Q4 2024 Mid-America Apartment Communities Inc Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and welcome to the U M. A a fourth quarter and full year 'twenty 'twenty four earnings conference call.
Speaker Change: During the presentation, all participants will be in English it only mode.
Speaker Change: Afterwards, the company will conduct a question and answer session.
Speaker Change: As a reminder, this conference call is being recorded today February 6th 2025.
Speaker Change: I will now turn the call over to Andrew Schaffer, Senior Vice President Treasurer, and director of capital markets M&A for opening comments.
Speaker Change: Thank you Amy and good morning, everyone.
Speaker Change: Andrew Schaffer, Treasurer, and director of capital markets for M&A.
The management team participating on the call. This morning are Eric Bolton, Brad Hill, Tim Argo quite holder in Rockville Ferrari before we begin with prepared comments. This morning, I want to point out that as part of this discussion company management will be making forward looking statements.
Speaker Change: Results may differ materially from our projections, we encourage you to refer to the forward looking statements section in yesterday's earnings release, and our 34 Act filings with the SEC, which describe risk factors that may impact future results. During this call. We will also discuss certain non-GAAP financial measures a presentation of the most directly comparable GAAP financial measure.
<unk> 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.
Speaker Change: Earnings release and supplement are currently available on the for investors page of our website at Www dot.
Speaker Change: AC dot com a.
Eric: A copy of our prepared comments and an audio recording of this call will also be available on our website. Later today. After some brief prepared comments the management team will be available to answer your questions I will now turn the call over to Eric.
Eric: Thanks, Andrew and good morning, as reported in our earnings release MAA finish calendar year 2024 in line with our expectations and there has been a great position for the recovery cycle for apartment leasing that should be increasingly evident over the course of this year, while we are still working through the impact of <unk>.
Eric: Record high levels of new supply delivered over the past year. We are encouraged with some of the early recovery trends that we are capturing with lease over lease pricing performance, while it would take some time for the recovery momentum to build it seems clear that the tide is starting to turn and we look forward to a productive spring and summer.
Eric: Leasing season, when the improving trends will have a more obvious compounding impact on overall portfolio results late this year and into 2026.
Eric: Before turning the call over to Brad I did want to take just a few minutes. This morning, and tell you why I am excited and confident about the prospects for MAA as earnings outlook over the emerging recovery cycle.
Eric: It starts with my confidence in our leadership team as.
Eric: As we disclosed in December effective April 1st we plan to execute on the next step in our CEO succession planning program and Brad.
Eric: This will assume the role of president and CEO.
Eric: I will remain active in supporting Brad and our board as executive Chairman.
Eric: And his executive leadership team have an average tenure of 16 years with our company I noticed leadership team well and I have a lot of confidence in their own brand.
Speaker Change: Ed and his team have a deep understanding of our strategy and our approach to executing on that strategy, which has delivered sector, leading long term results for shareholder capital.
Speaker Change: Beyond my confidence in our leadership team, while our markets have more recently had been challenged with a 50 year high record of new supply deliveries. There is increasing evidence that the worst of the pressure from this new supply is poised to materially moderate, especially as we get into the summer leasing season.
Speaker Change: As we have discussed we historically have seen the actual delivery at leasing pressure from competing new development peak at roughly two years after the start of construction.
Speaker Change: Based on our analysis the volume of new construction started in <unk>.
Speaker Change: <unk> 2023, or two years ago dropped 39% from the peak of starts during the extraordinarily low interest rate environment in calendar year 2022.
Speaker Change: And then start sequentially dropped another 50% in calendar year 2024.
Speaker Change: So this is expected to result in a significant decline in actual unit deliveries, starting this year and into 2026 and 2027.
Speaker Change: Given where we are currently with interest rates and construction costs. We continued to see challenges in the market's ability to meaningfully restart an increase in new projects taken together. We believe these conditions will manifest in a sharp drop in new supply deliveries, starting this year and continuing for several years.
Speaker Change: In addition to the supply dynamic and the impact of leasing conditions, we believe that our portfolio is uniquely well positioned to capture the benefits from job growth population growth and high single family housing costs.
Speaker Change: This continues to drive our resulting growth in the demand for apartment housing across our markets that will outpace national trends over the long haul.
Speaker Change: This strong positioning for the demand side of the equation, coupled with a material drop in new supply this year and beyond we believe we will have a significant impact on market rent growth across the portfolio portfolio for the next few years.
Speaker Change: Furthermore, I'm excited about the various new tech initiatives, we have underway aimed at driving enhanced services for our residents and more efficiencies within our operating platform.
Speaker Change: Several new initiatives that we have more recently implemented coupled with new projects that will launch over the coming year. We expect will further increase operating margin.
Speaker Change: Accelerate earnings over the next few years.
Speaker Change: And finally, our external growth pipeline is stronger and larger than any time in our company history. We have several new projects slated to deliver over the emerging recovery cycle without a new sites already lined up and importantly, the balance sheet is strong and well positioned to continue to support this growth.
Speaker Change: So in summary, the experienced and proven capabilities of our leadership team our orientation towards the strongest growth in housing demand markets in the country. The strength of our operating platform with growing efficiencies and a more robust external growth pipeline. We have in place that are supported by a sector, leading strong balance sheet all combined to <unk>.
Speaker Change: Drive much enthusiasm and confidence in my outlook for MAA over the next few years.
Speaker Change: As this will serve as my last earnings call prior to the transition of the CEO role I would like to extend my appreciation and thanks to our shareholders and to the analyst community for your trust in our company and our team has truly been an honor to serve the public capital markets over the past 30 years here at MAA, our culture that is grounded in.
A strong belief that our stewardship of MAA.
Speaker Change: Assets and shareholder capital is at all times focused on creating value for the benefit of our residents our shareholders our associates and the communities where we operate.
Speaker Change: I am proud of our associates at MAA I appreciate their hard work and support and I look forward to MAA, delivering even higher value in the future for those that we serve.
Speaker Change: I'll turn it over to Brad now.
Brad: Thank you, Eric and good morning, everyone.
Brad: As expected during the fourth quarter, our focus on occupancy combined with higher new supply and the typical seasonal slowdown in leasing traffic weighed on new resident lease pricing during the quarter, but the seasonal decline in lease over lease rates was less than we've seen in previous years.
Brad: Encouragingly. This pressure has continued to moderate in January with blended pricing improving more from the fourth quarter's performance than in previous years predominantly due to improvement in our new lease pricing.
Brad: Hi, Sharon Eric's optimism for our growth prospects and momentum toward delivering strong long term earnings.
Brad: As Tim will discuss in more detail, we are seeing encouraging signs that indicate wasting conditions are poised to support improvement in blended lease rates and have a compounding impact on our revenue performance throughout the year.
Brad: Continued strong absorption.
Occupancy and exposure improved seasonal performance and unexpected more meaningful reduction in supply pressure all contribute to a favorable outlook for our existing portfolio.
Brad: Additionally, we are continuing to invest in several key areas that will significantly impact future earnings, including various technology initiatives that will support our centralization efforts and enhanced efficiencies.
Brad: In 2025, we will begin to more aggressively rollout property wide Wi Fi across our portfolio and we will ramp up the rollout over the next couple of years as a number of our properties transitioned off of our legacy bulk Wi Fi program.
Brad: We also plan to increase our investments in the interior renovation and repositioning programs, both of which benefit from the higher priced new supply that has delivered into the market recently on the external growth front, we're committed to maintaining an active development pipeline of around $1 billion.
In 2024, and we invested in a record five projects expected to deliver average NOI yields at stabilization of six 3%.
Brad: Ending the year with seven projects under construction, representing over 2300 units at a cost of approximately $850 million, we expect to start construction on another 3% to four projects in 2025.
Brad: As the transaction market begins to open later this year, we'll continue to opportunistically deploy capital into acquisitions that are in their initial lease up.
Brad: During the fourth quarter, we closed on a 386 unit property early in its initial lease up in the Dallas market. This property was 44% occupied at the end of the fourth quarters and expect and is expected to stabilize in early 2026.
Brad: This brings our total acquisitions in 2024 to three properties, which were on average 65% occupied at closing and projected to deliver NOI yields of five 9% upon reaching stabilization in 2025 and 2026.
Brad: During the fourth quarter, we sold two properties with an average age of 29 years.
Brad: 216 unit property in Charlotte, North Carolina and the.
