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

Good morning, ladies and gentlemen, and welcome to the MAA Third Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded today, October 29, 2026. I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MAA for opening comments. Andrew, please go ahead.

Thank you, Samantha, 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 data. 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 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. When we get to Q&A, please be respectful of everyone's time and attempt to complete our call within 1 hour due to other earnings calls today. We will limit questions to 1 per analyst. We ask that you rejoin the queue if you have any follow-up questions or additional items to discuss. I will now turn the call over to Brad.

Thank you, Andrew, and good morning, everyone. As highlighted in our earnings release, our third quarter core FFO results met our expectations. While expense discipline supported third quarter results, the later recovery of new lease pricing is reflected in our revised full year outlook that Clay will walk through. As we move further into the fourth quarter, we continue to see evidence of recovery across our markets. Based on current trends, we're optimistic we will see year-over-year improvement in new resident lease-over-lease rates for the full fourth quarter, slightly later than the previously expected third quarter. While the timing has shifted slightly the underlying drivers of recovery remain in tight, robust demand continues to absorb the elevated supply delivered over the past few years, and we're encouraged by the early signs of firming market conditions. Our renewal performance strengthened further with year-over-year improvement accelerating 80 basis points in the third quarter, from 50 basis points in the second quarter, supporting our blended lease of release and revenue performance as new resident pricing continues to recover. With more stable occupancy, we're seeing a strong start to the fourth quarter with preliminary October new resident lease-over-lease pricing improving sequentially from September. This improved new lease performance combined with sustained strong renewals results in preliminary October blended lease over lease rates improving by more than 100 basis points compared to October 2025. We are optimistic this leasing momentum will continue to build into the busier spring leasing season. Demand fundamentals across our footprint remain healthy and continue to outperform non-MAA markets. Job growth, household formation, inbound migration and population growth, along with persistent single-family affordability challenges continue to support demand for rental housing across our footprint. The Sunbelt remains an attractive destination for employers and employees, supported by the high quality of life and relative affordability. These advantages reinforce our conviction in the long-term appeal of the Sunbelt, even as the near-term pace of recovery has been impacted by temporary supply pressure. Robust demand, coupled with lower supply levels is beginning to translate to a more balanced operating environment. Performance varies depending on the stage of the local supply cycle, but year-to-date absorption across our markets has exceeded new supply deliveries, reducing the number of communities in lease-up and supporting a gradual reduction in concessions. As lease-up communities stabilize and new starts remain low, the impact of elevated supply eases and the balance between supply and demand shifts more toward demand. That process is occurring and provides a foundation for improving leasing conditions and ultimately should lead to stronger pricing power. Our focus during this transition is to best position MAA to capture the benefits of that improvement. Our priorities remain disciplined expense management, investments in technology to support a stronger platform with increased centralization and specialization and enhancements to our communities through redevelopment, repositioning and property-wide WiFi. Together, these initiatives are aimed at strengthening the resident experience to support our sector-leading renewals, improving operating efficiency and expanding our earnings growth opportunity as the operating environment further improves. In addition to these initiatives to strengthen our operating platform, we remain focused on creating long-term shareholder value through disciplined capital allocation. Our strategy balances investments in our existing portfolio with selective external growth opportunities while maintaining financial flexibility. During the quarter, we started construction on 3 projects, wrapping up our 4 planned starts for the year. These projects include an 88-unit wholly owned Phase 2 development in Kansas City, a 306-unit prepurchased joint venture development in Northern Virginia and a 312-unit prepurchased joint venture development in Nashville, Tennessee. All 3 projects should reach stabilization in a much lower supply environment and stronger with stronger operating fundamentals in 2029 and are expected to deliver long-term shareholder returns above our current elevated cost of capital even under conservative underwriting assumptions. Looking ahead to 2027, we are optimistic that the balance will continue to shift more broadly from supply-driven competition toward demand-led improvement, supporting an acceleration in operating fundamentals. The timing and pace will vary by market, but with healthy demand, absorption exceeding new deliveries and markets gradually firming, we see a favorable foundation for the next phase of recovery. As supply pressures ease, we believe the strength of our operating platform, the capabilities we've been building should become more evident to our performance. And to all of our associates across our communities and corporate and regional offices, thank you for your continued service to our residents and to MAA. With that, I'll turn the call over to Tim.

