Mid-America Apartment Communities Q4 2024 Earnings Report

Mid-America Apartment Communities EPS Results

• Actual EPS: $2.23
• Consensus EPS: $1.04
• Beat/Miss: Beat by +$1.19
• One Year Ago EPS: N/A

Mid-America Apartment Communities Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $552.05 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Mid-America Apartment Communities Announcement Details

• Quarter: Q4 2024
• Date: 2/5/2025
• Time: After Market Closes

Mid-America Apartment Communities (NYSE:MAA) is a real estate investment trust, which engages in the operation, acquisition, and development of apartment communities. It operates through the Same Store and Non-Same Store segments. The Same Store Communities segment represents those apartment communities that have been owned and stabilized for at least 12 months as of the first day of the calendar year. The Non-Same Store segment includes recent acquisitions, communities in development or lease-up. The company was founded in 1994 and is headquartered in Germantown, TN.

Mid-America Apartment Communities Q4 2024 Earnings Call Transcript

Presentation

[Operator]

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

[Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets at Mid-America Apartment Communities]

Thank you Ian and good morning everyone. This is Andrew Schaefer, Treasurer and Director of Capital Markets for maa. Members of the management team participating on the call this morning are Eric Bolton, Brad Hill, Tim Argo, Clay Holder and Rob Del 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. Actual results may differ materially from our projections.

We encourage you to refer to the Forward looking Statements section in yesterday's earnings Release and our 34 act filings with the SEC which describe risk factors that may impact future results. During this call we will also discuss certain non GAAP financial measures. A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non GAAP and comparable GAAP measures can be found in our earnings release and Supplemental Financial Data.

Our earnings release and supplement are currently available on the 4 investors page of our website at www.maac.com. a copy of our prepared comments and an audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions.

I will now turn the call over to Eric.

[H. Eric Bolton Jr., Chairman and Chief Executive Officer at Mid-America Apartment Communities]

Thanks Andrew and good morning. As reported in our earnings release, MAA finished calendar year 2024 in line with our expectations and is in a great position for the recovery cycle for apartment leasing that should be increasingly evident over the course of this year.

While we are still working through the impact of record high levels of new supply delivered over the past, 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 leasing season when the improving trends will have a more obvious compounding impact on overall portfolio results late this year and into 2026. Before turning the call over to Brad, I did want to take just a few minutes this morning and tell you why I'm excited and confident about the prospects for MAA's earnings outlook over the emerging recovery cycle.

It starts with my confidence in our leadership team. As we disclosed In December, effective April 1, we plan to execute on the next step in our CEO succession planning program and Bradley will assume the role of President and CEO. I'll remain active in supporting Brad and our board as Executive Chairman.

Brad and his Executive leadership team have an average tenure of 16 years with our company. I know this leadership team well and I have a lot of confidence in them. Brad and his team have a deep understanding of our strategy and our approach to executing on that strategy which has delivered sector leading long term results for shareholder capital.

Beyond my confidence in our leadership team While our markets have more recently been challenged with a 50 year high record of new supply deliveries, there is increasing evidence that the worst of the pressure from this new supply is poised to materially moderate, especially as we get into the summer leasing season. As we have discussed, we historically have seen the actual delivery and leasing pressure from competing new development at roughly two years after the start of construction. Based on our analysis, the volume of new construction started in calendar year 2023 or two years ago dropped 39% from the peak of starts during the extraordinarily low interest rate environment in calendar year 2022 and then starts sequentially dropped another 50% in calendar year 2024.

So this is expected to result in a significant decline in actual unit deliveries start and into 2026 and 2027. Given where we are currently with interest rates and construction costs, we continue to see challenges in the market's ability to meaningfully restart and increase the new projects. Taken together, we believe these conditions will manifest in a sharp drop in new supply delivery starting this year and continuing for several years.

In addition to this 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. This continues to drive a resulting growth in the demand for apartment housing across our markets that will outpace national trends over the long haul. This strong positioning for the demand side of the equation, coupled with the material drop in new supply this year and beyond, we believe will have a significant impact on market rent growth across the portfolio for the next few years.

Furthermore, I'm excited about the various new tech initiatives we have underway aimed at driving enhanced services for our residents and more efficiencies within our operating platform. Several new initiatives that we have more recently implemented, coupled with new projects that will launch over the coming year, we expect will further increase operating margin and accelerate earnings over the next few years and finally Our external growth pipeline is stronger and larger than at any time in our company history. We have several new projects slated to deliver over the emerging recovery cycle with other new sites already lined up and importantly, the balance sheet is strong and well positioned to continue to support this growth.

So in summary, the experience and proven capabilities of our leadership team, our orientation towards the strongest growth in housing demand markets in the country, the strength of our operating platform with growing efficiency, and the more robust external growth pipeline we have in place that is supported by a sector leading strong balance sheet, all combined to drive much enthusiasm and confidence in my outlook for MAA over the next few years. As this will serve as my last earnings call prior to the transition of the CEO role, I'd like to extend my appreciation and thanks to our shareholders and to the analyst community for your trust in our company and our team. It's truly been an honor to serve the public capital markets over the past 30 years here at MAA.

Our culture at MAA is grounded in a strong belief that our stewardship of MAA assets and shareholder capital is at all times focused on creating value for the benefit of our residents, our shareholders, our associates and the communities where we operate. I'm proud of our associates at maa. I appreciate their hard work and support and I look forward to MAA delivery even higher value in the future for those that we serve.

Turn over to Brad now.

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Thank you Eric and good morning everyone. As expected during the fourth quarter, our focus on occupancy combined with higher new supply and the typical seasonal slowdown 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.