Brad: 272 unit property in Richmond, Virginia, delivering a combined investment period IRR of approximately 19%.
Brad: We have two additional properties in Columbia, South Carolina under contract and expect those to close in the first quarter of 2025, we will continue our focus on strengthening our overall earnings quality by recycling capital out of some of our older higher Capex properties.
Brad: And redeploying that capital into newer acquisitions with a higher earnings growth profile, particularly on an after capex basis, we expect to execute on the balance of our $325 million disposition plan late in the year.
Brad: At the end of the fourth quarter, we had eight communities in lease up for acquisitions and for developments with an end of the year occupancy of 69, 7%. We expect the acquisitions to average NOI yields at stabilization of five 9% and the developments to average NOI yields of six 4%.
Brad: Due to the high level of competition in many of our markets and our intent to hold firm on our pricing expectations. We pushed the expected stabilization dates back slightly on a few of our lease up properties by one quarter.
Brad: However, rents continue to exceed our pro forma expectations and the stabilized NOI yields on our new developments in lease up are significantly above our original expectations.
Brad: Our existing portfolio is well positioned to benefit from the improving demand and supply trends with our various growth initiatives, providing additional earnings over the recovery cycle.
Speaker Change: Do all of our associates at the properties and our corporate and regional offices. Thank.
Speaker Change: Thank you for your commitment hard work and dedication that you show everyday to our prospects.
<unk> and fellow associates before.
Speaker Change: Before turning the call over to Tim I do want to take a moment to say a few words in recognition of Eric ahead of his transition to the executive chairman role.
Speaker Change: Over his 30 years of service to MAA with 23 years, as our Chief Executive Officer.
Speaker Change: Eric has been instrumental in so many ways to this company.
Speaker Change: His dedication to serving our various stakeholders is second to none.
Speaker Change: We are grateful for his vision and wisdom his courage and as disciplined in leading this company to unmatched performance.
Speaker Change: His mentorship and counsel over the years to so many in the industry.
Speaker Change: And especially to MH executive leadership team and to me exemplify the tremendous leader that he is Eric for all you have given to our company into the industry. We thank you and with that I'll turn the call over to Tim.
Tim: Thanks, Brad and good morning, everyone as noted by Brad in the fourth quarter, we prioritize achieving portfolio level occupancy that positions us well for the improving supply demand dynamic in 2025 with.
Tim: We particularly focus on the higher exposure markets, which came at the expense of slightly weaker new lease pricing performance, but achieve the occupancy goals for which we were striving.
Tim: The moderation of new lease pricing showed less seasonal deceleration that we saw in 2023 and less than we typically see from the third to fourth quarter. As a result of this strategy new lease pricing on a lease over lease basis for the fourth quarter was down 8% 260 basis point decline from the third quarter, but favorably comparable to a four.
Tim: <unk> hundred 70 basis point decline over the same period in 2023.
Tim: Renewal rates for the quarter stayed strong growing four 2% on a lease over lease basis, which was a 10 basis point increase sequentially over the third quarter.
Tim: The resulting in lease over lease pricing on a blended basis was down 2%, which represented 140 basis point improvement in sequential moderation as compared to the same period in 2023.
Tim: Average physical occupancy was 95, 6% up 10 basis points from the third quarter.
Tim: Collections continue to outperform expectations with net delinquency, representing just <unk>, 3% of build brands. All of these factors drove numbers, resulting same store revenue down <unk>, 2% for the quarter and up <unk>, 5% for the full year of 2024.
Tim: As was true for most of 2020 for several of our mid tier markets continue to hold up better than the broader portfolio in the fourth quarter from a blended lease over lease pricing standpoint, Richmond, Norfolk, Charleston, Greenville, and our Fredericksburg, and other northern Virginia properties all stood out.
Tim: In Orlando, our two larger markets that started to show some relative pricing recovery.
Tim: Also as was true for most of 2020 for Austin, Atlanta, and Jacksonville are markets that continue to be more negatively impacted by the absolute level of supply being delivered into those markets with all sudden continuing to be the toughest challenge of all the markets.
Tim: We continued our various redevelopment and repositioning initiatives in the fourth quarter.
Tim: Brad mentioned earlier, we expect to accelerate these programs over the course of 2025 and enter 2026 for the fourth quarter of 2024, we completed 1130 interior unit upgrades, bringing our year to date total to 5665 units achieving rent increases of $106 above non upgraded unit.
Tim: <unk>.
Tim: Despite this more competitive supply environment. These units leased about 10 days quicker on average than a non renovated unit when adjusted for the additional turn time.
Tim: We expect to renovate closer to 6000 units in 2025 with an even larger increase expected in 2026.
Tim: Our repositioning program, we have two active projects that are most of the way through the repricing phase with NOI yield approaching 10%, we have an additional six projects underway with the plan to complete construction between April and June and began repricing and what we believe will be a strengthening leasing environment. We are also now live on the for property wide.
Tim: Wi Fi retrofit projects, we began in 2024 and I expect to begin an additional 23 projects in 2025.
Tim: When January wrapped up we are seeing encouraging trends that are aligned with our outlook for 2025, new lease in blended pricing in January improved as compared to about December in the fourth quarter with stable occupancy of 95, 6%.
Tim: Our 60 day exposure at the end of January was 7% 70 basis points lower than this time last year and should serve to keep occupancy stable through the remainder of the quarter and allow for more pricing power than seasonal demand starts to increase the 95, 6% January average daily physical occupancy was 25 basis points higher than January of 2000.
Tim: <unk> four <unk>.
Tim: As Brad noted absorption remained strong in our markets, but the fourth quarter, representing the second consecutive quarter that units absorbed exceeded units delivered the excess absorption as compared to new supply in the fourth quarter was the largest gap since the third quarter of 2021.
Tim: With new lease pricing improving the remaining a challenge. We're also encouraged by the lease over lease rates achieved on excessive renewals through April with average increases in the 4% to 5% range improving newly strength should help support continued strong renewal performance into the busier spring and summer leasing season.
Tim: New supply deliveries continue to be a headwind to many of our markets, but the trends support expected impairment throughout 2025 laying the groundwork for an even stronger 2026. Following on Eric's comments with construction starts, peaking in mid to late 2022 and in most of our markets. We believe we have passed the maximum pricing pressure period it tends to come two years.
Tim: So after the peak of construction.
Clay: Slowly moderating supply pressure, increasing spring and summer leasing traffic and our current occupancy exposure portfolio possession have us excited about the recovery to come that's all out in prepared comments, we will now turn the call over to clay.
Clay: Thank you, Tim and good morning, everyone.
Clay: We reported core <unk> for the quarter of $2 23 per share, which was in line with our fourth quarter guidance and contributing to core <unk> for the full year of $8 88 per share in line with our original guidance for the year.
Speaker Change: Our same store revenue results for the quarter were relatively in line with expectations as Tim mentioned same store revenues benefited from strong occupancy and collections during the quarter. Our same store expense performance was slightly unfavorable compared to our guidance due to personnel costs and other property expenses.
Speaker Change: Favorable interest expense and nonoperating income offset the increase in same store expenses.
Speaker Change: During the quarter, we funded approximately $64 million of development cost of the current $852 million pipeline, leaving an expected $374 million to be funded on our current pipeline over the next two to three years. We also invested approximately $18 billion of capital through our redevelopment and repositioning programs during the quarter.
Speaker Change: Which we expect to continue to enhance the quality of our portfolio and produce solid returns upon completion.
Speaker Change: Our balance sheet remains in great shape, we ended the quarter with over $1 billion in combined cash and borrowing capacity under our revolving credit facility, providing significant opportunity to fund future investments.
Speaker Change: Our leverage remains low with net debt to EBITDA at four times and at quarter end, our outstanding debt was approximately 95% fixed with an average maturity of seven three years at an effective rate of three 8%.
Speaker Change: During December we issued $350 million of 10 year public bonds at an effective rate of just over 5% using proceeds to pay down our outstanding commercial paper.
Speaker Change: These proceeds provide an accretive use of capital given the expected stabilized NOI yields approaching 6% or greater on our recent acquisitions and current developments that Brad previously mentioned.
Speaker Change: Finally, we provided initial earnings earnings guidance for 2025, with our release, which is detailed in the supplemental information package.
Speaker Change: Core <unk> for 2025 is projected to be at $8 61 to.
Speaker Change: So $8 93.
Speaker Change: Or $8 77 at the midpoint.
