey, good morning, everyone I have a question on the capital allocation front.

Bypass maybe become a top priority when you consider where.

Development yields you're penciling in an acquisition yields I mean, they seem pretty thin, where the 10 year trading and typically acquisition cap rates have been north of 100 200 basis points over the 10 year. So that gives them the upward pressure in the private market.

Well again.

We touched on a little earlier I mean.

We think that the opportunity to put capital to work as we did with the Phoenix acquisition.

Eric Bolton: I mean, you recognize that Q3 is the point of the year where moderation has typically always occurred anyway from a leasing perspective and then it sort of works through Q4 and then by Q1 particularly in February and particularly in March, things start to pick up and then you get in the spring and the summer and the absorption rate picks up even more. So I think that, you know, to have what we have now happening in one of the weaker quarters of the year from a seasonality perspective and early on in the delivery, you know, sort of pressure pipeline. I think that it gives us some some reason to comfort that, you know, by the time we get to the back half of next year, the conditions start to start to change a bit.

Speaker 8: is the appropriate and best sort of value creation from a long-term perspective, particularly given, you know, where the initial yield is and the opportunity we have, we think, over the next couple years to really improve that yield meaningfully. So, you know, we continue to believe that, you know, remaining patient with the balance sheet capacity we have.

Is the appropriate and best sort of value creation from a long term perspective.

Particularly given where the initial yield is an.

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.

Speaker 8: 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

<unk>.

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 that the longer term value creation.

Unknown Executive: Okay, that's all I have.

Associated with with some of these acquisitions is going to make a lot more sense as Brad mentioned, we do have.

Connor Mitchell: Thank you.

Eric Bolton: We'll take our next question from Connor Mitchell with Piper Sandler. Your line is open. Hey, thanks for taking my question. So you're going to discuss the variety thing labor cost a little bit. Maybe that's especially with third party vendors. So just thinking about that, we'd be fair to presume that your markets are strong economically, which would both 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 cost?

Speaker 8: amount 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. And so we've been, as I say, we've got the luxury of making, you know, controlling the timing of when we elect to pull the trigger on those projects.

Out of <unk>.

<unk> teeing up on the development front, but we control the timing on that end.

We do think that we're going to see some moderation begin to take place with construction cost and we think the yields there are going to get better and so we and as I say, we've got a we've got the luxury of.

Making.

Controlling the timing of when we elect to pull the trigger on those projects.

Speaker 8: 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, a much healthier, leasing environment at that point. So, you know, we're going to be patient, but we think that, you know, 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, you know, in terms of how to put this balance you can pass through to work.

And of course these projects if we were to start anything next year I mean, it's going to deliver in 'twenty six 'twenty seven and it's going to be we think a much healthier leasing environment at that point so.

Eric Bolton: Well, I mean, you know, the demand is strong, but, you know, in terms of revenue growth, I mean the problem we're facing is or the challenge we're facing is just a lot of supply in the pipeline right now. And that that's what's really that that that sort of supply demand dynamic is not as strong as it is it had been. And so that's what's, you know, really creating this spread. If you between, if you will, between sort of rent growth and what we see taking place with growth rate and labor costs is quite a lute to we are seeing.

We're going to be patient.

We think that some of the external growth opportunities that we have in front of us over the coming couple of years as the best sort of value creation opportunity.

That we have.

In terms of how to put this balance sheet capacity to work.

Speaker 18: And a follow-up to that, have you seen any portfolios where maybe someone aggregated assets and maybe debt was underwritten at a very low cap rate environment or maybe a lot of floating rate debt? Is there anything kind of penciled in that fits your quality criteria?

Okay.

So up to that are you seeing.

Any portfolios, where maybe somewhat aggregated assets and maybe that was underwritten at a very low cap rate environment or maybe a lot of floating rate debt. If there's anything kind of pencil that fits your quality criteria.

Speaker 8: 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

Well, we pay attention to those opportunities when they when they come out more often than not.

Eric Bolton: At least with our own, you know, sort of hiring practices that we are starting to see. A little moderation begin to show up and and we do think as we get into the end is Brad alluded to, you know, we're seeing a lot of evidence out there with some of the people we talked to various vendors that and architects knows we work with on the development side that, you know, the construction workforce is starting to have a little bit more availability and is not quite as much in demand.

What we have found is the asset quality is not really what we want to do and not not of interest to us.