Encouragingly, this pressure has continued to moderate in January, with blended pricing improving more from the fourth quarter's performance than in previous years, predominantly due to improvement in our new lease pricing. I share Eric's optimism for our growth prospects and momentum toward delivering strong long term earnings. As Tim will discuss in more detail, we are seeing encouraging signs that indicate leasing conditions are poised to support improvement in blended lease rates and have a compounding impact on revenue performance throughout the year.

Continued strong absorption, occupancy and exposure, improved seasonal performance, and an expected more meaningful reduction in supply pressure all contribute to a favorable outlook for our existing portfolio. Additionally, we're continuing to invest in several key areas that will significantly impact future earnings, including various technology initiatives that will support our centralization efforts and enhance efficiencies. In 2025, we will begin to more aggressively roll out property wide WI FI across our portfolio and we will ramp up the rollout over the next couple of years as a number of our properties transition off of our legacy bulk WI FI program.

We also plan to increase our investments in the interior renovation and repositioning programs, both of which benefit from the higher 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 a billion dollars. In 2024, we invested in a record five projects expected to deliver average NOI yields at stabilization of 6.3%, ending the year with seven projects under construction representing over 2,300 units at a cost of approximately $850 million. We expect to start construction on another three to four projects in 2025. As the transaction market begins to open later this year, we'll continue to opportunistically deploy the capital into acquisitions that are in their initial lease up during the fourth quarter.

We closed on a 386 unit property early in its initial lease up in the Dallas market. This property was 44% occupied at the end of the fourth quarter and is expected to stabilize in early 2026. This brings our total acquisitions in 2024 to three properties which were on average 65% occupied at closing and projected to deliver NOI yields of 5.9% upon reaching stabilization in 2025 and 2026. During the fourth quarter, we sold two properties with an average age of 29 years, 216 unit property in Charlotte, North Carolina and a 272 unit property in Richmond, Virginia, delivering a combined investment period IRR of approximately 19%. We have two additional properties in Columbia, South Carolina under contract and expect those to close in the first quarter of 2025.

We will continue our focus on strengthening our overall earnings quality by recycling capital out of some of our older, higher capex properties and redeploying that capital into newer acquisitions with a higher earnings growth profile, particularly on an after capex basis. We expect to execute on the balance of our $325 million disposition plan late in the year. At the end of the fourth quarter we had eight communities in lease up four acquisitions and four developments with an end of the year occupancy of 69.7%.

We expect the acquisitions to average NOI yields at stabilization of 5.9% and the developments to average NOI yield around 6.4%. Due to the high level of competition in many of our markets and our intent to hold firm on our rent pricing expectations, we pushed the expected stabilization dates back slightly on a few of our lease up Properties. By 1/4. 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. Our existing portfolio is well positioned to benefit from the improving demand and supply trends with our various growth initiatives providing additional earnings over the recovery cycle to all of our associates at the properties and our corporate and regional offices.

Thank you for your commitment, hard work and dedication that you show every day to our prospects, residents and fellow associates. Before turning the call over to Tim, I do want to take a moment to say a few words in recognition of Eric ahead of his transition to the Executive Chairman role. Over his 30 years of service to MAA, with 23 years as our Chief Executive Officer, Eric has been instrumental in so many ways to this company. His dedication to serving our various stakeholders is second to none. We are grateful for his vision and wisdom, his courage and his discipline in leading this company to unmatched performance. His mentorship and counsel over the years to so many in the industry and especially to ma's executive leadership team and to me exemplify the tremendous leader that he is. Eric, for all you've given to our company and to the industry, we thank you.

With that, I'll turn the call over to Tim.

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

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. We particularly focused on the higher exposure markets which came at the expense of slightly weaker new lease pricing performance, but achieved the occupancy goals for which we were striving.

The moderation in new lease pricing showed less seasonal deceleration than we saw in 2023 and less than we typically see from the third to fourth quarter. As a result of this strategy, new lease pricing on a lease over lease basis for the fourth quarter was down 8%, a 260 basis point decline from the third quarter, but favorably comparable to a 470 basis point decline over the same period in 2023. Renewal rates for the quarter stayed strong, growing 4.2% on a lease over lease basis which was a 10 basis point increase sequentially over the third quarter. The resulting 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. Average physical occupancy was 95.6%, up 10 basis points from the third quarter and collections continued to outperform expectations with net delinquency representing just 0.3% of build rents. All these factors drove the resulting same store revenue down 0.2% for the quarter and up 0.5% for the full year of 2024. As was true for most of 2024, several of our mid tier markets continued to hold up better than the broader Portfol 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. Tampa and Orlando are two larger markets that started to show some relative pricing recovery. Also as was true for most of 2024, Austin, Atlanta and Jacksonville are markets that continue to be more negatively impacted by the absolute level of supply being delivered into those markets, with Austin continuing to be the toughest challenge of all the markets.

We continued our various redevelopment and repositioning initiatives in the fourth quarter and as Brad mentioned earlier, we expect to accelerate these programs over the course of 2025 and into 2026. For the fourth quarter of 2024 we completed 1,130 interior unit upgrades bringing our year to date total to 5,665 units, achieving rent increases of $106 above non upgraded units. Despite this more competitive supply environment, these units lease about 10 days quicker on average than a non renovated unit when adjusted for the additional turn time.

We expect to renovate closer to 6,000 units in 2025 with an even larger increase expected in 2026. For our repositioning program we have two active projects that are most of the way through the repricing phase with NOI yields approaching 10%. We have an additional six projects underway with a plan to complete construction between April and June and begin repricing in what we believe will be a strengthening leasing environment.

We are also now live on the four property wide WiFi retrofit projects we began in 2024 and expect to begin an additional 23 projects in 2025. With January wrapped up, we are seeing encouraging trends that are aligned with our outlook for 2025. New lease and blended pricing in January improved as compared to both December and the full fourth quarter with stable occupancy of 95.6%.

