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

Good afternoon. Welcome to Bank of America's 2026 Global Real Estate Conference. Amana Galen, BofA's President REIT analyst, and we're thrilled to have with us MAA's President and CEO, Brad Hill, CFO, Clay Holder and Treasurer, Andrew Shafer. I'll turn it over to Brad for opening remarks, and then we can jump into the Q&A.

Well, thank you. I appreciate everyone being here. I appreciate the time. It's been a great conference. We enjoyed the building. It's been well received. So what I thought I'd do is just give a few opening comments and just jump right into questions. For those of you who aren't as familiar with MAA and our story, just a quick update or background. MAA is a $22 billion S&P 500 multifamily REIT. We have about 105,000 apartment units predominantly across the Sun Belt region of the U.S. We are located in 16 different states, and our exclusive focus really is on multifamily in what we call high-growth, high-demand region of the country. Generally, that overlaps quite well with the Sunbelt markets throughout the Southeast. If you look at our markets, what's characterized them historically has been significant outperformance on demand metrics, whether you're looking at household formation, population growth, migration trends, job growth, wage growth. Our markets have consistently outperformed other regions of the country on all of those demand factors, and that continues to be the case today. Certainly, our markets, particularly if you look at the last 3 years, has faced more supply pressure than other parts of the country as we've seen really a record level of deliveries in the Sun Belt region really across the country, but in particular, in the Sunbelt region. But as we sit here today, that supply pressure is moderating. So we're really encouraged by what we're seeing there. We continue to work our way through that supply overhang. Definitely, our new lease rate performance continues to be impacted by that new supply that's coming into the market or is into the market. But A lot of that -- those lease-up communities are leasing up. And so we are seeing some better performance. And finally, after 3 years of excess supply, we are seeing those new deliveries trend down below long-term averages. And based on what we've seen in terms of new deliveries for the last 3 years being below long-term averages or new starts for the last 3 years being below long-term averages, we do expect the trajectory of supply to be more muted as we go forward for the next 3 to 5 years. And so if we look at our markets from a market perspective, certainly, some of our high supply markets, as I mentioned, are still under pressure. If you think Phoenix, Jacksonville, Charlotte, Raleigh, Nashville, Austin, those markets continue to face supply pressure but we're making our way through that. I'll hit on 1 of those markets here in just a second. We're also encouraged by some strength that we're seeing in our mid-tier markets. If you were to rank all of our markets from top to bottom in terms of performance, you'll see the top 10 or so of our markets are all mid-tier markets. And those are markets where we have seen less supply pressure or those markets peaked in supply pressure before other markets did. So we're seeing pretty good performance out of those markets. And then if you look kind of below the line in terms of our average performance, what you'll see is all of those markets are high supply markets. So we continue to see pressure in those. But the good news is, if you look at a high supply market like in Austin, even though that market has seen the highest supply in the country, we do continue to see good performance -- relative performance out of that market. if you look at our blended performance just over the past year, we're up about 300 to 500 basis points in blended performance year-over-year. So while it's still negative and it's still at the bottom of our list, we are seeing some stronger performance in that market. So again, as the supply pressures continue to be absorbed and dissipate across our portfolio, we would expect to see similar performance in terms of trends across our portfolio.

Thank you. And ahead of the conference, you guys provided a bit of an operating update. I know you touched on some parts of it, but maybe if you want to go through a little bit more on kind of how third quarter is trending?

Absolutely. Yes, we did put out on Page 33, if you have a package in front of you, I'd say, in general, what we're seeing so far in the third quarter, consistent with our comments on the earnings call. We are seeing and expect to continue to see less of a seasonal slowdown in the third and fourth quarter than what we saw last year. If you look at our blended results quarter-to-date in third quarter, we're seeing that at this point. Tying back to my comments, I made a moment ago with still dealing with supply pressure in some of these high supplied markets. Our new lease rate performance is probably a little weaker than what we had hoped in the third quarter. But we are seeing some strength on the renewal side. If you look at our renewal rates, third quarter is consistent with what we saw in the second quarter. It's also up about 70 basis points year-over-year, and our retention rates continue to improve. If you look out into the fourth quarter, as we sit here today, we have over 60% of our renewal decisions have already been made. And we continue to see improvement in the retention rates and the renewal rates are improving. We're up to about 5.5% in the fourth quarter, which, again, is about 70 or 80 basis points better than last year. So continued strength on the renewal side. The other thing I'll mention about third quarter performance we have seen a build in occupancy every month through the quarter. So August occupancy was better than July and September occupancy, average daily occupancy will be better than what we saw in August. So we've continued to build occupancy as we've gone through the quarter.