Speaker Change: As has been outlined in the prior comments, we expect the momentum in rental pricing to grow over the course of the year and to drive improving year over year performance in core <unk> over the back half of the year.
Speaker Change: The proposed 2025 same store revenue growth midpoint of 0.4% results from a rental pricing earn yen of negative 0.4% combined with a blend of blended rental pricing expectation of one 7% for the year.
Speaker Change: We expect blended rental pricing to be comprised of new lease pricing that will continue to be impacted by elevated supply levels and renewal pricing in line with historical levels.
Speaker Change: We expect the impact of these elevated supply levels to improve over the course of the year.
Speaker Change: For the same store portfolio, we expect the effective rent growth for the year to be approximately 0.2% at the midpoint of our range.
Speaker Change: Occupancy to average between 95, 3% and 95, 9% for the year or 95, 6% at the midpoint and other revenue items, primarily reimbursement and fee income to grow at two 5%.
Speaker Change: Same store operating expenses are projected to grow at a midpoint of three 2% for the year.
Speaker Change: Personnel and repair and maintenance costs are expected to grow just over 3%, while we expect some continued pressure for marketing costs and insurance expense.
Speaker Change: These expense projections combined with the revenue growth of zero to 4%.
Speaker Change: <unk> and a projected decline in same store NOI of 115% at the midpoint.
Speaker Change: We currently have nine communities actively leasing and an additional community that stabilized in late 2024, given the interest carry and leasing velocity of these recently acquired and completed developments, we anticipate our lease up pipeline being slightly dilutive to core for <unk>.
Speaker Change: In the first half of the year.
Speaker Change: Before turning to accretive later in the year as more projects stabilize contributing about <unk> <unk> for the year net of the interest carry.
Speaker Change: We expect continued external growth in 2025, both through acquisitions and developments.
Speaker Change: We anticipate a range of $350 million to $450 million in acquisitions are likely to be in lease up and not yet stabilized and a range of $250 million to $350 million and development investments for the year.
Speaker Change: This growth, we've partially funded by asset sales, which we expect dispositions of approximately $325 million with the remainder to be funded by debt financing internal cash flow.
Speaker Change: This external growth is expected to be slightly dilutive to <unk> in 2025, and then turn accretive to core <unk> after stabilization.
Speaker Change: We project total overhead expenses, a combination of property management expenses and G&A expenses to be $134 5 billion at the midpoint, a four 5% increase over 2024 results.
We also expect to refinance $400 million in bonds maturing in November 2025. These bonds had an effective rate of four 2% and we are forecasting to refinance at 5%.
Speaker Change: This anticipated refinancing coupled with our 2020 for refinancing activities will result in <unk> dilution to core <unk> as compared to prior year.
Speaker Change: Combined with financing to support our expected growth for 2025, we project interest expense to increase by approximately 13% for the year.
Speaker Change: That is all that we have in the way of prepared comments. So even we will now turn the call back to you for any questions.
Speaker Change: Thank you once again and we will now open the call up for questions. If you'd like to ask a question. Please press star followed by the number one on your Touchtone phone. If you would like to withdraw your question you May press the pound key.
Speaker Change: Our first question comes from the line of Jamie Feldman with Wells Fargo. Your line is opened.
Jamie Feldman: Great. Thanks for taking the question I was hoping you could put a finer point on the 107 blend outlook for 'twenty five can you talk exactly about what youre thinking for new versus renewal and then is there a point in a year, where you think new spreads.
Jamie Feldman: Spreads actually turned positive and maybe talk a little bit more about the cadence throughout the year.
Jamie Feldman: Of that 107.
Tim: Yes. This is Tim I'll give a little bit of detail on the guidance the pricing guidance for.
Tim: For the year, we're expecting new lease pricing at a lease over lease basis somewhere in the <unk>.
Tim: Negative one and a half range.
Tim: With that obviously played out face seasonally with the lowest point, where we are right now getting.
Tim: Slightly positive as we get into Q3, and then starting to trend back down seasonally a little bit and to get into Q4.
Tim: And then renewals pretty pretty steady in that four to quarter, four and a half range, where we are right now we don't expect much movement, there that tends to stay pretty consistent.
Tim: New lease pricing Thats drive the various throughout the quarters.
Speaker Change: Okay Im sorry did you.
Speaker Change: Do you think youll see any months or quarters with positive new lease.
Speaker Change: Yes, I would say as you get into typically what we say if you think about normal seasonality as new lease pricing sort of accelerating January three to about July and then starting to moderate as you get into August. So I would expect as we get into late Q2 early Q3, we expect to have sort of.
Speaker Change: Three months were all slightly positive on the new lease rate and then trend back down to negative as you get into the late Q3 and Q4.
Speaker Change: Okay, and then what are you guys thinking on turnover.
Speaker Change: Does that trend throughout the year.
Speaker Change: Expecting pretty consistent with where we were in 2024.
Speaker Change: The major reasons people move out obviously by John.
Speaker Change: <unk> change so those are the biome is down I think.
Speaker Change: 20% in Q4 compared to where it was last year was with interest rates and home prices, where they are we don't expect that to move a lot.
Speaker Change: So.
Speaker Change: And generally we're dialed into our forecast.
Speaker Change: Our turnover consistent with where we were in 2024.
Speaker Change: Okay, great. Thanks for that color and Eric Congratulations again.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Eric Wolfe with Citi. Your line is open.
Eric Wolfe: Hey, I just wanted to follow up there I mean, when I look at the contribution.
Eric Wolfe: So your same store revenue from the one 7% blend.
Eric Wolfe: It looks like it's sort of on the lower end, which suggests that there is probably a good back half weighting.
Eric Wolfe: To the blended spread and so I was just curious if that's the case if you could just maybe provide like you expect the first half to being like a 5% range and then it stepped up to over two 5% or if the difference is really just.
Eric Wolfe: You can think the seasonally the second quarter and third quarter will be a sort of a very normal lift I'm just trying understand if this is like a sort of a back half type of prediction for this year.
Eric Wolfe: Not necessarily in back half prediction I mean, we expect the normal seasonality as I was talking about and certainly for new lease rates to moderate as you get late Q3 and into Q4, So it's really in the other.
Eric Wolfe: And keep in mind, obviously when you when you think about mid Q2 early Q3, we also have the bulk of our leases expiring during that time, so matching up some of the.
Eric Wolfe: More positive new lease rates with the maximum number of leases is really what drives that waiting, but as I mentioned, we expect to get to get slightly positive call. It a one.
Eric Wolfe: One and a quarter range for a couple of months in the middle of the year and then start to trend back down. So it's the combination of the weighting of the lease explorations that obviously, the the balance between new leases and renewals, we expect renewals will work well.
Eric Wolfe: B a heavier weighting as they were this year with with consistent turnover. So that's that's really what's driving the full year number.
Eric Wolfe: Eric This is Fred I'll, just I'll add one one additional item to that certainly as you look at the.
Eric Wolfe: The supply and the new deliveries as we get into this year I mean.
As we look back.
Eric Wolfe: The new supply that was started in 2023 clearly there was a.
Eric Wolfe: A drop off in that new supply in the back half of 2023, which we think really informs the supply pressure as we get into 2025. So as we mentioned in our comments we are in still an elevated level of supply today, we're off the peak of where we have been.
Eric Wolfe: 2024, and that supply picture will continue to get better as we go throughout this year so to Tim's point as you as you start layering on top of.
Eric Wolfe: Diminishing supply pressure environment as we go through the year with the.
Eric Wolfe: The demand continues to pick up as we get into the spring and summer leasing season that really.
Eric Wolfe: <unk> informed the trajectory of what we think lease rates will look like through the year.
Eric Wolfe: Got it.
Speaker Change: And I'm not sure. If you have this data, but when you look at your renewals what percent of those renewals are also tenants that renew at the prior year I guess I'm trying to understand sort of what percentage of tenants are taking two years of this sort of 4% to 5% renewal increases in sort of a flattish market rate environment, and if you have any sort of limit on where renewal rate.
Eric Wolfe: Rents can be relative to market or new lease rents.
Eric Wolfe: Okay.
Eric Wolfe: Another way to perhaps characterize that is our average stay is somewhere in the 'twenty. One 'twenty two month range that certainly has extended out a little bit over the last couple of years with the lower turnover. So typically you have a resident moves then has call. It a 12 month ways and then does one renewal.
Eric Wolfe: And then on average Theyre moving out after that.
