Mid-America Apartment Communities, Inc. (MAA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the MAA Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, July 30, 2026. [Operator Instructions] I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MAA for opening comments.

Thank you, Regina, and good morning, everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning are Brad Hill, Tim Argo, Clay Holder and Rob DelPriore. Before we begin with prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our 34 Act filings with the SEC, which describe risk factors that may impact future results. During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial debt. Our earnings release and supplement are currently available on the For Investors page of our website at www.maac.com. A copy of our prepared comments and an audio recording of this call will be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. [Operator Instructions] I will now turn the call over to Brad.

Well, thank you, Andrew, and good morning, everyone. Core FFO results were ahead of our expectations with the sequential improvement in new resident and blended lease-over-lease rates exceeding the prior year sequential improvement. While recovery in new resident lease rates is showing improvement, the pace is slower than we would like given cautious consumer sentiment as we continue to work through the unprecedented high levels of new supply deliveries over the past couple of years and a few of our high concentration markets. We are seeing solid demand, including job growth, household formation and population and wage growth and the increase in inbound migration tire properties in the set. And the second quarter was the strongest quarterly increase we have seen since we began tracking the metric, reflecting the broad appeal of our high-demand markets. As a result, units absorbed in the first half of the year significantly outpaced new units delivered. As demand remains resilient and new deliveries continue to decline, we expect the recovery to expand and accelerate. Additionally, we're benefiting from our scale and operating discipline. We continue to focus on expense control and with second quarter year-over-year same-store operating expense growth of just 80 basis points, the teams are excelling in this area. At the same time, the persistent single-family affordability and availability challenges are supporting resident demand for affordable and high-quality rental housing, 2 areas where MAA excels. Our customer service focus continues to differentiate the MAA experience, driving increased resident loyalty and contributing to our record low turnover and strong renewal rate growth, improving 50 basis points year-over-year. We continue to invest in strategic areas of the business to drive future earnings growth, including various new technology initiatives to support our centralization and specialization efforts that will further strengthen our customer service and drive future margin expansion. As Tim will talk about, we are expanding our interior renovation and repositioning programs, which are supported by the new deliveries in our markets stabilizing. We are, on average, the effective monthly rent per unit new community is over 30% higher than our existing rents, giving us substantial room to expand these highly accretive initiatives. Our property-wide WiFi initiative is in high demand from our residents and is performing well. On the external growth front, the improving demand supply dynamic combined with the decreased availability of capital for new projects makes disciplined investing in new developments and attractive capital allocation option. In addition to the Kansas City project, we started construction on in the second quarter, we started construction on a project in Nashville, Tennessee in July. And next month, we expect to start construction on a project on the land we recently purchased in Northern Virginia. With one more start later in the year, we are on track to hit our 4 development starts for the year. The acquisition market remained slow with cap rates in the mid- to upper 4% range for high-quality communities that fit our profile. But should more compelling opportunities materialize, we have the balance sheet capacity to support growth in this area. Together, these initiatives reflect a disciplined approach to deploying capital across multiple growth opportunities while maintaining flexibility as market conditions evolve. This same discipline is also evident in our ongoing portfolio recycling efforts, which remain focused on enhancing portfolio quality and supporting long-term earnings growth. In the second quarter, we sold a high CapEx 30-year-old property in Raleigh and have 2 additional properties that should close in the back half of the year, a 42-year-old property in Dallas and our 1 property in the District of Columbia. These transactions will wrap up our planned dispositions for 2026. With a track record of successfully navigating economic cycles for over 30 years, we remain confident in our ability to emerge from this recovery period with a stronger, more efficient and higher growth operating platform. We believe our focus on high demand and high-growth markets will continue to lead to higher earnings and lower volatility over the full cycle while our investments in accretive growth initiatives are well positioned to deliver increasing value and earnings contribution as the demand supply balance improves. We are encouraged by the building blocks in place resilient demand, strong absorption, potentially growing migration trends in a financially strong resident base, all with the backdrop of decreasing supply pressure as we wrap up July and head into August and September, we see the opportunity for growing momentum and remain confident in our ability to deliver compounding revenue and earnings performance as the recovery continues to accelerate. To all associates across our properties and in our corporate offices, thank you for your continued dedication and focus during this pivotal season. With that, I'll turn it over to Tim.