That's great. very strong renewal rates. I guess it is very surprising kind of the difference when you look at the numbers. But can you help us think about it maybe in terms of like what those actual dollars are between the minus 5.7% and the plus 5%?

Yes. I mean, so the spread between new and renewal lease on a dollar amount is about $180. So that spread in the dollar value isn't quite as big as you would think. And if you think about that from the position of a renewing resident, what we're asking them to do is to pay about $90 more than what they're currently paying. So resident perspective, we do a lot of focus on customer service. And what we found is if we continue to take care of that resident provide good maintenance, a good experience for them and really not give them a reason to leave, then they generally won't leave for us -- from us. And that $90 rent increase that we're asking them to give is about $1,000 a year, so it's very reasonable. And so what we found is if we do that, folks will stay with us. And that's, I think, more so than single-family affordability concerns, I think that's why we've seen our retention rate continue to decline.

And just as we've kind of towards the tail end of this peak leasing season, just curious if you could kind of comment on kind of what were the best markets and then which markets you're seeing potentially like the best momentum, which could potentially be the leaders in '27?

Yes. I think for the best markets, I mean it goes back to Brad's earlier comments on some of these mid-tier markets they continue to show strength through the third quarter. coming out of the second quarter and into the third quarter. And again, it goes back to the function of the supply discussion that he was just bringing up in when you think about some of the markets that we're seeing some good momentum even as we come out of the summer leasing season. Orlando comes to mind, Orlando, we've seen some really good strength in its performance over the course of the summer months. And that was 1 that has dealt with supply has seen a lot of it over the past couple of years, and it's beginning to kind of turn that corner there. Dallas is another 1 that we've seen some good momentum. We've been talking about Dallas for a couple -- a little over a year now probably, and it continues to show some strength even year-over-year at this point as -- and so that's, again, good less in supply and then really good demand in that particular market. And then the last 1 I'll point to is Austin, and Brad talked a little bit about that. But I mean, if you think about Austin, I mean, it got supply everywhere in that particular market. And we're starting to see different parts of Austin get some relief from the supply pressures that he's been seeing in those parts of Austar we're getting that relief, you're really seeing that benefit and that strength starting to show itself -- in it's blended rate trends. So as the rest of that market gets passed the supply wave that it's been experiencing and it's been experiencing supply wave that's probably exceeded all other markets. I think you'll that the benefit and the growth that we'll see in that market will continue to build on what we think.

And maybe can you talk about the concession usage you've seen in your markets and how that's ranged?

Yes. I mean I think in general, concession usage is pretty consistent right now to what we have been seeing. I mean we're not seeing a material change in that really 1 way or another. We saw an uptick in concessions probably 2 years ago ahead of the supply wave. We haven't seen that materially pick up. As we sit here today, we have in our markets about 200,000 less units in lease-up than we did 2 years ago. So the number of communities that are out there in lease-up continues to decline. So while I think the concession usage in a lease-up community is consistent, call it, 6 to 8 weeks, the prevalence of that as the number of lease-ups decreases, the prevalence of those concessions is decreasing in the markets.

Can you quantify your asset exposure to that percent of where there was a decrease in lease-up properties? Do you have like a breakdown?

Yes. I don't have that. I think it's going to vary by market, honestly. I mean to Clay's point, if you think about a market like in Austin, we haven't been -- I mean first of all, the supply has been everywhere, but I would say we haven't been as exposed to some of the supply as we have in other markets, Charlotte, for example, we're seeing a little bit more pressure right now from from some of that supply that's in the market. I think we're more exposed to it in a market like that. But it varies greatly by submarket product type in markets. So it's hard to pinpoint what that percentage is across the board. .

And then maybe on the demand side, kind of what are you seeing in terms of migration, job growth and how formation trends?