Our 60 day exposure at the end of January was 7% 70 basis points lower than this time last year and should serve to keep occupancy stable through the remainder of the quarter and allow for more pricing power as seasonal demand starts to increase. The 95.6% January average daily physical occupancy was 25 basis points higher than January of 2024.

As Brad noted, absorption remains strong in our markets, with the fourth quarter representing the second consecutive quarter that units absorbed exceeded units delivered the excess absorption as compared to new supply in the fourth quarter, with the largest gap since the third quarter of 2021. With new lease pricing improving, though remaining a challenge, we are also encouraged by the lease over lease rates achieved on accepted renewals through April, with average increases in the 4.25% range.

Improving new lease rates should help support continued strong renewal performance into the busier spring and summer leasing season. New supply deliveries continue to be a headwind in many of our markets, but the trends support expected improvement throughout 2025, laying the groundwork for an even stronger 2026. Following on Eric's comments, With construction starts peaking in mid to late 2022 in most of our markets, we believe we have passed the maximum pricing pressure period that tends to come two years or so after the peak of construction.

The slow supply pressure, increasing spring and summer leasing traffic, and our current occupancy exposure portfolio position have us excited about the recovery to come.

That's all the way I have in prepared comments. We'll now turn the call over to Clay.

[A. Clay Holder, Executive Vice President and Chief Financial Officer at Mid-America Apartment Communities]

Thank you Tim and good morning everyone. We reported core FFO for the quarter of $2.23 per share, which was in line with our fourth quarter guidance and contributed to core FFO for the full year of $8.88 per share in line with our original guidance for the year. Our same store revenue results for the quarter were relatively in line with expectations. As Tim mentioned, same store revenues benefited from strong occupancy and collections during the quarter.

Our same store expense performance was slightly unfavorable compared to our guidance due to personnel cost and other property expenses. Favorable interest expense and non operating income offset the increase in same store expenses 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 million of capital through our redevelopment and repositioning programs during the quarter, which we expect to continue to enhance the quality of our portfolio and produce solid returns upon completion. Our balance sheet remains in great shape. We ended the quarter with over $1 billion in combined cash and borrowing capacity under our evolving credit facility, providing significant opportunity to fund future investments.

Our leverage remains low with net debt to EBITDA at four times and at quarter end Our outstanding Debt was approximately 95% fixed with an average maturity of 7.3 years at an effective rate of 3.8%. During December, we issued $350 million of 10 year public bonds at an effective rate of just over 5%, using proceeds to pay down our outstanding commercial paper.

These proceeds provide an accretive use of capital given the expected stabilized NOI yields approaching 6% or greater on our recent acquisitions and current developments that Brad previously mentioned. Finally, we provided initial earnings guidance for 2025 with our release which is detailed in the Supplemental Information Package. Core FFO for 2025 is projected to be at $8.61 to $8.93 or $8.77 at the midpoint.

As has been outlined in the prior comments, we expect the momentum in rental pricing to grow over the course of the year and to drive improving year over year performance in Core FFO over the back half of the year. The proposed 2025 same store revenue growth midpoint of 0.4% results from a rental pricing earn in of minus 0.4% combined with a blended rental pricing expectation of 1.7% for the year. We expect blended rental pricing to be comprised of new lease pricing that will continue to be impacted by elevated supply levels and renewal pricing in line with historical levels.

We expect the impact of these elevated supply levels to improve over the course of the year. For the same store portfolio, we expect effective rent growth for the year to be approximately 0.2% at the midpoint of our range 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 2.5%. Same store operating expenses are projected to grow at a midpoint of 3.2% for the year. Personnel and repair and maintenance costs are expected to grow just over 3% while expect some continued pressure for marketing costs and insurance expense. These expense projections combined with the revenue growth of 0.4% results in a projected decline in same store NOI of 1.15% at the midpoint.

We currently have nine communities actively leasing and an additional community that stabilized in late 2024. Given the interest, carry and leasing velocity of these recently acquired and completed developments, we anticipate our lease up pipeline being slightly diluted to Core FFO in the first half of the year before turning accretive later in the year as more projects stabilize, contributing about $0.03 to core FFO for the year net of the interest carry.

We expect continued external growth in 2025, both through acquisitions and developments. We anticipate a range of 350 to 450 million dollars in acquisitions, all likely to be in lease up and not yet stabilized, and a range of 250 to 350 million dollars in development investments for the year. This growth will be partially funded by asset sales, which we expect dispositions of approximately $325 million, with the remainder to be funded by debt financing and internal cash flow.

This external growth is expected to be slightly diluted to core FFO in 2025 and then turn accretive to core FFO after stabilization. We project total overhead expenses, a combination of property management expenses and G and A expenses to be $134.5 million at the midpoint. A 4.5% increase over 2024 results. We also expect to refinance $400 million in bonds maturing in November 2025. These bonds have an effective rate of 4.2% and we are forecasting to refinance at 5%. This anticipated refinancing, coupled with our 2024 refinancing activities will result in $0.03 of dilution to core FFO as compared to prior year. Combined with financing to support our expected growth for 2025, we project interest expense to increase by approximately 13% for the year. That is all that we have in the way of prepared comments.

So Ewan, we will now turn the call back to you for any questions.

Questions and Answers

[Operator]

Thank you. Once again, 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. Our first question comes from the line of Jamie Feldman with Wells Fargo. Your line is opened.

[James Feldman, Analyst at Wells Fargo & Company]

Great. Thanks for taking the question. I was hoping you could put a finer point on the 1.7 blend outlook for 25. Can you talk exactly about what you're thinking for new versus renewal? And then is there a point in the year where you think new spreads actually turn positive and maybe talk a little bit more about the cadence throughout the year of that 1.7%?

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

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

[James Feldman, Analyst at Wells Fargo & Company]

Okay. And sorry, did you, do you think you'll see any months or quarters with positive new lease? Yeah, I would say as you get into typically, what we see if you think about normal seasonality is new lease pricing sort of accelerating January through to about July and then starting to moderate as you get into August.