Eric Wolfe: <unk> renewal so.
Eric Wolfe: Don't see renewal on top of renewal in top of renewal, which tends to be a little bit of a governor on on that gap getting to two wide, even with lower turnover were still turning.
Eric Wolfe: Good chunk of the portfolio every year.
Speaker Change: It tends to balance itself out a little bit and then to brad's point about strengthening supply demand dynamic, we expect new lease rates to accelerate throughout the year, which then should in turn help the renewal rates, where its starting to narrow that gap and it doesn't it doesn't GAAP any wider than it has been a terrific that'll.
Eric Wolfe: Provide some stability and strength on the renewal side also.
Speaker Change: Got it thank you.
Speaker Change: Our next question comes from the line of Nick <unk> with Scotiabank. Your line is open.
Dan: Good morning, everyone, It's Dan answered Kericho almost neck.
Dan: Can you help us understand how concessions in your markets have impacted your new lease rate figures and do you see the.
Dan: Asian of concessionary activity and easier comps, maybe having a.
Dan: Cause you to use your word compounding effect on the reported numbers.
Dan: Yes.
Dan: To answer the last part of that I mean that the.
Dan: Lease over lease rates, we quote are net of the impact of <unk> of concessions. So that's considered in there, but I would say Broadway for outlets for our portfolio concessions were down a little bit in Q4 as compared to Q3 in terms of cash concessions I would say at a market wide portfolio level concern.
Dan: <unk> were pretty consistent around a month's free is pretty typical in most markets now you get into some of the tougher markets with with a lot of lease up.
Dan: And it's some of the same submarkets I've talked about before do you think about downtown offset and then.
Dan: Round rock Georgetown area, Boston, when you think about Midtown Atlanta, and think about Uptown Charlotte.
Dan: Where you can get more into the two two and a half even up to three and a couple of spots with a lot of lease up so still pressure there and some of the markets we've talked about that.
Dan: The concession pressure overall.
Dan: Steady to perhaps slightly declining.
Dan: Great. Thanks for that and then I guess as a follow up do you have a sense on I guess, how much competitive supply that you guys track is how much of that is declining year over year, and 26% and 27 and maybe how that compares on a like a completions as a percent of stock basis to maybe the prior years to 2020.
Yes, I mean for 2025, when we say supply is probably down 15% to 20% in terms of just absolute units being delivered from from 24 to 25.
Dan: We think it's down closer to 30% to 40% as you look out into 2026, and then you start getting pretty far out at that point, but if you look at the starts in <unk>.
Dan: Eric hit on this as well I mean starts are down Q4 of 2024 starts in our market were <unk>, 3% of inventory, which is the lowest it's been for the last several years well below where it was even during COVID-19.
Dan: It speaks pretty pretty long window, where we think supply will be the moderating.
Dan: But like on our completions as a percent of stock like in 'twenty six is that like lower than a normal year.
Dan: Yes, I would say in our.
Dan: Mark is three 5% of inventory is probably about average.
Dan: If you think about the long term, 5% slightly been above that.
Dan: Last.
Dan: A few years, but I think 25% of our 2026 is below that and I expect 2027 is even further below that.
Speaker Change: Great Thanks, and congratulations art.
Dan: Thank you.
Speaker Change: Our next question comes from the line of Brad Heffern with RBC capital markets. Your line is opened.
Yes, Thanks morning, everyone.
Speaker Change: Talked a few times about the start of the year being better than normal I think you said in the prepared remarks that blends are improving more than normal in January on a sequential basis. Those are obviously very influenced by com. So I'm just curious if youre seeing like a real market level of fundamental inflection market rent trend being better than normal occupancy rising you kind of talked about concessions maybe.
Speaker Change: A little bit better.
Speaker Change: Just trying to figure out how much of that is sort of just comps and the abnormality of where leasing spreads are right now versus like a real fundamental change.
Speaker Change: Well I mean, it's a combination of all those certainly the.
Speaker Change: The lessening supply I think is playing a part of that.
Speaker Change: Easier comps if you will is playing a part of that but when we think about the sequential trends we're seeing in January both compared to December and Q4.
Speaker Change: Just looking back to the last year or two but looking back to what we would call a more normal periods, which probably is going back to 2017 2018 to 2019. The deceleration from Q3 to Q4 was sort of less than typical and then.
Speaker Change: Acceleration from from Q4 to January it was more so and so much where January new lease pricing is better than the full Q4, which is pretty atypical we usually see.
Speaker Change: A little bit lower than Q4, and then we would expect February March to accelerate even more so I feel like it's a good position.
Speaker Change: So where we are and showing some.
Speaker Change: <unk> strength and the recovery. So I think that piece is probably tied to.
Speaker Change: Improving overall outlook the higher than typical acceleration.
Speaker Change: Okay. Thanks for that.
Speaker Change: And then can you talk through whether you think changes in immigration policy could have a significant impact on our portfolio either through deportations or just through less immigration.
Speaker Change: Yes.
Brad Heffern: This is Brad.
Brad Heffern: I would say from a same store perspective.
Speaker Change: We don't see.
Speaker Change: A whole lot of impact coming from from the change in the immigration policies I mean, theres nothing that we track that would indicate that.
Speaker Change: But we're really overly exposed to any type of the immigration issues that we see out there so from a labor perspective in our same store portfolio, we don't see that being.
Speaker Change: A big impact in terms from a resident perspective again.
Speaker Change: No matter what your metric we're looking at we don't see that we're exposed to a large degree to that now.
Speaker Change: <unk> said that where I think we could see some impact.
Speaker Change: Associated with the immigration side would be.
Speaker Change: Perhaps in the new development area, where.
Speaker Change: Lot of our labor in that area, there could be some labor impact associated with that.
Speaker Change: Clearly that would have.
Speaker Change: And impact on the ability of the market really to ramp up new construction.
Speaker Change: For us obviously that would impact our.
Speaker Change: Desire to continue to hold our new developments at.
Speaker Change: The $1 billion level that we're talking about but given the overall size of our existing portfolio.
Speaker Change: Anything that slows down supply longer term would be a benefit to our existing portfolio, but at this point, it's something that we'll have to continue to monitor and see how it how it plays out but we're not seeing a material impact and don't see that on the horizon at the moment.
Speaker Change: Okay. Thanks for the thoughts.
Speaker Change: Our next question comes from the line of Jeff Spector with Bank of America. Your line is opened.
Jeff Spector: Great. Thank you.
Jeff Spector: Just to follow up to that I was going to ask a similar question, but maybe even just pulling in demographics. When you think about your portfolio positioning.
Jeff Spector: Third a third B plus B and then you split it between urban suburban I guess from a high level long term standpoint, five year view does any of this change your thinking on portfolio positioning.
Brad Heffern: Yeah. This is Brad Tim you can add some points here too but I.
Brad Heffern: I don't think so I mean, one of the one of the characteristics of our portfolio of long term is definitely to Orient our portfolio toward the highest demand region of the country.
Brad Heffern: That generally leads to lower volatility in both earnings and dividends performance and so we think that that continues to be the <unk>.
Brad Heffern: Right focus for us.
Brad Heffern: In terms of where we're located the markets were located in.
Brad Heffern: And also allocating capital.
Brad Heffern: Mixed between your larger markets and mid tier markets. So.
Brad Heffern: That also tends to support kind of a more affordable price point than other portfolios that are out there and I think.
Brad Heffern: If you look at our returns over a long period of time, I think I think that speaks to.
Brad Heffern: US appealing to the broadest segment of the rental market and I think ultimately that's really what we want to do versus skewing the portfolio to one end of the spectrum versus the other and so I don't see a material change in terms of our strategy in terms of how we're allocating capital or those other.
Brad Heffern: Portfolio characteristics that we target.
Brad Heffern: Great. Thank you and then I apologize if I missed this but can you talk a little bit more disclose more on on cap rates between the acquisitions dispositions.
Maybe what the requirement is today between what Youre looking for between development and acquisitions. Thank you.
Brad Heffern: Yeah, Jeff It's Brad again, yes, so the dispositions that we sold in the fourth quarter cap rates on those were call it low sixes.
Brad Heffern: And those I will tell you on the two that we sold we had one property in Charlotte that did have a fire during the marketing process. So proceeds were certainly impacted a bit by that so.
Brad Heffern: But.
Brad Heffern: I will tell you on an after capex basis.
Brad Heffern: Those properties that were selling generally a 30 year old assets. So they have higher capex needs that we're recycling the capital out.