And a lot of the a lot of the aggressive buying in high leverage buying that took place over last few years.

A lot of it was associated with.

Speaker 8: sort of a lower price point product to our current portfolio and just we haven't found it to be.

Sort of a lower price point product to our current portfolio and just we haven't found it to be particularly compelling to to add to our balance sheet.

Speaker 11: Particularly compelling to add to our balance sheet. Great. Thanks for taking the questions in. Congrats, though.

Eric Bolton: And that that to some degree affects, you know, our labor costs as it relates to our maintenance operation. So, you know, we do think is is clearly alluded to. We do think that that we likely are looking at some moderation in in labor cost from the growth rate that we're seeing today.

Great. Thanks for taking the questions and congrats though.

Thank you I appreciate it.

Speaker 1: Thank you. We'll take our next question from Linda Sy with Jeffery's. Your line is open.

Thank you we'll take our next question from Linda Tsai with Jefferies. Your line is open.

Speaker 19: Hi. Just one really quick one. Can you remind us what's causing higher fraud in certain markets? You know, is it demographic shifts, technology, and then, you know, what are mitigation strategies?

Hi, just one.

A quick one can you remind us what's causing higher fraud in certain markets. You know is the demographic shifts in technology, and then what our mitigation strategies.

Tim Argo: We expect some moderation on that as we get into next year. That's helpful, and then maybe sticking with demand, you reference that demand is really the driving force alive and supply comes and goes. Could you just maybe rank historically how strong demand is in the pace of demand in this year and maybe heading into the year end compared to previous years and cycles? Well, I mean, it's just, Tim, you want anything to do?

Speaker 4: I mean, it's difficult to say. I think what we have seen is certainly since COVID and post-COVID that, you know, the actions taken by the courts and the judges and that sort of thing has become a little bit more lax, so that frankly creates a little bit more opportunity for bad actors. What we've done in turn is we've familiarized ourselves and have some experts, so to speak, within our team that are good at identifying that sort of thing, and frankly what happens is you start to get a reputation, if you will, that these guys are good at catching it and the people trying to come in the front door that way tend to stay away, so it starts to solve itself from some standpoint if you can be good at detecting it and good at preventing it.

I mean, it's difficult to say I think I think what we have seen is certainly since COVID-19 and post COVID-19.

The actions taken by the courts.

Just in that sort of thing has become a little bit more lax that frankly creates a little bit more opportunity for bad actors.

What we've done in turn as we've.

Tim Argo: I was just going to make one point at a high level. We've done some research and with some of our third party data, if you go back the last five years or so, or really really last five or ten years, the highest supply in markets, which tend to have been in the Sun Belt. I've also been some of the best red growth markets, and that's because of that demand side. So, you know, we have historically over the long term demand has more than offset the supply picture.

Familiarize ourselves and have some some experts so to speak and what's on our team that are are good at identifying that sort of thing and frankly, what happens is you get.

You start to get a reputation if you will that these guys are good at catching people trying to come in the front door that way tender tend to stay away.

It starts to solve itself in some standpoint, if you can be good at detecting and again and again.

Tim Argo: 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 in the way next year and over the long term, historically it's shown and we believe continues it's shown, all the demand fundamental show that over the long term that demand outpaces the supply. I can't say compared to sort of the migration numbers that we saw kind of throw the COVID years out, which were a bit unusual, but the level of net in migration that we see happening right now is still higher than it was historically higher than it was before COVID.

Speaker 8: In other words, you know, I'd add a couple things to that. I do think that, uh...

And Linda.

Had a couple of things that I do think that.

Speaker 8: you know, new technology that's available to people today has probably fostered some opportunity and techniques and, you know, certain capabilities in this area that are different certainly than what they were years ago and probably a little bit harder to detect.

New technology, that's available to people today has probably fostered.

Some.

Opportunity and techniques and.

Yeah.

Certain capabilities in this area that are different certainly than where they were years ago, and probably a little bit harder to detect.

Speaker 8: 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, it's really been pretty isolated. We've called out Atlanta and, frankly, just a few properties in the Atlanta market where we saw this, you know, pick up in a noticeable way.

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 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.

Tim Argo: And so, you know, these Sun Belt markets continue to offer a lot of things that employers are looking for, and so, you know, that component of the demand cycle I think is better than it historically has been. I'll also tell you that the move outs to home buying and the tailwind that we're getting on demand as a consequence of that have never been this strong either. And so, there are some, there are some, you know, unique variables out there right now that continue to, you know, support demand at a level that is stronger than what we've seen historically.