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

So I would expect as we get into late Q2, early Q3, we expect to have two or three months where we'll be slightly positive on the new lease rate and then trend back down to negative as you get into late Q3 and into Q4.

[James Feldman, Analyst at Wells Fargo & Company]

Okay, and then what are you guys thinking on turnover? How does that trend throughout the year expecting pretty consistent with where we were in 2024.

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

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

[James Feldman, Analyst at Wells Fargo & Company]

Okay, great. Thanks for the color and Eric, congratulations again.

[H. Eric Bolton Jr., Chairman and Chief Executive Officer at Mid-America Apartment Communities]

Thank you.

[James Feldman, Analyst at Wells Fargo & Company]

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

[Eric Wolfe, Analyst at Smith Barney Citigroup]

Hey, I just wanted to follow up there. I mean I. When I look at the contribution to your same store revenue from the 1.7% blend, it looks like it's sort of on the lower end, which suggests that there's probably a good back half weighting to the blended spread. And so I was just curious if that's the case, if you could just maybe provide like, you know, you expect the first half to be in like a half percent range and then it's a step up to over two and a half percent or if the difference is really just seasonally. Like you just think the seasonally, the second quarter and third quarter will be sort of a very normal lift. I'm just trying to understand if this is like a sort of a back half type of prediction for this year.

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Not necessarily a back half prediction. I mean we expect the normal seasonality as I was talking about and Certainly for new lease rates to moderate as you get late Q3 and into Q4. So it's really another thing. Keep in mind obviously when you, when you think about mid Q2, early Q3, we also have the bulk of our leases expiring during that time. So matching up some of the more positive new lease rates with the maximum number of leases is really what drives that weighting.

But as I mentioned, we expect to get slightly positive call to the one to one and a quarter range for a couple months in the middle of the year and then start to trend back down. So it's, it's the combination of the weighting of the lease expirations and then obviously the balance between new lease and renewals. We expect renewals will be a heavier weighting as they were this year with consistent turnover. So that's really what's driving the full year number.

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Eric, this is Brad. I'll just add one additional item to that. Certainly as you look at the supply and the new deliveries as we get into this year, I mean, you know, as we look back, the new supply that was started in 2023, clearly there was a drop off in that new supply in the back half of 2023, which we think really informs the supply pressure as we get into 2025. So you know, as we mentioned in our comments, you know, we are in still an elevated level of supply today. We're off the peak of where we have been in 2024 and that supply picture will continue to get better as we go throughout this year. So to Tim's point, as you start layering on top of a diminishing supply pressure environment as we go through the year with the demand that continues to pick up as we get into the spring and summer leasing season, that really starts to inform the trajectory of what we think new lease rates will look like through the year.

[Eric Wolfe, Analyst at Smith Barney Citigroup]

Got it. That's how 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 renewed the prior year? I guess I'm trying to understand sort of what percentage of tenants are taking two years of this sort of 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 rents can be relative to market or new lease rents.

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Well, another way to perhaps characterize that is our average stay is somewhere in the 2122 month range. That certainly has extended out a little bit over the last couple years with the lower turnover so you know, typically you have a resident moves in, has called a 12 month lease and then does one renewal and then on average they're moving out after that first renewal. So typically don't see renewal on top of renewal on top of renewal, which tends to be a little bit of a governor on that gap getting too wide.

Even with lower turnover, we're still turning a good chunk of the portfolio every year and so it tends to balance itself out a little bit. And then to Brad's point about strengthening supply demand dynamic, we expect newly rates to accelerate throughout the year which then should in turn help the renewal rates where it's starting to narrow that gap and it doesn't, it doesn't gap any wider than it has been. So I think that'll provide some stability and strength on the renewal side also.

[Eric Wolfe, Analyst at Smith Barney Citigroup]

Got it. Thank you.

[Operator]

Our next question comes from the line of Nick Ulico with Scotiabank. Your line is opened.

[Daniel Tricarico, Analyst at Scotiabank]

Good morning everyone, it's Daniel Trucarico, I'm with Nick. Can you help us understand how concessions in your markets have impacted your new lease rate figures? And you know, if you see the dissipation of concessionary activity and easier comps, maybe having a, you know, to use your word, compounding effect on the, on the reported numbers.

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Yeah, I mean to answer the last part of that, I mean the lease over lease rates we quote are net of the impact of concessions. So that's considered in there. But I would say broadly for us for our portfolio, concessions were down a little bit in Q4 as compared to Q3 in terms of cash concessions. I would say at a market wide portfolio level, concessions were pretty consistent around a month free is pretty typical in most markets now you get into some of the tougher markets with a lot of lease up and it's some of the same sub markets I've talked about before. You think about downtown Austin and then Round Rock, Georgetown area of Austin. You think about midtown Atlanta, you think about uptown Charlotte.

That's where you can get more into the two, two and a half, even up to three in a couple of spots with a lot of lease up. So still pressure there some of the markets we've talked about, but the concession pressure overall is steady to perhaps slightly declining.

[Daniel Tricarico, Analyst at Scotiabank]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Yeah, I mean, for 2025, we think, you know, supply is probably down 15 to 20% in terms of just absolute units being delivered from 24 to 25. We think it's down closer 30 to 40% as you look out into 2026. And then, you know, you start getting pretty far out at that point. But if you look at the starts, and Eric hit on this as well, I mean, starts are down, Q4 of 2024 starts in our market, where 0.3% of inventory, which is the lowest it's been, you know, for the last several years, well below where it was even during COVID So it speaks to a pretty, pretty long window where we think supply will be moderating.