Thank you, Brad, and good morning, everyone. For the second quarter, same-store NOI beat our expectations with continued lower-than-projected property operating expenses more than offsetting slightly lower average daily occupancy. From a pricing standpoint, new lease-over-lease growth improved 170 basis points sequentially from the first quarter, 20 basis points ahead of the acceleration achieved from the first quarter to second quarter of 2025. As Brad mentioned, new lease rates have been slower to recover due to lower consumer sentiment and still elevated but moderating new supply in some markets, but we are encouraged by forward-looking trends. Renewal retention rates and lease rates remain strong. Turnover once again moved lower to 39.6% and renewal lease over lease rates were 5.2% for the quarter. As a result, blended lease and re-lease rates were up 100 basis points from the first quarter and up 20 basis points from the blended rate at the second quarter of 2025. Our resident health remains strong as reflected in an improvement in our rent-to-income ratio to 18% and continued strong performance in collections with net delinquency representing just 0.3% of build rents, consistent with what we achieved in the last several quarters. Broadly, our stronger-performing markets remain relatively consistent with the last few quarters, and we are starting to see some pockets momentum in other markets. We continue to see strong performance in Virginia and South Carolina with Norfolk, Richmond, Charleston, Greenville and the DC area markets continuing to outperform the broader portfolio from a pricing standpoint. As with last quarter, our 2 largest concentration markets, Atlanta and Dallas, outperformed the portfolio in the second quarter in terms of blended lease-over-lease price. Austin is still an underperforming market showed good momentum and achieved blended lease-over-lease pricing that was 300 basis points better and occupancy that was 40 basis points better than the second quarter of 2025. Orlando is another improving market with blended pricing up 130 basis points from the same quarter of 2025. Phoenix, Charlotte, Raleigh and Savannah are high concentration markets for us that are still facing challenges and the wake of heavy supply pressures despite continued strong demand. During the quarter, MAA Cathedral Arts and Dallas stabilized and MAA Plaza Midwood in Charlotte completed construction and moved into our lease portfolio. MAA [indiscernible] will officially stabilize in the third quarter, though it achieved over 90% occupancy during the second quarter. We moved up the stabilization date of MAA Breakwater, Tampa by 2 quarters due to strong leasing velocity ramps well ahead of our pro forma expectations. We have an additional 2 properties under construction that are actively leasing. Given the supply pressure in Charlotte, our 2 lease-ups in this market remain the most challenged in the near term with concessions running up to 8 to 10 weeks on certain floor plans. But with our overall lease-up portfolio, we expect to achieve our underwritten yields as markets continue to improve, retaining the expected long-term value creation opportunity. NOI contributions from this group will continue to build through the rest of this year and into 2027. As Brad mentioned, we continue to accelerate and exceed expected returns on our various targeted redevelopment and repositioning initiatives. During the second quarter of 2026, we completed 2,118 interior unit upgrades, bringing our year-to-date total to 3,540 units, 30% higher than the number of units renovated in the first half of 2025. With year-to-date rent increases of $110 above non-upgraded units and average per unit spend of $5,134, the average cash-on-cash return of approximately 25% versus expected returns of 19%. These units continue to leach faster than nonrenovated units when adjusted for the additional turn time averaging about 10 days quicker. We would expect to further accelerate this program at 2027. For our common area and amenity repositioning program, we have 6 properties that are wrapping up the repricing phase. Five properties that are just starting the repricing base at 6 additional that are in the early construction phase and will begin the repricing base of the spring of 2027. The first group is 98% repriced with average cash-on-cash returns of 13%. We expect similar returns from the remaining active projects that we want to expand our scope on this initiative in 2027. Our community-wide WiFi initiative that began in 2024 continues to expand. We have 28 live properties where the service is rolling out to residents as leases are signed, and we are further expanding the initiative this year to an additional 38 properties. Resident adoption of the first 28 properties is accelerating, with revenues quickly increasing from $500,000 in the first quarter to $850,000 in the second quarter and will continue to grow from here. Looking forward to the third quarter, we are encouraged by the early momentum we see in pricing and occupancy and early signs of potentially later seasonal peak. Our strategic decision to push new lease pricing where possible in late second quarter and into July has allowed us to maintain momentum in renewal pricing and new lease pricing, combined with declining supply pressure, strong demand and the broad market level absorption that occurred in the first and second quarters, our crunch sets us up to capture momentum and new lease-over-lease pricing later in the season and achieved renewal rates consistent with the second quarter and well above what we achieved in the third quarter of last year. With an assumed backdrop of steady demand, fewer units and lease-up and current pricing trends continuing, we expect third quarter blended pricing to be better than the second quarter, a trend not seen in the last 4 years since third quarter deployment pricing typically trails the second quarter. That's all I have in the way of prepared comments. Now I'll turn the call over to Clay.