Copies in the Atlanta market, where we saw this.

And a pickup in a noticeable way I wouldn't suggest that this is.

Speaker 8: 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 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.

Pervasive.

Practice that we see happening across the portfolio and 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, improving as a consequence of some of the changes that we've made in our and our approval processes.

Got it thanks for the color.

Okay.

Tim Argo: Okay, I appreciate the color.

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

Speaker 1: If you have no further questions, I will turn the call over to MMA for closing remarks.

Tim Argo: Maybe if I could just speak one more and go back to Atlanta.

Tim Argo: Do you mention that you're recapturing some of the units due to the fraud issues, or would you be able to provide a timeline on when you would recapture those units? Thanks. Well, I mean, it's an, it's an ongoing process. I think what we've seen is that, you know, for a period from COVID up until really early this year, the counties in Atlanta specifically have been really slow to act or take any action with so ever.

Speaker 8: We appreciate everyone joining us this morning, and I'm sure we'll see most of you at NARIT in a couple of weeks, so thank you.

We appreciate everyone joining us this morning, and I'm sure we'll see most of you at NAREIT in a couple of weeks. Thank you.

Yes.

Speaker 1: This concludes today's program. Thank you for your participation. You may disconnect at any time.

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

Speaker 20: You

Okay.

Tim Argo: And so, we've seen that start to accelerate. It's holding counties still a little bit of an issue, but carbon cabs have increased their activity. So, we see it starting to happen. But, and I think we've gotten through a lot of it, but it'll continue over the next few months. And I think as we get into, you know, later next year, we're back into more of a normal situation in terms of Atlanta. Like I said, we've done a lot of work to make sure we're not exacerbating the problem by letting any potential fraudulent people coming in the front door. All right, great. Thank you very much. Thank you.

[music].

Sure.

Richard Everson: We'll take our next question from Richard Everson with Whitbos. Your line is open. Hey, thanks. Good morning. So getting back to the acquisition strategy, I think you know, one of the problems with years is the big block when they should be selling and they've sold when they should be buying. So you know, 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.

[music].

Richard Everson: If you're your balance sheet is obviously very attractive, but perhaps inefficiently so at 3.4 times debt. That leaves 1.3 billion or so or debt you can put on just to get to 4.5 times. Maybe that's untouchable now even in the rate of firement, but I'm just curious you know, you've got scenarios with whoever to finance this could could this be some some sizable activity at this point, or do you think it'll be more like one off as am I asked it? Like not, not needle moving type of stuff for the time being.

Speaker 20: You

Yes.

[music].

Eric Bolton: Well, we hope it will be needle moving. We're optimistic, Rich, that you know, that there will be certainly more buying opportunity emerging over the coming year. Now, having said that, there are a lot of people with a lot of dry powder right now. And I think multifamily real estate is still viewed as an attractive commercial real estate asset class. And everybody understands, you know, the need for housing in the country. And I think there's a more healthy appreciation for these some about markets perhaps when there has been in a number of years.

Eric Bolton: And so, you know, we we think that while the opportunity to buy in the transaction market gets better, we think that it will also potentially be pretty competitive. We would hope to, you know, going back to the last recession, 2008, 2009, the two years coming out of that downturn, we bought 7,000 apartments over two year period time. I think I don't see that getting repeated, but we do think that the opportunity set will be more plentiful for us going over the coming year than it has been certainly for the last four or five years.

Eric Bolton: In this higher rate environment, some of the private equity players are not going to be quite as be able to be quite as aggressive as they have been. And there's more of sort of an equilibrium in terms of cost capital between us and the private guys, given their higher use of debt. And you're right. I mean, we've got a lot of capacity on the balance sheet. We're anxious to put it to work, but we're going to remain disciplined about it. But we do think that the opportunities definitely start to pick up and we're hopeful it will be significant.

Unknown Executive: Okay, great.

Tim Argo: And then second question, maybe to Tim or others, but on the October spread between new and renewal, you know, 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.

Tim Argo: When you think about that, you know, pencil. William Factor, or a zero, you're kind of number from this point forward, you're not giving guidance, but is there a range of sort of supplied factor that could bring that into negative territory at least for a period of time next year? Zero is what we have dialed in for Q4 in terms of our forecast, which as we said is kind of where we sit right now, for October and Q1, typically,[inaudible] in terms of what we're going to see in terms of what we're going to see in terms of what we're going to see in terms[inaudible] Well, I think certainly they're aware of 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 the unit level a lot of times on websites.