[Daniel Tricarico, Analyst at Scotiabank]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Yeah, I would say, you know, in our markets, 3.5% of inventory is probably about average. You know, if you think about the long term, 3.5%, we've certainly been above that the last few years, But I think 25% or 2026 is below that, and I expect 2027 is even further below that.

[Daniel Tricarico, Analyst at Scotiabank]

Great. Thanks and congratulations, Eric.

[Operator]

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

[Brad Heffern, Analyst at RBC Capital Markets]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Well, I mean, it's a combination of all of those. Certainly. The lessening supply, I think, is playing a part of that. You know, easier comps, if you will, is playing a part of that. But, you know, when we think about the sequential trends we're seeing in January, both compared to December and Q4, and not just looking back to the last year or two, but looking back to, you know, what we would call more normal periods, which probably is going back to 2017, 2018, 2019, the deceleration from Q3 and Q4 was sort of less than Typical. And then the acceleration from Q4 to January was more so and so much where January new lease pricing is better than the full Q4, which is pretty atypical.

We usually see it's usually a little bit lower than Q4. And then we would expect February, March to accelerate even more. So feel like it's a good position to where we are and showing some, I think real strength in the recovery. So I think that piece is probably tied to just an improving overall outlook, the higher than typical acceleration.

[Brad Heffern, Analyst at RBC Capital Markets]

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

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah. Hey, this is Brad. You know, I would say from the same store perspective, you know, we don't see a whole lot of impact coming from a change in the immigration policies. I mean, there's nothing that we track that would indicate that we're, you know, really overly exposed to any type of the immigration issues that we see out there. So, you know, from a labor perspective in our same store portfolio, we don't see that being a big impact in terms from a resident perspective, again, you know, no matter which metric we're looking at, we don't see that we're expecting exposed to a large degree to that. Now having said that, where I think we could see some impact associated with the immigration side would be on, you know, perhaps in the new development area where, you know, a lot of the labor in that area, there could be some labor impact associated with that. And you know, clearly that would have a, an impact on the ability of the market really to ramp up new construction, you know, for us, you know, obviously that that would impact our desire to continue to hold our new developments at the billion dollar level that we're talking about.

But given the overall size of our existing portfolio, 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 plays out. But we're not seeing a material impact and don't see that on the horizon at the moment.

[Brad Heffern, Analyst at RBC Capital Markets]

Okay, thanks for the thought.

[Operator]

Our next question comes from the line of Jeff Specter with Bank of America. Your line is opened.

[Jeffrey Spector, Analyst at Bank of America]

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

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah, this is Brad. Tim, you can add some points here too, but you know, I don't think so. I mean, you know, one of the, one of the characteristics of our portfolio long term is definitely to orient our portfolio toward the highest demand region of the country. You know, that that generally leads to lower volatility in both earnings and dividends performance.

And so we think that continues to be the right focus for us in terms of where we're located, the markets we're located in and also allocating capital mix between larger markets and mid tier markets. So that also tends to support kind of a more affordable price point than other portfolios that are out there. And I think if you look at our return over a long period of time, I think that speaks to us appealing to the broadest segment of the rental market. And I think ultimately that's really what we want to do versus skewing the portfolio to one end of the spectrum versus the other. And so I don't see a material change in terms of our strategy in terms of how we're allocating capital or those other portfolio characteristics that we target.

[Jeffrey Spector, Analyst at Bank of America]

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

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Jeff, this is Brad again. Yeah, so the dispositions that we sold in the fourth quarter, you know, cap rates on those were, call it low sixes and those, I'll tell you on the two that we sold, we had one property in Charlotte that did have a fire during the marketing process. So proceeds were certainly impacted a bit by that. But I will tell you on an after capex basis, those properties that we're selling generally are 30 year old assets. So they have higher capex needs that we're recycling the capital out of and then we're redeploying that capital as I mentioned in my call comments into acquisitions generally in lease up. So there's some lease up period associated with them. And then upon reaching stabilization those yields are close to 6%.

In terms of what we're achieving now we're able to achieve those yields, you know, because we are focusing on properties that are in lease up that are harder for the market to finance. So we're able to get better pricing. Generally we're 15 to 20% below current replacement costs on those. So we're able to get a pretty good return on those. The market cap rates in the fourth quarter that we tracked, there's not a lot of data points. We only tracked six projects that ended up closing and the cap rate was around a 5, 5 1. Our developments, the 5 that we invested in in 2015, those were a 6. Call it a 6, 4 NOI yield. So it's, it's 140 basis point spread to current market cap rates and we feel that that's a good place for us to continue to focus our capital, you know, in that six to six and a half range on development.

[Jeffrey Spector, Analyst at Bank of America]

Thank you.

[Operator]

Our next question comes from the line of Austin Worschmidt with Keybank Capital Markets. Your line is opened.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Hey, Austin, it's Tim. And are you talking about as we get to the back part of 2025 primarily?

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Yes, yes. Yeah.

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Yeah. I mean I definitely think we could see if you want to call it less seasonality as you get into late 2025. Because we, as we talked about, we've got the moderating supply pressure that will continue to speak well on the demand side through the remainder of 2025 and into 2026. We did see kind of a peak of that supply pressure late 24. So yeah, I think there's a, there's 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 could definitely see that in the back part of 2025 as well.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

And based on the fact that you did negative 0.5% 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?

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah. All said, well, it'll probably be towards the middle part of the year by in Q3, mid Q3 and then on into Q4 and beyond.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

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 you're seeing the most improvement between those two buckets. And that's all for me, thank you.

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

I would say we've seen that gap narrow a little bit. I mean, the secondary markets, or mid tier, however you want to call it, have outperformed certainly the last couple years with generally lower supply happening in those markets. But we have seen it start to narrow, particularly the last couple quarter. Still probably 50 basis points. I call it a pricing difference, but it has narrowed a bit.

[Operator]

Our next question comes from the line of Michael Goldsmith with ubs. Your line is opened.