Brad Heffern: And then we're redeploying that capital as I mentioned in my.
Brad Heffern: All comments into acquisitions generally in lease up so there's some lease up period associated with them.
Brad Heffern: And then upon reaching stabilization those yields are close to 6%.
Brad Heffern: In terms of what we're achieving now.
Brad Heffern: Able to achieve those yields.
Brad Heffern: Because we are focusing on properties that are in lease up that are harder.
Brad Heffern: For the market to finance, so we're able to get better pricing generally where 15% to 20% below current replacement costs on those so we're able to get a pretty good.
Brad Heffern: Return on those the market cap rates in the fourth quarter that we track there is not a lot of data points.
Brad Heffern: We only track six projects that ended up closing in the cap rate was around 551.
Brad Heffern: Our developments the five that we invested in them.
Brad Heffern: 24 of those were six call. It six four NOI yield. So it's 140 basis point spread to current market cap rates and we feel that thats a good place for us to continue to focus our capital.
Brad Heffern: In that six to six five range on development.
Thank you.
Brad Heffern: Yeah.
Speaker Change: Our next question comes from the line of Austin work Smith with Keybanc capital markets. Your line is open.
Austin Smith: Great Thanks, and good morning, everybody.
Austin Smith: So going back to a question earlier about lease over lease pricing expectations, and just kind of thinking back to when you started to see pricing pressure in the back half of 2023 and in kind of this expectation that absorption of peak deliveries will continue through the first half of this year is.
Austin Smith: Is it fair to assume that you do face easier comps in the back half of the year you could see concession pricing begin to abate more quickly, which could lead to kind of the.
Austin Smith: Even better spread and blended rate growth versus the prior year and that will lead to.
Austin Smith: The acceleration in that year over year net effective rent growth does that is that the right way to think about it.
Austin Smith: He also understand are you talking about as we get to the back part of 2020 fives, primarily yes.
Austin Smith: Yes, yes, yes.
Austin Smith: I would definitely say, we could see if you want to call it less seasonal seasonality as we get into late 2025, because we as we've talked about we've got the moderating supply pressure that will continue to.
Austin Smith: Speak well on the demand side through the remainder of 2025 and into 2026, we did see kind of the peak of that supply pressure wait 24. So yes, I think there is an easier comp component that comes with that that's where I would expect you know we're talking about this less seasonal deceleration that we saw this year I think we can definitely see that in.
Austin Smith: In the back part of 2025 as well.
Speaker Change: And based on the fact that you did negative half a percent year over year net effective rent growth in the back half of 2024 and the guidance assumes a 20 basis point positive growth. This year I guess when do you expect that net effective to turn positive on a year over year basis.
Austin Smith: Yeah.
Austin Smith: Yes, I'll say it will.
Austin Smith: Probably be biased towards the middle part of the year by in Q3 mid Q3, and then on into Q4 and beyond.
Speaker Change: That's helpful. And then just last one for me if you broke out your blended rate growth between the larger markets and your smaller secondary markets, how do those stack up relative to this year versus 2024, just curious where youre seeing the most improvement between those two buckets and that's all for me. Thank you.
Austin Smith: I would say we've seen it.
Speaker Change: <unk>.
Speaker Change: Same seen that gap narrow a little bit I mean, the secondary markets or mid tier how do you want to call. It have outperformed certainly the last couple of years with generally lower supply happening in those markets, but we have seen it start to narrow, particularly in the last couple of quarters, they're still probably 50 basis points I'd call. It a pricing differ.
Speaker Change: But it has narrowed a bit.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Michael Goldsmith with UBS. Your line is opened.
Michael Goldsmith: Good morning, Thanks, a lot for taking my question. The question is on the return of pricing power.
Speaker Change: Occupancy levels are elevated but not necessarily everyone. In your markets are in the same position. So do you see pricing power returning contingency contingent on occupancy to improve in competing properties and does the slowdown in supply growth that youre expecting this year support that.
Speaker Change: Well certainly the market level occupancy plays into it a little bit.
Speaker Change: We're somewhat at the mercy of what some of your other immediate comps are doing but when we look at where our current occupancy is right now which is 25% to 30 basis points better than it was this time last year and really looking at exposure, which looks out further and we're in a much better position there and we're pretty confident that certainly over the next few months we're in against.
Speaker Change: Good spot with occupancy to where we can particularly as you get into the spring can start to push on that pricing but.
Speaker Change: Given where we are right now with exposure compared to last year, that's a better spot today and then you combine that with declining supply gives us pretty good confidence that that occupancy will stay in a steady range, which is which is about where we want it we don't really desire to be at 96% somewhere in that 95 six range is about right.
Speaker Change: Where we can start to push on price as we get into the spring and summer.
Speaker Change: Okay.
Speaker Change: Got it and just as a follow up.
Speaker Change: As you think about new lease rents and how they will trend through this year youre going from.
Speaker Change: <unk> down 8% today to.
Speaker Change: Positive in the third quarter, so what does that new lease rents look like from the start of the year to peak and how does that maybe compare to historical growth.
Speaker Change: For the year. Thanks.
Speaker Change: So our January new lease rates were negative seven one so thats kind of where we're starting in <unk>.
Speaker Change: We talked about it every.
Speaker Change: Every year that we've seen sort of normal seasonality, we see that accelerate pretty consistently through to about July so as I mentioned as we get into July we're thinking slightly positive somewhere in the one 5% range. So you can kind of do the math on the acceleration that we're assuming but.
Speaker Change: That's typical with kind of how the seasonality typically works.
Speaker Change: How does that compare to like historically.
Speaker Change: Oracle year historical curve.
Speaker Change: It certainly historical.
Speaker Change: Historical curves so the shape of the curve would look like normal it's a little bit steeper as you get into the spring and summer based on seasonality combined with declining supply pressure.
Speaker Change: Got it thank you very much.
Speaker Change: Our next question comes from the line of Adam Kramer with Morgan Stanley. Your line is opened.
Adam Kramer: Great. Thanks for taking the question and congrats Eric all the best going forward.
Speaker Change: To ask about the kind of job growth and wage growth assumptions and maybe even just kind of a higher higher level macro assumptions that you've embedded I guess, either formally or informally kind of in the guide here.
Speaker Change: Yes, I would say from a macro economic standpoint pretty consistent with what we saw in 2024. So we're expecting call. It 600000, new jobs in our markets for 25, which would be consistent with what we saw in 24 pretty consistent in terms of the in migration.
Speaker Change: We continue to see household formation and population growth all of the various factors that.
Speaker Change: That you've seen we would expect to stay pretty consistent.
And certainly be above what we see at the national level with these market spend a little bit higher gross margins and then combined with that continued low turnover continue to low move outs to buy a home and some of the other reasons, so macroeconomic pretty consistent with last year, but with a better <unk>.
Speaker Change: <unk> dynamic.
Speaker Change: Great that's really helpful.
Speaker Change: I think you just mentioned the January renewal lease number in the prior question or answer, but do you mind, just giving the kind of renewal blended number for January as well.
Speaker Change: Yes, So January new lease negative seven one renewal was four six and blend was negative <unk> nine.
Speaker Change: Got it appreciate the time guys. Thank you.
Speaker Change: Our next question comes from the line of Alexander Goldfarb with Piper Sandler Your line is opened.
Alexander Goldfarb: Hi, Good morning, good morning, good morning down there and Eric Mas.
Speaker Change: Mazeltov as I say in New York, and Brad you know that the Buck stops with you. So all of the preplanning all.
Alexander Goldfarb: Complaining and Griping now comes to your desk.
Speaker Change: Two questions first as you guys look at cap rates, you mentioned 551, I think to Jeff's vectors question, yes that costs are certainly above that how long do you think people.
Speaker Change: Because not everyone can be an all cash buyer. So what is your sense for how long people are tolerating that negative leverage and is that and do you think it's typical with what we what you've seen historically when we have periods of negative leverage or do you think people are willing to wait longer.
Brad Heffern: Yes. This is Brad I think historically.
Brad Heffern: Periods of negative leverage had been temporary I would say this has probably been one of the longest periods of negative leverage that has occurred and so what we're seeing a couple of things one is buyer.
Brad Heffern: Buyers are buying down their interest rates, a bit which helps the negative leverage some.
Brad Heffern: And then two I think.
Brad Heffern: Our underwriting an assumption of a pretty aggressive recovery in 2006 and beyond and I think that certainly helps them.