Yes. I mean I would say across all of our markets, all of the demand fundamentals continue to hold up quite well. I mentioned on the earnings call, 1 of the things that we saw an uptick in the second quarter that we needed to keep an eye on, which I think is a positive was migration. We saw the slope of the quarterly change in the second quarter of in-migration was stronger than what we had seen in any other quarter. One quarter doesn't make a trend. So we've got to certainly keep an eye on that. But that was also broad-based. It wasn't coming from 1 market versus another. It was pretty much all over. We saw even some migration coming from Midwestern markets, which you haven't seen a lot of that historically, we started to see some of that. So migration continues to be pretty strong for us. And I'd say all of the other metrics of demand that we're tracking, there's not really a weakness of those. And in terms of markets, the 1 market I would say that we're watching from a demand perspective is Denver. Again, across our markets, I think we've got strong demand but Denver has probably been on the weaker side of the demand fundamentals than any other market that we have the migration into Denver has been a bit slower. The job growth has been a little bit slower there. I think the good news for Denver is the supply picture is coming down considerably. So I do think supply-demand balance should be okay for the next couple of years as that supply continues to come down. But we're pretty excited about the demand fundamentals across our footprint.

And then maybe just some comments on Atlanta being 1 of your largest markets?

Yes. Atlanta, kind of going back to the discussion I had with Dallas a few minutes ago. Atlanta and Dallas both started kind of moving in a very positive direction. -- about this time last year, and that momentum continued through probably the first half of the year. It's maybe slowed down a little bit versus what Dallas is continuing to show that momentum. But I think we're still seeing overall good fundamentals, good overall, generally good demand in that particular market. The supply impact is kind of over and done with there. And so now I think it will be more of a a typical market for us as probably pre-COVID levels of just kind of some general growth, but not going to be the leader of the pack at the same time.

Yes. maybe changing topics a little bit, thinking about just this past year in terms of the public REIT apartment space, there's been a lot of consolidations. Historically, you guys have been some very large consolidators. Just curious your thoughts on scale, platform?

Yes. I mean we have been very active in that space. And I think if you look back at the mergers that we have with both Colonial and Post, it was about a strategic advantage that we could use to to get stronger in some way to ultimately deliver long-term TSR performance for capital that was strong and growing. Colonial was more about scale. We got more in the same markets where we are. Post was we got a development capability. We got a stronger balance sheet. So there were specific capabilities we got with those -- as we sit here today, we're 105,000 units. From a cost structure standpoint, I think we have some of the best cost discipline in the space. If you look at our maintenance cost per unit versus the space. We're probably better than most in the sector. Our growth rates are well controlled. Our G&A as a percent of revenue, the lowest in the space. So -- from a scale benefit perspective, I think we've harvested quite a bit out of that. From a data capability, we do have 170,000 residents in our community that we're collecting transactional data from that we can analyze and look at. So I feel like we have pretty good scale in that area. Probably an area of continued scalability for us, we're doing it on our portfolio now is the podding where we have overlap in terms of where certain properties are located between other properties and we manage those properties instead of 2 managers, there's 1 property manager for both properties. So we have some more opportunities to do that. So for us, it's about how can we drive long-term differentiation and growth to our shareholders in a way that's sustainable. And if we opportunities to do that, we'll certainly entertain those ideas as they come along. But for us, it's about continuing to focus on the operations side of the business. And as we strengthen what we're doing in that area, we'll find opportunities to put our platform on more properties to drive additional benefit to shareholders.

And maybe can you talk a little bit more on just some technological initiatives, how you're using some of the data you've collected to either Penny drive other revenue or you've highlighted some...

Yes, absolutely. I mean the focus that we have, we term reimagine that's really what we're doing is we're rethinking how we staff properties, how we're structured operationally. We're redesigning what we're doing on site to really drive higher customer service. Customer service has been a focus of ours. It ties back to our strategy of maximizing the renewal transaction that we have on site. And if you go back and look at our performance, over the last 4 years, you'll see that our renewal performance is 5.25% for the last 4 years. So we significantly outperformed in that area also has cost implications to it as well. So we're really focused on that piece of the business. And certainly, technology is a part of that. Process workflows is a part of that. We're looking to take all of the administrative tasks off of the site that we can to allow them to focus on customer service that gives us an ability to further scale what we're able to do, the number of people that we have and the number of units per head count, if you will, across the organization has continued to improve. So AI is a part of that. Process workflows as a part of that. Staffing certainly is a part of that. We've used AI for years on -- for the last probably 2 years on prospect engagement. So we continue to use it in that way where today, upwards of 75%, 80% of our interactions with prospects are now through a chat bot or voice bot or something of that nature, which frees up our staff to be able to really focus on customer service type items, which I think is really driving some of our customer service scores in the space. So it's a big focus for us. We're probably in the pretty early innings of using AI for some of our back-office staffing and improvement in scalability items from a back-office support perspective. Maintenance side is also another area that we're working early on in terms of considering some of the technology and how that could apply there as well.