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.08 per diluted share, which was $0.02 ahead of our second quarter guidance. The outperformance was driven primarily by continued strength and expense management with same-store expenses coming in $0.015 favorable to our expectations and NOI from our non-same-store portfolio contributing an additional $0.01 partially offset by same-store revenues that were slightly below our expectations. As Brad and Tim highlighted, our teams continue to demonstrate an ability to control cost while maintaining strong resident retention and high resident satisfaction. That consistent execution remains a key strength of our operating platform and contributing meaningfully to our second quarter outperformance. Repair and maintenance and personnel costs were the primary drivers of our expense favorability during the quarter. We funded approximately $81 million in development and predevelopment costs during the quarter. At June 30, our development pipeline totaled $598 million, leaving $237 million of remaining funding commitments over the next 3 years. Combined with the 2 projects that Brad referenced is starting in the third quarter, our development pipeline will total approximately $804 million. Looking ahead, we expect to add additional projects to the pipeline during the balance of the year and into early 2027, supporting our objective of building and sustaining a development pipeline of approximately $1 billion and reinforcing development as an important driver of long-term earnings growth. Our balance sheet is solid and is set to support our development pipeline any acquisitions that may emerge along with the other growth initiatives Tim discussed. At the end of the quarter, we had over $880 million in combined cash and borrowing capacity under our revolving credit facility, and our net debt-to-EBITDA ratio was 4.5x. At June 30, our outstanding debt had an average maturity of 6 years at an effective rate of 3.9%. During the quarter, we continued our measured approach to share repurchases and repurchased 383,000 shares of our common stock at a weighted average share price of $130.66 for a total of $50 million. In June, we entered into an unsecured delayed term loan with a committed principal amount of $350 million with $100 million outstanding under the loan at quarter end. Turning to our outlook for the year. We have maintained our core FFO guidance and have updated our same-store revenue and expense guidance to reflect our current view of leasing conditions for the balance of the year. While underlying demand remains healthy, the pace of recovery in new lease pricing has been somewhat slower than assumed in our prior guidance. We continue to prioritize long-term revenue performance through disciplined pricing decisions. which we believe support renewal performance and position us well to capture the coming new lease pricing momentum. As a result, we have slightly reduced our expectations for both effective rent growth and average occupancy for the year. As we updated our revenue assumptions for the balance of the year, we also recognized favorable trends developing in other areas of the business. Expense performance has remained strong, driven by continued discipline across our operating platform, lower projected real estate taxes and favorable anticipated insurance costs given our recent coverage renewal. In addition, our non-same-store portfolio continues to perform well with lease-up communities performing in line with and, in some cases, slightly ahead of our expectations and contributing incremental earnings support. In 2026, we project over $25 million in incremental year-over-year NOI from the properties represented in this portfolio. Collectively, these favorable trends offset the revisions to our revenue outlook and support our maintained full year core FFO midpoint of $8.53 per diluted share. That is all that we have in the way of prepared comments. So, Virginia, we will now turn the call back to you for questions.

[Operator Instructions] Our first question will come from the line of Jamie Feldman with Wells Fargo.