Brad Heffern: Get more comfortable with what they are negative the leverage looks like and how quickly. They can grow out of that position. So I think it really depends on what your outlook is and how aggressive youre going to be on the on the underwriting but those are two things that we're certainly seeing in the market right now.
Brad Heffern: And then as you guys underwrite projects, whether they're acquisitions or developments how much of your how much of the math is coming from other income meeting Wifi or sell service or waste or other services, meaning like years ago as pure rent, but the industry has evolved so I'm just sort of curious how much of your <unk>.
Brad Heffern: Yield now comes from things other than rent.
It's not much I mean, we certainly the one piece that I think would be probably a bigger component will be the Wi Fi piece.
Brad Heffern: We're just now rolling out across the portfolio.
Brad Heffern: That is one that certainly has positive implications from our resident experience perspective and.
Brad Heffern: And from a demand perspective from our residents as well as supporting what we're doing on self touring and things of that nature, but we've gotten away we have some properties with valet trash and things of that nature, but generally.
Brad Heffern: Those are not.
Brad Heffern: Major items that were focusing efforts on it's really in areas, where we're adding value to our residents whether it's our bulk cable that we have or our Wifi, you'll certainly those are some of the larger components of the fees that we do have.
Brad Heffern: Thank you.
Speaker Change: Our next question comes from the line of Richard Anderson with Wedbush. Your line is opened.
Richard Anderson: Thanks, and good morning and.
Richard Anderson: Eric This is an April fools joke.
Richard Anderson: It will be the best whenever.
Richard Anderson: Right.
Richard Anderson: Really really.
Richard Anderson: In honor to follow your career to this point and good luck to you what I am asking a question because I'm not going to let you get off the hook.
Speaker Change: As executive Chairman, we've heard that title before and sometimes people have difficulty just engaging you said youre going to remain active which is great I think for everybody involved.
Richard Anderson: How do you think that dynamic will play out.
Brad Heffern: Brad John J won his fingerprints are going to be all over it.
Speaker Change: Or is there going to be sort of a phased in process I'm just I'm. Just wondering when you say remain active is that like a dimmer switch as time passes or light switch.
Brad Heffern: Love to know how things will go from here.
Well I like your analogy rich.
Brad Heffern: About the switches I would.
Brad Heffern: I would definitely lean towards the Denver switch.
Brad Heffern: Concept.
Brad Heffern: And that same thing here.
Brad Heffern: Earlier, I've got tremendous confidence in Brad and tremendous comps and the team that he has with him and I think just as a function of.
Brad Heffern: Pulling back a little bit that the influence that Brad and the rest of the team have on.
Brad Heffern: Performance and how things are playing out is going to grow and my influence will diminish.
Brad Heffern: But I think that the.
Brad Heffern: The intent here is for me to continue to be actively available to to Brad to help you think about what may be coming up in terms of challenges or opportunities.
Brad Heffern: I certainly will remain tied into.
Brad Heffern: There are various reporting and things that are going on to.
Brad Heffern: Be sure I have a good finger on the pulse so that I can I can be helpful in that regard as well, but but it clearly is.
And intention here as I've seen it done successfully in other organizations for my.
Brad Heffern: Sort of involvement to diminish over time and that's.
Brad Heffern: That's the plan and Ed.
Brad Heffern: And.
Brad Heffern: Certainly remain active.
Brad Heffern: Board level for years to come I've got I've been here for 30 years and everything I have personally is tied up in the company.
Brad Heffern: Can't think of a better investment.
Brad Heffern: For my net worth and plan to.
Brad Heffern: No.
Brad Heffern: <unk> continued to do all I can do to support making it worth more in the future.
Speaker Change: Awesome, Thanks for that Eric and good luck. My second question real quick is when we've seen extraordinary conditions play out. It is often followed by extraordinary snapback like for example, the 20 plus percent type growth, we were seeing in rents when people moving back to the office and so on in 2022 I guess it was.
Brad Heffern: So we've had extraordinary supply in the sunbelt.
Brad Heffern: You are talking about a path of improvement as the year progresses.
Brad Heffern: Excited are you really for 2026 and is there a chance where lake.
Brad Heffern: Significantly outsized growth starting in 2026, but just because of the nature of the events that took place that preceded it.
Just curious if that's a possibility in your eyes.
Brad Heffern: I mean, I definitely think it's a possibility rich.
Brad Heffern: Because as you say.
Brad Heffern: I've also been around a long time and the severity of the cycle tends to define the extent of the recovery and we're coming off a 50 year high level of supply in our markets. This is this is unprecedented we haven't seen this level of supply is since we've been a public company.
Brad Heffern: <unk>.
Brad Heffern: What's so encouraging about that fact is the fact that our NOI and our overall performance moderated certainly from where we were during the COVID-19 years, but it didnt collapsed by any means.
Brad Heffern: And is held up actually pretty darn well in the Grand scheme of things.
Brad Heffern: And I think that speaks to just the appeal of this product the appeal of our markets the appeal of our portfolio and.
Brad Heffern: All of those factors that drive the appeal and drive demand are.
Still there and I think are growing I think the new incoming administration is more likely to have a positive impact ultimately on the economy than a negative at least I certainly hope that so I'm very enthused about what I continue to believe is going to be great demand side dynamics against a backdrop of what we know is going to be.
Brad Heffern: Incredibly dramatic falloff in the level of supply coming into the markets.
Brad Heffern: So that does set up a very interesting set of demand and supply dynamics going into 'twenty late this year into 2006 and 2007 that we think is going to have a hugely positive impact on our performance.
Speaker Change: Okay, great. Thanks very much.
Eric Wolfe: Thank you again, Eric Thank you rich appreciate it.
Speaker Change: Our next question comes from the line of Steve Sochua with Evercore ISI. Your line is open.
Steve Sochua: Yes. Thanks, most of my questions have been asked so I just wanted to maybe ask clay one on just the refinancing of the bonds I think you threw out a 5% rate.
Steve Sochua: I guess I'm really curious where do you think your spreads are today I realize the 10 years pretty volatile so trying to peg it to an exact rate today it might be hard, but where do you think a 10 year issue would be for you today.
Steve Sochua: When you're sitting around little over 440.
Steve Sochua: Yes, Steve.
Steve Sochua: In December we actually issued some bonds and actually got a record record low spread of 78 basis points.
Steve Sochua: With that transaction, given where the treasury has has trended since that point in time.
Steve Sochua: I suspect that spread is probably ticked up.
Steve Sochua: Several basis points, but I would still say somewhere between $80 85.
Steve Sochua: Yes.
Steve Sochua: Okay, great. Thanks.
Speaker Change: Our next question comes from the line of Michael Gorman with <unk>. Your line is opened.
Speaker Change: Yes, Thanks, just a couple of quick ones.
Speaker Change: Going back to the transaction side of things just trying to understand how we should think about the potential timing of investments over the course of the year, if I kind of marry it up to your discussions of the fundamental strength kind of improving in the markets.
Speaker Change: Your focus on lease up properties should we expect.
Speaker Change: Acquisition opportunities maybe to be front end loaded before maybe some of that lease up opportunity hits and maybe more competition comes into the space or how should we think about that.
Speaker Change: Yes.
Speaker Change: Just based on what we're seeing in the market right now and what we heard last week at <unk>. My sense is that the market is probably going to be slower the first half of the year and will likely tick up.
Speaker Change: Maybe midyear and into the third quarter and obviously.
Speaker Change: Those properties come out and hit the market it takes.
Speaker Change: 90 to 120 days.
Speaker Change: For some of these to close so.
Speaker Change: My sense is it's going to be third quarter before we really start to see the volume pick up on the transaction side.
Speaker Change: Okay, Great. That's helpful. And then maybe just one last one I apologize if I missed it but you mentioned outperforming on the collections front, what do you have baked into the 25 guidance in terms of delinquencies.
Speaker Change: Yes, we are.
Speaker Change: It's pretty consistent with what we've seen this past year. So I think we've got about 30 basis points.
Speaker Change: Five basis points assumed for delinquencies and.
Speaker Change: And the 2025 got it.
Speaker Change: Great. Thanks, so much.
Speaker Change: Our next question comes from the line of Haynesville St Juste with Mizuho. Your line is opened.
Speaker Change: Yes, good morning.
Speaker Change: Erica golf Clap, it's been a pleasure.