Tim Argo: But I don't think that's necessarily a new phenomenon. It's been that way now at least for the last couple of years. So I think there's a component over renewal side of just you know you you hopefully provided them with good revenue service. They're happy where they're living. They're happy with the manager and their owner and you know there are some friction calls involved as well. It's pain, the moods, expenses and moods.

Tim Argo: There's some things from a customer service and friction calls to employees that are meaningful. But you know overall as we talked about out I'll see turnover changing much from where it is now. I don't think that becomes any more of an outsized pressure than it has been.

Unknown Executive: Thank you.

Wesley Golladay: We will take our next question from West Golagin with there. Your line is open.

Eric Bolton: Good morning everyone. I have a question on the capital allocation or front. I mean it's a point where you buy back to maybe become a top priority when you consider. You know we're development yield depends went in and acquisition yield and they seem pretty thin you know where the 10 years trading and typically acquisition capric has been you know north of a hundred 200 basis points over the 10 years. So she's going to give them the upward pressure in the private market.

Eric Bolton: Well again you know as we touched on a little earlier I mean you know we think that the opportunity to pick out the work as we did with the Phoenix acquisition is the appropriate invest sort of value creation from a long term perspective. Particularly given you know where where the initial yield is and and and the opportunity we have we think over the next couple of years to really improve that yield meaningfully.

Eric Bolton: So you know we continue to believe that you know remaining patient with the balance she could pass that 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 you know the longer term value creation associated with some of these acquisitions is going to make a lot more sense is Brad mentioned.

Eric Bolton: And we do have an opportunity team up on the development front but we control the timing on that and and we're 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. And so we've and as I say we've got the we've got the luxury of making you know controlling the timing of when we elect to pull the trigger on those projects.

Eric Bolton: 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 a much healthier leasing environment at that point so. You know we're going to be patient but we think that you know 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 you know in terms of how to put this balance she could pass it to work.

Eric Bolton: And a follow-up for that is, you've seen any portfolios where maybe someone aggregated assets and maybe debt was underwritten at a very low cap rate environment, or maybe a lot of floating rate debt. Is there anything kind of penciled in that picture quality criteria? Well, we 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.

Eric Bolton: And not of interest to us. And a lot of the aggressive buying and high leverage buying that took place for the last few years. A lot of it was associated with a lower price point product to our current portfolio. And we haven't found it to be particularly compelling to add to our balance sheet.

Unknown Executive: Great. Thanks for taking the questions and congrats, though. Thank you, Wes. I appreciate that man. Thank you.

Linda Tsai: We'll take our next question from Linda Tsai with Jeffrey. Your line is open. I just want a really quick one. Can you remind us what's causing higher fraud in certain markets? You know, is it demographic shift technology and then, you know, what are mitigation strategies?

Tim Argo: I mean, it's difficult to say I think I think what we have seen is certainly since COVID and post COVID that, you know, the actions taken by the courts and the judges and that sort of thing has become a little bit more lagged so that frankly creates a little bit more opportunity for bad actors. What we've done in turn is we've familiarized ourselves and have some experts so to speak and within our team that are good at identifying that sort of thing.

Tim Argo: And frankly, what happens is if you start to get a reputation, if you will, that these guys are good at catching it and the people trying to come in the front door that way, tend to stay away. So it starts to solve itself from some standpoint, if you can be good at detecting in and good at preventing it.

Eric Bolton: And Linda, I'd add a couple of things to that. I do think that, you know, new technology that's available to people today has probably fostered some opportunity and techniques in 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 screened that is now much more effective at that.

Eric Bolton: 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 pick up in a noticeable way. I wouldn't suggest that this is a, you know, a pervasive practice that we see happening across the portfolio and a lot of different markets.

Eric Bolton: It was really more of an isolated scenario. It happens to be Atlanta where we have a lot, but you know, 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.

Unknown Executive: Rabbit, thanks for the color. Met.

Unknown Executive: They have no further questions, I'll turn the call over to MMA for closing remarks.

Unknown Executive: We appreciate everyone joining us this morning and I'm sure we'll see most of you at Nayreet in a couple weeks, so thank you.

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

Unknown Executive: Thank you very much.

Unknown Executive: Thank you.