Great. I mean just comparing some of your comments on July and thoughts on the third quarter versus what you delivered in the second quarter and then the revenue cut. Can you give us some comfort or maybe talk us through how you decided to cut now how much you decided to cut the revenue guide now? And what gives you comfort that this won't be the same situation, third quarter, fourth quarter in terms of needing to pull back?

Yes, Jamie, this is Tim. I mean I'll talk a little bit about what we're seeing in July, Q3. And I think that's really what is driving our optimism as we are starting to see some momentum as we look out in Q3. July itself, we expect will be pretty similar in terms of pricing than what we saw in Q2 with occupancy building as we have moved through July and ending at in a good spot with July, I can see. But where we see the optimism and where we think we've made the right decisions is what we're seeing for August, September. First, if we look at renewals for the entire Q3, we have retention rates well above what we saw this time last year, well above what we saw in Q2, and we're continuing to see renewal rates in that 5-plus range. I mean we have visibility pretty much in all of -- but Q3 at this point, probably 98% of our renewals, we have locked in at this point. And then when we look at where we stay with new lease pricing and what we've done on the pre-lease side, obviously, still more to come in the rest of the quarter. We've probably still have about 40% of our new leases or so will still come over the next 2 months. But when we look at the pre-leasing for all of us, we're running 70, 80 basis points better than we were this time last year and we look at September even running higher than that. So we think with this continued demand, what we're seeing lead volume is up 10%, 15% this time compared to this time last year, visit volumes up close to 10%. And so we do think all of these factors lead essentially could be a little bit of an extended lease season.

And Jamie, I'll just touch on the guide change. I mean the one thing that to Tim's point, and we're still seeing very strong acceleration as we work into the back half of the year. What I would say is just not quite at the same pace as what we had initially expected coming into the year. So still seeing the trajectory, move in the direction we expected, just not quite to the same pace that we [indiscernible] then.

And Jamie, not to be left out here. I'm going to add a couple of comments to this one as well. This is Brad, what the guys have said here a little bit. And I think it really starts with what we're seeing on the demand side in terms of our view for the back half of the year. Across the board, we're seeing really good demand really across our markets. And in the markets where we do have heavier supply, you think of Phoenix, Charlotte, Raleigh, Savannah, and Nashville. Those markets are a little bit more difficult for us right now. We have a bigger hole that we have to dig out of for those, but we are showing progress. I mean if you look at our entire portfolio for the second quarter, almost 80% of our markets posted positive blends in the second quarter. So you can see the recovery is pretty broad-based. 2/3 of our markets are showing blends above our portfolio average. So if you look at what is below average for us, 1/3 of our portfolio, those are predominantly some of these higher supply markets. So again, we have a bigger hole that we have to dig out for those, but we're doing it. On the demand piece, you look at absorption in the first half of the year that Tim talked about, second quarter absorption across our markets was 1.8x new delivery. So we're seeing really strong demand. And as we continue through the balance of this year. We certainly believe that more of those -- our markets start to show some of that stronger pricing power, particularly as we get -- we look at the blended rates in the third and fourth quarter.

Our next question will come from the line of Eric Wolfe with Citi.

Maybe just a follow-up on Jamie's question. Can you just discuss your guidance in the second half from blended rent growth perspective, so what you're forecasting in the second half, specifically. And just to make sure I understood sort of the components of what you're seeing right now, you expect your August and September blends to increase from July because renewals are higher and your retention is higher. I just want to make sure I heard that correctly.

Yes. This is Tim. And to confirm on your under second point, yes, I mean, we would expect August, September pricing to get a little bit better from what we had in July for all the reasons we just talked about and the trends we're seeing so far. But if you think about our full year blending in kind of the back half and how we hit our guidance, we're at -- we're a positive 0.3% blended year-to-date through June at our full year forecast is somewhere in the 50 basis point range deployment for the full year. So with a little more of our leases skewed to the back half of the year, we are somewhere around 0.6% blended is what we're tracking for the back half of the year. And so to maybe put that in a little bit of perspective, what that would look like from a blended standpoint is our Q3 blended performance to be a little bit better than what our Q2 performance was. And then our Q4 performance to look a little bit better than what our Q1 performance was. So that's kind of a way to think about it. And it's the expectation that August, September show the strength that we're seeing right now and then you see a little bit less of a moderation in Q4 based on, again, the demand, the moderating supply and everything we're seeing and not experience the same level of drop-off that we saw in Q4 of last year.