[Michael Goldsmith, Analyst at UBS Group]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

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

[Michael Goldsmith, Analyst at UBS Group]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

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

[Michael Goldsmith, Analyst at UBS Group]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

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

[Michael Goldsmith, Analyst at UBS Group]

Got it. Thank you very much.

[Operator]

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

[Adam Kramer, Analyst at Morgan Stanley]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Yeah, I would say from a macroeconomic standpoint, pretty consistent with what we saw in 2024. So we're expecting, call it 600,000 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 that we continue to see, household formation, population growth, all the various factors that you've seen, we would expect to stay pretty consistent and certainly be above what we see at the national level with these markets being a little bit higher growth markets and then combined with that continued low turnover, continued 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 supply dynamic.

[Adam Kramer, Analyst at Morgan Stanley]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Yeah. So January new lease negative 7.1, renewal was 4.6 and blin was negative 0.9.

[Adam Kramer, Analyst at Morgan Stanley]

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

[Operator]

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

[Alexander Goldfarb, Analyst at Piper Sandler Companies]

Good morning. Morning. Down there. And Eric, mazel tov, as I say in New York. And Brad, you know that the buck now stops with you. So all the complaining, all the complaining and griping now comes to your desk. Two questions. First, as you guys look at cap rates, you mentioned 5, 5, 1, I think to Jeff Specter's question, debt costs are certainly above that. How long do you think people, because not everyone can be an all cash buyer. So what is your sense for how long people are tolerating that negative leverage? And do you think it's typical with what you've seen historically when we have periods of negative leverage, or do you think people are willing to wait longer?

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah, I mean, this is. Brad, I think historically periods of negative leverage have been temporary. I'd say this has probably been one of the longest periods of negative leverage that has occurred. And so what we're seeing a couple of things. One is buyers are buying down their interest rates a bit, which helps the negative leverage some. And then two, I think they are underwriting an assumption of a pretty aggressive recovery in 26 and beyond. And I think that certainly helps them get more comfortable with what their negative leverage looks like and how quickly they can grow out of that position.

So I think it really depends on what your outlook is and how aggressive you're going to be on the underwriting. But those are two things that we're certainly seeing in the market right now. And then as you guys underwrite projects, whether they're acquisitions or developments, how much of the math is coming from other income, meaning WI fi or cell service or waste or other services, meaning like years ago it was pure rent. But the industry has evolved. So I'm just sort of curious how much of your yield now comes from things other than rent. You know, it's not much. I mean, we certainly, the one piece that I think would be probably a bigger component will be with the WI fi piece, which we're just now rolling out across the portfolio. That is one that certainly has positive implications from a resident experience perspective and from a demand perspective from our residents, as well as supporting what we're doing on self touring and things of that nature. But, you know, we've gotten away.

We have some properties with valet trash and things of that nature. But generally, you know, those are not, you know, major items that we're focusing efforts on. It's really in areas where, you know, we're adding value to our residents, whether it's our bulk cable that we have or our WI fi. You know, certainly those are some of the larger components of the fees that we do have.

[Alexander Goldfarb, Analyst at Piper Sandler Companies]

Thank you.

[Operator]

Our next question comes from the line of Richard Anderson with Wedbush. Your line is opened.

[Richard Anderson, Analyst at Wedbush Securities]

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

[H. Eric Bolton Jr., Chairman and Chief Executive Officer at Mid-America Apartment Communities]

Well, I like your analogy, Rich, about the switches. I would. -I would definitely lean towards the dimmer switch concept and that. That's the intent here. As I said earlier, I've got tremendous confidence in Brad and tremendous confidence in the team that he has with him. And I think, just as a function of me pulling back a little bit, that the influence that Brad and the rest of the team have on performance and how things are playing out is going to grow and my influence will diminish. But. But I think that the intent here is for me to continue to be actively available to Brad to help him think about whatever may be coming up in terms of challenges or opportunities.

And I certainly will remain tied into the various reporting and things that are going on to be sure, I have a good finger on the pulse so that I can be helpful in that regard as well. But it clearly is an intention here, as I've seen it done successfully in other organizations, for my sort of involvement to diminish over time. And that's the plan and certainly remain active at the board level for years to come.

I've got, you know, I've been here for 30 years, and everything I have personally is tied up in the company. I can't think of a better investment for my net worth and plan to, you know, continue to do all I can to support making it worth more in the future.

[Richard Anderson, Analyst at Wedbush Securities]

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

[H. Eric Bolton Jr., Chairman and Chief Executive Officer at Mid-America Apartment Communities]

I mean, I definitely think it's a possibility, Rich, because as you say, you and I both have been around a long time and the severity of the cycle tends to define the, the extent of the recovery. And we're coming off a 50 year high level of supply in our markets. I mean this is, this is unprecedented. We haven't seen this level of supply since we've been a public company. And what's so encouraging about that fact is the fact that, you know, our NOI and our overall performance moderated certainly from where we were during the COVID years, but it didn't create collapse by any means.

And it's held up actually pretty darn well in the grand scheme of things. And I think that speaks to just the appeal of this product. The appeal of our markets, the appeal of our portfolio and all those factors that drive the appeal and drive demand are still there and I think are growing.

I think the new incoming administration is more likely to have a positive impact ultimately on the economy than a negative. At least I certainly hope that. So I'm very enthused about what I continue to believe is going to be great demand side dynamics against a backdrop of what we know is going to be incredibly dramatic fall off in the level of supply coming into the markets.

And so that does set up a very interesting set of demand supply dynamics going into late this year into 26 and 27 that we think is going to have a hugely positive impact on our performance.

[Richard Anderson, Analyst at Wedbush Securities]

Okay, great. Thanks very much and thank you again, Eric.

[H. Eric Bolton Jr., Chairman and Chief Executive Officer at Mid-America Apartment Communities]

Thank you, Rich. Appreciate it.