Speaker Change: I had a couple of quick questions I wanted to.
Speaker Change: First a follow up.
Speaker Change: I think it was Michael <unk> question earlier, I am curious how much actual rents would need the change over the course of this year for new lease rates to be positive not just how much new lease spreads would need to improve but the actual dollar per unit change from now until the third quarter and then maybe some context on what that would perhaps look like in a more normal year. Thanks.
Speaker Change: Yes.
Speaker Change: If you think about so if I look at January for example, the all of the new lease absolute rents that we put in place compared to January of last year, it's about a negative one 5% spread and that that gap has continued to narrow throughout 2024. So you are call it $25 gap.
Speaker Change: And that year over year look so that can give you a little bit a little bit of perspective on what that gap looks like.
Speaker Change: We typically would say if you think about market rents is whatever December was and then how it trends on new leases throughout the year, we would see July probably four 5% above December ramps are then trend back down.
Speaker Change: So something less than that is really what we have dialed in but.
Speaker Change: That gives you a little bit of perspective.
Speaker Change: I appreciate that.
Speaker Change: My second question is on the outlook for the turnover. This year I think you guys mentioned.
Speaker Change: Flat relative to last year, and lastly, I think you had close to <unk>.
Speaker Change: Almost 60% retention one of the highest levels.
Speaker Change: Can remember, but I'm curious if demand in market rates start to show some improvement as we expect and you start pushing a bit more for for pricing power wouldn't that cause some upward pressure on turnover. So just curious on how you're thinking about your expectations for turn over this year.
Speaker Change: Yeah, I mean, certainly there.
Speaker Change: It does but I would argue right now with all of the.
Speaker Change: Options that are out there in the market and all the supply that is out there I mean people have more options certainly than they ever have so that's.
Speaker Change: Theres more instead of frankly to move right now given the concession environment and all the supply that's out there and yet we haven't seen that turnover pickup. So I think it's more macro driven its biggest reason to move out as has always been to buy a house and that's extremely difficult not only with interest rates, but with where single family home.
Speaker Change: Prices are they continue to grow even us our rents have moderated over the last year. So I think it's more of a macro picture.
Speaker Change: Terms of price style changes in life events, thats driving it more lesser than the.
Speaker Change: The current pricing position.
Speaker Change: Okay.
Speaker Change: I appreciate the thoughts thanks, guys.
Speaker Change: Our next question comes from the line of Rich Hightower with Barclays. Your line is open.
Rich Hightower: Hey, good morning, guys and again, congrats to both Eric and Brad.
Speaker Change: Just one for me.
Speaker Change: If we are if you are keeping a steady development pipeline it sounds like right around $1 billion give or take.
Speaker Change: But if we see this air pocket of sorts in in new supply going forward, where maybe you can lean into development a little more.
Speaker Change: <unk>.
Speaker Change: Sort of current projects trail off.
Speaker Change: What's the appetite the capacity, obviously, you've got a great balance sheet.
Speaker Change: And I assume you could flex that up anytime you like so just tell us about the thoughts around maybe increasing development from here. Thanks.
Speaker Change: Yes, I mean, I think certainly development is one of the best uses of capital that we have today, especially given what we think there'll be a diminished supply pipeline going forward and.
Speaker Change: It takes time to really build that pipeline and.
Speaker Change: Two years ago that we had that pipeline was at about $450 million and today, it's close to 900.
Speaker Change: And where we want to keep it. So the team has done a tremendous job of really building it to that point and.
Speaker Change: I do think yes.
Speaker Change: Eric said in his comments and I've mentioned the <unk>.
Speaker Change: <unk> that we had in 2024 is a record level for us and so we have really good momentum in terms of building that and we'd like to really keep it elevated.
Speaker Change: Today.
Speaker Change: We expect another three to four projects to start this year, which will keep us at that level, where I think you could potentially see additional opportunities.
Speaker Change: Could be in our JV.
Speaker Change: Pre purchase platform, where we partner with other developers because we are seeing.
Speaker Change: Continued instances where equity capital.
Speaker Change: As backing out of deals that we're able to step into potential deals that are pretty close to shovel ready. We have a couple of opportunities. We're looking at like that for this year, which could allow us to quickly add additional projects to that pipeline. So that's an area. We'll continue to focus on we'd like to keep our ear.
Speaker Change: <unk> there are no more than about 5% of our enterprise value, which keeps us kind of in that call. It $1 $2 billion range something in that.
Speaker Change: Area. So we'll continue to focus on development and to the extent that we're able to lean into that a bit more we will.
Speaker Change: Okay very helpful. Thanks.
Speaker Change: Our next question comes from the line of Rob Stevenson with Janney. Your line is opened.
Speaker Change: Rob you appear to be muted.
Speaker Change: Yeah.
Speaker Change: Okay. We're going to go ahead and move on our next question comes from the line of Wes Golladay with Baird. Your line is open.
Wes Golladay: Hey, good morning, everyone and congratulations to both Eric and Brad.
Wes Golladay: Question for you on migration to the Sunbelt has there been any change in volume or where theyre coming from.
Wes Golladay: Since theyre not really I mean, it's it's.
Wes Golladay: It sort of hovered in that.
Wes Golladay: And the 12% 13% of our move ins coming from outside of the sunbelt into the Sunbelt and that's that's.
Speaker Change: So Dan that range and generally it's a it's obviously the larger states was where they tend to come from its California, New York and Chicago and some of those so broadly the trends are the same as they've been for the last year or so.
Speaker Change: Okay, and then you're doing a lot of asset recycling. This year is there any appetite to lever up a little earlier in the cycle.
Speaker Change: Yes.
Speaker Change: Yes, so well off youll, probably see a little bit of that is as we as we look to acquire Brian mentioned some of those acquisitions are probably be in the latter part of the year. What we're the way we're thinking about the cadence of that those is to your point west as it does dispositions will probably fall off in the back part of the year and so you might say a little bit of lever up to.
Speaker Change: Defend some of the development pipeline that we've talked about and as well as some of the acquisitions that we've that we've guided towards as well.
Speaker Change: Okay, well. Thank you everyone. It wouldn't be anything outside of what we stated as far as where our leverage would go down.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Linda Tsai with Jefferies. Your line is opened.
Speaker Change: Hi, Thanks for taking my question Erik Congratulations again, you really a paradigm for leadership.
Speaker Change: Youre, earning a <unk> 15 negative <unk> 15 to negative 50 bps based on pricing through October.
Speaker Change: Maybe just some more color on that and how does that compare to a year ago.
Speaker Change: Okay.
Speaker Change: Yes, so last year our earn in was.
Speaker Change: Positive 50 basis points.
Speaker Change: And so as I mentioned in my comments that the earn and we have going into 2025 is negative 40 basis points I think youre alluding to our NAREIT presentation that we had provided back in November the difference. The mid point of that was obviously at 35 basis point negative 35 basis points. So we did see a little bit of pressure in November and December and in price.
Speaker Change: <unk>.
Speaker Change: That ball from that midpoint down to the negative 40 basis points.
Speaker Change: And then the steep drop in supply pressure in markets over 20% like Houston, Atlanta, Orlando is that supply coming down at the same time collectively or is it sort of lumpy.
Speaker Change: Yeah.
Speaker Change: It's relatively consistent when you think about it across markets because it's Hugh.
Speaker Change: You go back to the starts that we talked about the kind of peaks in second quarter third quarter of 2022, there's a couple of markets where that peak was a quarter earlier a quarter later, but for the most part it was right in that range. So I would expect a relatively steady decline, it's pretty consistent across most markets.
Speaker Change: Certainly there is a few that are still seeing increasing supply, but on balance it's a pretty consistent trend.
Speaker Change: Thank you.
Our next question comes from the line of and Chan with Green Street. Your line is opened.
Speaker Change: Hey, good morning, everyone. Thanks for taking my questions.
Speaker Change: So first question going to the topic of portfolio allocation over the next few years do you expect to exit any markets or enter any new markets and if so which markets are on your shortlist.
Speaker Change: Yes, Ann this is Brad I mean, we definitely have some markets, where we have one or two assets that over time, we will continue to cycle out of and drive efficiencies I mean broadly speaking, we we like our overall portfolio allocation, where we are located in the split between kind of our larger mark.
Speaker Change: That's in our mid tier markets. So certainly not looking to do any type of large repositioning of the portfolio, but some of those markets, where we have one or two assets will certainly look to.