Our next question will come from the line of Nick Yulico with Scotiabank.

I just wanted to, I guess, go back to some of the commentary that you guys gave on the pricing for assets. I think, Brad, you're saying cap rates below 5% you're still seeing in your markets? And I guess my question is, that's the case, and we're still dealing with a sort of a slow recovery in certain markets. Why not like buy back more stock, sell assets rather than put more money into the development pipeline right now?

Well, thanks, Nick. Yes. I mean, I think, first of all, what you have to consider those 4.5 to, call it, upper 4% cap rate range or from the types of assets that we want to buy. So those are brand-new assets and some of our higher-growth markets, on average, what we purchased the last few years have been 1 year old, a lot of times in lease-up. So that's a little bit different type of product than what we generally are looking to sell. The assets that we have sold this year, the property that we sold, as I mentioned in my opening comments, in the second quarter, it was an older asset, had a lot of CapEx needs. The cap rates that we're getting for those are market cap rates are probably in the mid- to upper 6% range on average. I would say we've got 4 properties that we're selling this year. Those will be in the high 5s to low 6s in terms of cap rates. So there's a little different math on what we're selling. But in terms of share buybacks, we've talked about this a lot. Our overall focus is about driving long-term TSR performance without introducing a lot of earnings volatility. And so it's very balanced. You've seen that in terms of what we've repurchased. We continue to believe in the merits of putting capital into the development market into the properties that we are developing the average yield expectation of those with conservative underwriting is still in the 6% to 6.5% range. The NOI margins, we've been able to -- or excuse me, NOI growth we've been able to generate from those on average exceeds what our overall portfolio delivers by 50 to 100 basis points. And then especially given the fact that supply continues to be lower than long-term averages this year and projected to be that way for the next 3 years at least, we'll be delivering into a pretty strong operating fundamental market. So we continue to believe that's the way that we want to allocate capital for long-term TSR performance at the moment.

Our next question will come from the line of Jana Galan with Bank of America.

I was hoping you could talk a little bit about the better-than-expected performance from the lease-up properties. Has there been any shift in strategy on pricing concession usage or job growth in those markets? And then maybe if you could just talk to concession activity overall in your markets.

Yes. This is Tim. I'll touch on that. So on the lease-up portfolio, I mean not really any change in strategy. I mean we -- we're starting to see some momentum. We're starting to see some good demand. If you look at some of the properties, our lease-up portfolio, make [indiscernible] gain over 20% of occupancy over the last quarter. Liberty Row were 30%, Plaza Midwood over 20%. So I think as we're seeing with the broader portfolio, the number of units in lease-up and the pressure on supply is starting to moderate, and we're starting to see that with the lease-up portfolio, the 2 Charlotte assets, as I mentioned, are the ones that are still a little bit behind in terms of where Charlotte is in the supply pipeline. So as the ones that we're watching that we've seen really good momentum with the leased portfolio, as you mentioned. And then on the broader concession market, not a lot of change from what we talked about last quarter. If you think about our overall portfolio, broadly 4 to 5 weeks is pretty consistent across most of our markets, we are seeing some improving concession activity in Orlando and Charleston or 2 markets I would point to that we're seeing concessions down and then Charlotte, Austin are still were not necessarily up where they've been, but probably the broadest usage of what we're seeing is still in Charlotte and Austin. But overall, pretty consistent, such a picture from what we've seen in the last few months.

Our next question will come from the line of Brad Heffern with RBC.

Yes. You mentioned in the prepared comments that second quarter in migration was, I think you said the strongest ever strongest since you started tracking it. Can you -- are there any numbers that you can put around that or additional color?