[Operator]

Our next question comes from the line of Steve Sakwa with Evercore isi. Your line is opened.

[Steve Sakwa, Analyst at Evercore ISI]

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

[A. Clay Holder, Executive Vice President and Chief Financial Officer at Mid-America Apartment Communities]

Yeah Steve, you know back in December we actually issued some bonds and actually got a record record low spread of 78 basis points with that transaction. Given where the treasury has trended since that point in time, I suspect that spread has probably ticked up several basis points. But I would still say it's somewhere between 80 and 85 bps.

[Steve Sakwa, Analyst at Evercore ISI]

Okay, great, thanks.

[Operator]

Our next question comes from the line of Michael Gorman with. With btig. Your line is opened.

[Michael Gorman, Analyst at BTIG Research]

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

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

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

[Michael Gorman, Analyst at BTIG Research]

Okay, great, that's helpful. And then maybe just one last one. 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?

[A. Clay Holder, Executive Vice President and Chief Financial Officer at Mid-America Apartment Communities]

Yeah, we. It's pretty consistent with what we've seen this past year. So I think we've got about 30 basis points, 35 basis points assumed for delinquencies and in the 2025 guide.

[Michael Gorman, Analyst at BTIG Research]

Great, thanks so much.

[Operator]

Our next question comes from the line of Handel Saint just with Mizuho. Your line is opened.

[Haendel St. Juste, Analyst at Mizuho Securities USA]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Yeah, and that was Tim, if you think about. So if I look at January, for example, the all of the new lease absolute rents that we put in place compared to January of last year, it's about a negative 1.5% spread. And that gap has continued to narrow throughout 2024. So you call it, you know, $25 gap in that year over year look. So that can give you a little bit of, a little bit of perspective on what that gap looks like. I mean, we, we typically would see, if you think about market rents as, you know, whatever December was and then how it trends on new leases throughout the year, we would see, you know, July probably 4 or 5% above what December rents are and then trend back down. So, you know, something less than that is really what we have dialed in. But that gives you a little bit of perspective.

[Haendel St. Juste, Analyst at Mizuho Securities USA]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

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

[Haendel St. Juste, Analyst at Mizuho Securities USA]

Appreciate the Thought. Thanks, guys.

[Operator]

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

[Richard Hightower, Analyst at Barclays]

Good morning, guys. And again, congrats to both Eric and Brad. Just one for me. I guess if we're, you know, if you're keeping a steady development pipeline, it sounds like right around a billion, give or take. But if we see this air pocket of sorts in new supply going forward where maybe you could lean into development a little more, you know, as sort of current projects trail off, what's the appetite, the capacity? Obviously you've got a great balance sheet and I assume you could flex that up anytime you like. So just tell us about the thoughts around maybe increasing development from here. Thanks.

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah, I mean, I think certainly development is one of the best uses of capital that we have today, and especially given what we think will be a diminished supply pipeline going forward. And you know, it takes time to really build that pipeline. And you know, two years ago that we had that pipeline was at about $450 million and today it's close to 900 million where we want to keep it. So the team has done a tremendous job of really building it to that point. And I do think said in his comments and I've mentioned, you know, the starts that we had in 2020 for is a record level for us. And so we have really good momentum in terms of building that and would like to really keep it elevated. You know, today, you know, we expect another three to four projects to start this year, which will keep us at that level where, where I think you could potentially see additional opportunities could be in our JV pre purchase platform where we partner with other developers because we are seeing continued instances where equity capital is backing out of deals and 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 exposure there 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 area. So we'll continue to focus on developing to the extent that we're able to lean into that a bit more. We will.

[Richard Hightower, Analyst at Barclays]

Okay, very helpful, thanks.

[Operator]

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

[Wesley Golladay, Analyst at Robert W. Baird & Co.]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Hey Wes, it's Tim. Not really. I mean it's sort of hovered in that 10 to 12 to 13% of our move ins coming from outside of the Sunbelt into the Sunbelt and that continues to be in that range. And generally it's obviously the larger states is where they tend to come from. It's California, New York and Chicago and some of those so broadly the trends are the same as they've been for the last year or so.

[Wesley Golladay, Analyst at Robert W. Baird & Co.]

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

[A. Clay Holder, Executive Vice President and Chief Financial Officer at Mid-America Apartment Communities]

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

[Wesley Golladay, Analyst at Robert W. Baird & Co.]

Thanks everyone.

[A. Clay Holder, Executive Vice President and Chief Financial Officer at Mid-America Apartment Communities]

It wouldn't be anything outside of what we've stated as far as where our leverage would go though.

[Wesley Golladay, Analyst at Robert W. Baird & Co.]

Okay, thank you.

[Operator]

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

[Linda Tsai, Analyst at Jefferies Financial Group]

Hi, thanks for taking my question, Eric. Congratulations again. You're really a paradigm for leadership. You're earning of 15 -15 to negative 50bps based on pricing through October. Maybe just some more color on that. And how does that compared to a year ago?

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

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

[Linda Tsai, Analyst at Jefferies Financial Group]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

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

[Linda Tsai, Analyst at Jefferies Financial Group]

Thank you.

[Operator]

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

[Ann Chan, Analyst at Green Street]

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

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah, and this is Brad. I mean we, we definitely have some markets where we have one or two assets that over time, you know, we'll continue to cycle out of and drive efficiencies. I mean, broadly speaking, we like our overall portfolio allocation where we're located in the split between, you know, kind of our larger markets and our mid tier markets. So certainly not looking to do any type of a large repositioning of the portfolio. But some of those markets where we have one or two assets we'll certainly look to cull 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 Denver, we've got a pretty big development pipeline there where we continue to add assets and grow to that market, which is a newer market for us. Salt Lake City is another one where we need to continue to grow and fill out in.