Speaker Change: To call out of over time in terms of other markets. I mean, we do have newer markets for us that we need to continue to grow in <unk>.
Speaker Change: Denver.
Speaker Change: Got a pretty big development pipeline, there, where we continue to add assets and grow to that market, which is.
Speaker Change: Newer market for our Salt Lake City is another one where we need to continue to grow and fill out and we are looking at newer markets that.
Speaker Change: It did have some of the same characteristics of our our high growth markets.
Speaker Change: Columbus, Ohio is certainly a market that we've studied and are looking at and so we will see it has a lot of the similar characteristics as our other markets in terms of job growth.
Speaker Change: And things of that nature.
Speaker Change: Thanks.
Speaker Change: Sorry, second question shifting over to development and construction costs.
Speaker Change: Have you observed any changing trends and excellent cost components labor and material costs et cetera over the last few months and.
Speaker Change: To the extent that a jive does that envision when would you need to see construction cost.
Speaker Change: Yes more.
Speaker Change: More attractive.
Speaker Change: Thank you.
Speaker Change: <unk>.
Speaker Change: Yes, I mean, we have seen construction costs come down I mean really over the better part of 2024.
Speaker Change: What wasn't as broad based in 2024 selectively we saw four 5% reduction in certain markets I would say at this point.
Speaker Change: We are seeing it in additional markets probably in that five.
Speaker Change: 5% or so range and generally that's more than we've seen some labor reduction we've really seen reduction in margins that expanded over the last couple of years by subs in gcs. So we've seen some improvement there.
And I think for us to continue to increase our development.
Speaker Change: Need to see costs, a combination of cost and rent improvement to.
Speaker Change: To the tune of call it 5% to 7%. Additionally.
Speaker Change: We have.
Speaker Change: Our pipeline of sites that we own with with projects that are approved and to the extent, we continue to see some improvement in the.
Speaker Change: In the underwriting of those with construction cost enrollments more of those will begin to pencil as we progress throughout this year.
Speaker Change: Great. Thanks, so much.
Speaker Change: [laughter].
Speaker Change: Our next question comes from the line of Tayo Okusanya with Deutsche Bank. Your line is opened.
Tayo Okusanya: Hi, Yes, good morning, again, let me add.
Speaker Change: My congratulations as well.
Speaker Change: With this acquisition.
Speaker Change: Eric maybe just gives you a little bit more time to get that next tiara in a marathon.
Speaker Change: Mike.
Speaker Change: My question has to do with again you guys have been very offensive minded in the past.
Speaker Change: So opportunities for kind of distress.
Speaker Change: So when do you kind of took advantage of some of the oversupply and whether they'd be doing to developers.
Speaker Change: But it sounds like again cap rates for acquisitions are still pretty tight and it doesn't sound like that.
Speaker Change: Scott distress out there so when we kind of think about this opportunity that you've described for the better part of the past one year just.
Speaker Change: How real excited about too.
Speaker Change: And how do we kind of start thinking about maybe is there an opportunity to kind of buy.
Speaker Change: Well no.
Speaker Change: Posco.
Speaker Change: The opportunities that are really kind of value added that create shareholder value.
Speaker Change: An environment of distress.
Tayo Okusanya: Yes, tayo spread.
Speaker Change: Definitely we haven't seen.
Speaker Change: Lot of distress frankly.
Speaker Change: And we'll continue to focus where we have and Thats thats generally in these projects that are in lease up I mean, we do think that.
Speaker Change: Those will continue to face a bit of pressure just given the amount of supply that's out there.
Speaker Change: Given the strength of our operating platform I mean, we are tool to to really take advantage.
Speaker Change: Of those and there are some some sellers out there that are interested in selling some of those properties earlier before they're stabilized and still.
Speaker Change: Generate a very similar return for their capital.
Speaker Change: As they would if they wait until it till its stabilized and they sold at a higher price so based on our experience in our markets our relationships.
Speaker Change: We're still able to find opportunities like that where we're able to get some of these assets at some of these high yields close to 6%.
Speaker Change: On a stabilized basis at replacement well below replacement cost. So we'll continue to focus in that area.
Speaker Change: You could see some distress, perhaps in some of the older assets that sold in 2000 22021 with the refinancing that has to come due but for the most part some of that.
Speaker Change: Most of that would not be something that we're interested generally.
Speaker Change: Okay helpful and if I can ask one other quick one again, thanks for the update about bad debt.
Speaker Change: What about some of the fraud related issues that were kind of going on in the market.
Speaker Change: Are you seeing in terms of what whether it's kind of gotten worse or gotten better. Both in terms of just overall activity also in terms of some of your preventive measures as well against those losses.
Speaker Change: Pam I think you were asking about fraud and bad debt is that correct can you kind of cut out of that for a second yes alright.
Speaker Change: We've seen continued.
Speaker Change: Lowering pressure I would say Atlanta has been the market.
Speaker Change: Has it been talked about a lot in our delinquency. There is just about consistent with where we are at the broader portfolio level I mean, we have.
Speaker Change: A lot of tools in place both in terms of sort of AI machine learning type of stuff plus.
Speaker Change: Training that we do both on site and some resources, we have it at the corporate level as well to where if there's anything that looks a little bit off in terms of income documentation or IV or whatever we've got people that are trained to really help spot that and take a look at the so.
Speaker Change: Being very preventative it's been helpful.
Speaker Change: Probably.
Speaker Change: Occupancy for awhile, there in Atlanta, but it's got to be better long term and we started to see that play out with continued lower bad debt. So honestly not not much of an issue at all for us.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of John Kim with BMO capital markets. Your line is opened.
Speaker Change: Thank you and Eric congratulations on transforming MAA from good to great.
Speaker Change: Brad I had a question Jos.
Speaker Change: I had a question on <unk>.
Speaker Change: In the press release, you talked about.
Speaker Change: Some markets seeing positive lease over lease rates versus last year, and I'm wondering what comp what markets those are and where you feel most bullish about.
Speaker Change: Which markets will be driving improvement in blended lease growth this year.
Speaker Change: Yeah.
Speaker Change: Hey, John This is Tom I'll answer some of the detail there. So we did see.
Speaker Change: 13 markets, where we had positive blended <unk>.
Speaker Change: In January which was encouraging and it was pretty widespread among some some mid tier and smaller in some larger markets as well I would point to the Tampa is one that.
Speaker Change: We've really seen some good traction in the last two quarters or so and has trended above the portfolio I think thats, one where we could see some.
Speaker Change: Improving performance 2025, when you think about it.
Good markets. If you will there's there's the ones that have been good aren't going to drive. Good revenue. Now then there is the ones where the pricing is improving and it's more typical spirit. It will show up in revenue until later so the first bucket is going to be some of the ones. We've talked about it's a D. C. It's Houston, it's Charleston, those or can we expect to continue to be strong and there's markets like Tampa and output.
Speaker Change: Put orlando in that bucket as well that are starting to show some some improvement and we think as you get later this year. Those are a couple that we expect to see some some better performance from MMO Austin still one that we expect to continue to be a.
Speaker Change: A laggard with continuing supply pressure, there, but tampa and Orlando would be two that I would point out is trending markets for us.
Uh huh.
Speaker Change: And then to get to your negative one 5% new lease rate for the year, what kind of market rent growth are you assuming.
Speaker Change: And if you can comment on your current gain to lease and how much of a headwind that will be in order to get that new lease growth rate.
Speaker Change: Having gained always about 1% right now, which it always tends to gap out this time of the year when when pricing is weaker so.
Speaker Change: I would expect we saw January market rents were a little bit higher about 5% higher than what December were.
Speaker Change: So I think the battle that will trend up through the summer and then trend back down.
Speaker Change: But probably the best way to think about it.
Speaker Change: Talked about our nearly 47 rates.
Speaker Change: For the full year expected to be kind of in that negative one 5% range. So over the full year it should that should correlate.
Speaker Change: Correlate pretty well with market rent growth.
Speaker Change: Great. Thank you.
Speaker Change: We have no further questions I'll return the call to MMA.
Speaker Change: <unk> for closing remarks.
Speaker Change: Okay.
Speaker Change: No further comments from the company. So we appreciate everyone joining us.
Speaker Change: We will see many of you at the conference in February or March city. Thank you.
Speaker Change: This concludes today's program. Thank you for your participation you may now disconnect at this time.
Speaker Change: Yeah.
Speaker Change: Okay.
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Speaker Change: Yeah.
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