Yes. I mean the numbers that we could put around that, we saw in migration go from, call it, 10% in the first quarter to about 13% in the second quarter, and that -- it's not really one market that we can point to that's really driving that. It was generally an overall increase just in general. So we have seen absolute levels of migration in migration that's been higher than that, but we've never seen a quarterly increase that's matched that in the past. So certainly, 1 quarter doesn't make a long-term trend, but I certainly think in terms of incremental demand components for the business, that's something that we're continuing to watch as we go forward.

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Tim, I just wanted to clarify, is the expectation for blended rate growth in the third quarter specifically from the lower turnover and stable renewal rate growth? Or are you also seeing new lease rate growth improve? Because I know you had talked about the easier comps earlier in the year being a benefit. And then can you also share what new lease rate growth and occupancy were for July?

Yes. To answer the first part of your question, we did -- I mean, it's a little bit of both. Obviously, the renewals are a huge part, and we're seeing, as I mentioned, the retention rates be higher in Q3 than it was both in Q2 of this year and Q3 of last year. So obviously, more nodes of blending in, and we're running 5-plus percent, whereas last year, we were in the 4.5% range. So that obviously played a big part. But we are seeing, as I mentioned, the momentum on the new lease side as well with everything on demand and what we've seen with pre-leasing August, September new lease pricing looks better than it did at the same time last year. And then to your point about the comps as well. I mean we really saw pricing drop off pretty significantly around this time last year. So last year, July and August new lease pricing dropped about 70 basis points. And then August, September dropped 140 basis points, and we don't expect that to recur this year from all the things we mentioned. But for July, I expect we'll end July around 95.4 in terms of occupancy. And I think the new lease in blended pricing comes pretty similar to what we reported for Q2.

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

Just wanted to ask on the capital allocation side. It sounds like dispositions maybe wrapped up for the year. It seems like acquisitions for the type of stuff you guys want to buy probably not -- shouldn't expect much here for the next little while, at least. So I was just wondering, should we expect sort of more share repurchases? Maybe just an update sort of on the debt side, I know there's some moving pieces there. But I guess, more generally sort of what is capital allocation priorities here sort of for the next little bit?

This is Brad. I can certainly kick that [indiscernible], I mentioned that a moment ago. I mean our approach is to have a pretty balanced approach about taking advantage of near-term opportunities as well as taking advantage of long-term opportunities. To your point, yes, I mean, our disposition plans for the year are close to being wrapped up. We have sold 2 properties. We've got 2 more that should sell by the end of the year. That puts our proceeds. By the way, one of those properties is in the JV, the one that's in the DC market. But the proceeds we'll get from those will be pretty similar to the -- what we've used so far to repurchase shares. So very balanced in terms of how we're looking to allocate capital there. But our priority continues to be development. That's number one. And as Tim talked about, continuing to invest in our WiFi initiative, which is highly accretive use of capital for us. We're growing our redevelopment and repositioning to drive earnings performance over the next year or so. That initiative continues to perform better. And as the new supply coming into the market stabilizes with rents that are over $500 a unit higher than our rents on average debt. That program continues to perform quite well. So you'll see us continue to lean into that as well. Our property reposition continues to be an area of focus for us. So that's kind of the prioritization that we have in terms of capital allocation. Clay, I don't know if there's anything you want to add on the debt piece you mentioned?

Yes, this is Clay. I mean as we talked about in the past, we do have a maturity that's coming due in September of this year for $300 million. So we've got plenty of capacity with this term loan in place at some of these other dispositions that Brad had alluded to that will help cover that maturity. So that's our plan for the financial need. Good chance that we come back into the market at some point late this year, potentially early next year. as we continue pushing our development pipeline. But that's what we see right now over the next few months.

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

I wanted to go back to the markets that were underperforming, you outlined Charlotte, Raleigh, Nashville, where supply still seems to be a factor. In contrast that with some of the Sunbelt markets where you're seeing some improvement, you mentioned often a few times, I think you mentioned Orlando. I guess I'm curious if it's that's down to submarket locations? Is it something else? And also maybe some color on the -- you mentioned the top 2/3 of the portfolio blends are better than the bottom [ 2/3 ]. So maybe some color on the top 2/3 blends versus the bottom?