And we are looking at newer markets that have some of the same characteristics of our high growth markets. And Columbus, Ohio is certainly a market that we've studied and are looking at. And so we'll see it has a lot of the similar characteristics as other markets in terms of job growth and things of that nature.

[Ann Chan, Analyst at Green Street]

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

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

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

Additionally and you know, we have a pipeline of sites that we own with projects that are approved and to the extent we continue to see some improvement in the, in the underwriting of those with construction costs and rents, more of those will begin to pencil as we progress throughout this year.

[Ann Chan, Analyst at Green Street]

Great, thanks so much.

[Operator]

Our next question comes from the line of Tayo Acosanya with Deutsche Bank. Your line is opened.

[Omotayo Okusanya, Analyst at Deutsche Bank Aktiengesellschaft]

Hi. Yes, good morning. Again, let me add my congratulations as well with the transition. Eric, maybe this gives you a little bit more time to get that next PR in a marathon. My question has to do with again, you guys have been very offensive minded in the past year or so looking for opportunities for kind of distress opportunities to kind of take advantage of some of the oversupply and what do they be doing to developers. But it sounds like again, cap rates for acquisitions are still pretty tight. It doesn't sound like there's that much distress out there. So when we kind of think about again this opportunity that you've described for the better part of the past one year, just how real can it actually be? And how do we kind of start thinking about maybe again opportunities to kind of buy things well below replacement cost or those kind of opportunities that are really kind of value added, that create shareholder value typically environment of distress.

[A. Bradley Hill, President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah, Tyo, it's Brad. Definitely we haven't seen a lot of distress frankly. And we'll continue to focus where we have and that's generally in these projects that are in lease up. I mean we do think that those will continue to face a bit of pressure just given the amount of supply that's out there and given the strength of our operating platform. I mean we are tooled to really take advantage of those. And there are some sellers out there that are interested in selling some of those properties earlier before they're stabilized and still generate a very similar return for their capital.

But if they waited until it stabilized and they sold at a higher price, so you know, based on our experience in our markets, our relationships, you know, we're still able to find opportunities like that. We were able to get some of these assets in some of these high Yields, close to 6% basis at replacement, well below replacement costs. So we'll continue to focus in that area. You know, you could see some distress perhaps in some of these older assets that, you know, sold in 2020, 2021 with refinancing that has to come due. But for the most part, some of that, most of that would not be something that we're interested generally.

[Omotayo Okusanya, Analyst at Deutsche Bank Aktiengesellschaft]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

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

[Omotayo Okusanya, Analyst at Deutsche Bank Aktiengesellschaft]

Thank you.

[Operator]

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

[John H. Kim, Analyst at BMO Capital Markets]

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

[Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer at Mid-America Apartment Communities]

Hey, John, this is Tim. I'll answer some of the detail there. So we did see 13 markets where we had positive blended in January, which was encouraging. And it was pretty widespread among some mid tier and smaller and some larger markets as well. I would point to Tampa as one that we've really seen some good traction the last two quarters or so and has trended above the portfolio. I think that's one where we could see some improving performance. 2025, you know, when you think about good markets, if you will, there's the ones that have been good are going to drive good revenue now. Then there's the ones where the pricing is improving and it's more tip of the spirit, it won't show up in revenue till later. So the first bucket is going to be some of the ones we've talked about.

It's dc, it's Houston, it's Charleston. Those are, we expect to continue to be strong. Then there's markets like Tampa and I would put Orlando in that bucket as well that are starting to show some improvement. And we think as you get into mid later this year, those are a couple that we expect to see some better performance from. And then we'll, you know, Austin's still one that we expect to continue to be a laggard with the continuing supply pressure there. But Camp Orlando would be two that I would point out as trending markets for us.

And then to get to your negative 1.5% new lease rate for the year, what kind of market rent growth are you assuming 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, having gained a lease about 1% right now, which it always tends to gap out this time of the year when pricing is weakest. So, you know, I would expect we saw, you know, January market rents were a little bit higher, about half percent higher than what December were.

So I think that'll, that'll trend up through the summer and then trend back down. But you know, probably the best way to think about it is just we talked about our new lease. Lease over rates, you know, for the full year expect to be kind of in that negative one and a half percent range. So, you know, over the full year it should, that should correlate pretty well with market rent growth.

[John H. Kim, Analyst at BMO Capital Markets]

Great. Thank you.

[Operator]

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

[H. Eric Bolton Jr., Chairman and Chief Executive Officer at Mid-America Apartment Communities]

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

[Operator]

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

Participants

Corporate Executives

• Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets
• H. Eric Bolton Jr., Chairman and Chief Executive Officer
• A. Bradley Hill, President, Chief Investment Officer
• Timothy P. Argo, Executive Vice President, Chief Strategy and Analysis Officer
• A. Clay Holder, Executive Vice President and Chief Financial Officer

Analysts

• James Feldman, Wells Fargo & Company
• Eric Wolfe, Smith Barney Citigroup
• Daniel Tricarico, Scotiabank
• Brad Heffern, RBC Capital Markets
• Jeffrey Spector, Bank of America Co.
• Austin Wurschmidt, KeyBanc Capital Markets
• Michael Goldsmith, UBS Group AG
• Adam Kramer, Morgan Stanley
• Alexander Goldfarb, Piper Sandler Companies
• Richard Anderson, Wedbush Securities
• Steve Sakwa, Evercore ISI
• Michael Gorman, BTIG Research
• Haendel St. Juste, Mizuho Securities USA
• Richard Hightower, Barclays PLC
• Wesley Golladay, Robert W. Baird & Co.
• Linda Tsai, Jefferies Financial Group Inc.
• Ann Chan, Green Street
• Omotayo Okusanya, Deutsche Bank Aktiengesellschaft
• John H. Kim, BMO Capital Markets