Maybe turning over to kind of the capital markets, transaction activity, what you guys are seeing in terms of product on the market and you've been active both buyers, sellers and developers. And so where do you see the best opportunities?

Yes. I mean, certainly, where we've seen the best opportunities the last couple of years has been in development. We've obviously tried to grow our development pipeline. A couple of years ago, we were around $300 million to $400 million today. We're around $800 million or so with the goal of kind of keeping that around $1 billion. We do think that in terms of driving long-term TSR performance developments, the way we're getting accretive yields and higher NOI growth rates than what we're out of our existing port. So it's a great growth opportunity for us. We haven't been as active on the acquisition side, just given where cap rates have been. They've generally been in the, call it, 4.5% range, which is obviously lower than where our cost of capital has been. And so we haven't been very active in that space. We've sold a few deals this year about $150 million. We've taken that capital given what's going on in the acquisition market, and we have redeployed that into share repurchases. So that's been the use of that capital. But we still believe that development is a great place for us to be. In this environment, certainly, our cost of capital has changed. So I would expect that the hurdles needed to move forward with developments will change as well. So we'll continue to focus our capital in the best avenues that we have. Other areas where we're focused, it's smaller scale with great returns is our unit repositioning and redevelopment. We continue to ramp up that focus. We're up about 30% in the number of units that we're doing this year. That program continues to benefit as the new supply in the market gets stabilized. So we're seeing 20% cash-on-cash returns from that. our property-wide WiFi, we're ramping up investment in that area of the business. That's about a $45 million NOI opportunity over the next, call it, 5 years or so. So we continue to ramp up in that area as well.

And then just back to the development side. Can you talk a little bit about kind of construction costs you're monitoring and managing them?

Yes. I mean, certainly, there's been a lot of unknowns over the last year or so. We've seen costs come down about 5%, I'd say, over the last year, and that's really been on the margin side, haven't seen much change in terms of materials. We've also been cognizant of the risk associated with oil prices and how that could maybe impact some of the materials. So we've increased contingencies in our deals to try to protect us if something does happen, costs go up in terms of that area. But we haven't seen that to date. I think as we sit here today, it's it's hard to see that construction costs would continue to come down going forward, because you can only reduce margins so much, but I feel like we've gotten a little bit of benefit over the last year in terms of reduction.

And then maybe just on kind of the supply in the markets, you did see kind of this historically but these markets have always experienced a good level of supply. How do you kind of see the cycles playing out?

Well, I think you're right. The long-term average supply in our markets is about 3% go back and look at the last, call it, 25 years or so, it's about 3% of inventory. I think it's important to keep in context the level of supply that we've seen over a 3-year period, we saw 5 years worth of supply being delivered into the market. So a significant excess level of supply. Having said that, this is -- this year is the first year where we have come below that long-term average. Now we're still absorbing some of the supply as I talked about a moment ago, but supply levels this year are expected to be about 2%, 2.2% in our markets. That will fluctuate a little bit. If you go back and look at the trailing 3 years' worth of data, the starts that have happened in our region of the country, have significantly trailed long-term averages. The trailing 12 months, we're at 1.9%. So from a forward-looking perspective, we should be low -- be below long-term average deliveries for the next 3 to 5 years in our markets. As we sit here today, construction costs are not coming down. pressure on interest rates. Equity is -- it's hard to raise equity for some of these development deals. So I think the supply pipeline will likely materially decline even further from here. And to go back and look at a time where we saw supply levels at this level, you've got to go back post-GFC time period, and there's a 5- or 6-year period where new supply were similar to this 2% range. And we were able to deliver that we're about 200 basis points higher than historical average for us. So I do think we're getting to the period where we should see better performance from an NOI perspective from a historical basis, based on the fact that supply is coming down, demand is remaining pretty robust. And we're already seeing that. We're seeing that in our mid-tier markets. We're seeing that positive trend in Austin as we talked about, and I think that will become more broad-based as we get into next year.

And I guess, as the development economics for others don't look as great. but you want to lean in more to your development. I guess, how are you solving for that? Is it land you already own?