Thanks, Brad, and good morning, everyone. For the third quarter, same-store NOI was in line with our expectations with continued lower-than-projected property operating expenses offsetting lower-than-projected revenue, which was driven primarily by slightly weaker new lease pricing. As Brad mentioned, October and early fourth quarter trends for new lease pricing are encouraging. But while positive absorption is occurring, we continue to see consumers being selective in the third quarter, resulting in downward pressure on new lease rates. Despite these trends in new lease pricing, renewal retention rates and lease rates remain strong. Turnover remained at record lows with 39.6% turnover on a rolling 12-month basis and renewal lease-over-lease rates up 5.3% for the quarter. As a result, blended lease-over-lease rates were up 10 basis points from the blended rates of the third quarter of 2025. Our sector-leading net delinquency performance continued with just 0.3% of billed rents outstanding, a level that has remained consistent for several quarters. Our average residents' financial health remains strong with our rent-to-income ratio at 18%, matching the second quarter and continuing at the lowest level we have seen since pre-COVID. Individual market fundamentals broadly looked similar to last quarter with a lot of consistency in markets that are showing pricing strength and pricing improvement. Most of our markets in South Carolina and Virginia continue to outperform our broader portfolio from a pricing standpoint with the Charleston and Norfolk, Virginia blended lease-over-lease pricing performance -- sorry, with Charleston and Norfolk, Virginia market is gaining even more momentum and leading the portfolio in third quarter blended lease-over-lease pricing performance. Dallas continues to outperform our portfolio in Austin, though still an underperforming market on an absolute basis, continued its relative improvement with a 420 basis point year-over-year increase in blended pricing. Orlando is another improving market with blended pricing up 100 basis points from the third quarter of 2025. Phoenix, Charlotte and Savannah are relatively high concentration markets for us that are still working through heavy supply pressure and struggling to gain new lease momentum despite continued strong demand. During the quarter, [ MA Bavisa ] in Phoenix and MA Breakwater Tampa stabilized and MAA Milepost 2 in Denver completed construction and moved into our lease-up portfolio, 2 additional lease-up properties M&A, Nikin Raleigh and MA, Liberty Row in Charlotte are expected to stabilize in the fourth quarter of this year. As with some of our same-store portfolio properties, working due to excess supply is still a challenge particularly in a market like Charlotte, where 19% of inventory was delivered into the market over the last 3 years. Our 2 Charlotte lease-up properties have seen the heaviest concession usage with up to 10 to 12 weeks offered on certain floor plans, but as with the overall lease-up portfolio, we feel good about the long-term NOI growth and value proposition as markets continue to improve. NOI contributions from this group will continue to build through the rest of this year and into 2027. We continue to execute on our various targeted redevelopment and repositioning initiatives in the third quarter with strong results. During the third quarter of 2026, we completed 2,040 interior unit upgrades, bringing our year-to-date total to 5,544 units, 16% higher than the number of units renovated in the first 3 quarters of 2025. Through the third quarter year-to-date, we have achieved rent increases of $114 above non-upgraded units on an average per unit spend of $5,926 and average cash return is approximately 23% versus expected returns of 19% in prior year returns to 20%. These units also continue to lease faster than nonrenovated units when adjusted for the additional turn time. We would expect to further accelerate this program in 2027. We also continue to make progress on our common area and amenity repositioning program. The last of 6 completed properties wrapped up the repricing phase in the third quarter. Five properties are early in the repricing phase and 6 additional are in the construction phase and will begin the repricing phase in the spring of 2027. The completed group achieved an average cash-on-cash return in excess of 11%. We expect similar returns from the remaining active projects and are evaluating 8 to 12 additional projects for this initiative in 2027. Our community-wide WiFi initiative that began in 2024 continues to expand. The existing 28 live properties where the service is rolling out to residents as leases are signed, continue to gain momentum and the additional 38 properties that commenced in 2026 will start going live this quarter. Revenue from the currently live properties is quickly increasing from $850,000 in the second quarter to $1.35 million in the third quarter and will continue to grow from here. As Brad referenced, we are encouraged by what we have seen so far in October with only a few days left to close out the month. Additionally, the early pre-leasing pricing trends so far for November and December relative to last year are positive as well, while blended lease release pricing for each of the first 3 quarters in 2026 was higher than each of the 3 quarters of 2025, newly [indiscernible] lease performance has continued to lag the prior year. However, we expect October new lease over lease pricing will exceed last October, which would represent the first year-over-year improvement in new lease pricing this year. Furthermore, pre-leasing volume for November and December is ahead of the same time last year with stronger lease over lease rates as well. The strong renewal trends continue into the fourth quarter also with decisions made on over 90% of our fourth quarter renewals, we are once again exceeding 5% lease or release growth on accepted renewals and achieving higher except rates than the prior year. These trends set us up to capture growing occupancy and carry a positive earn-in into 2027 for the first time in 3 years. That's all I have in the way of prepared comments. I'll turn the call over to Clay.

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.10 per diluted share, which was in line with our third quarter guidance. Same-store revenues were approximately $0.02 below our expectations, primarily related to pricing and occupancy, while same-store expenses were approximately $0.02 favorable, driven primarily by real estate taxes. Below same-store operations, favorability in overhead and other income and expense was offset by slightly lower-than-expected non-same-store NOI. On the capital allocation front, we funded approximately $84 million of development and predevelopment costs during the quarter. At quarter end, we had approximately $367 million of remaining funding commitments on our development pipeline and expect to spend approximately $320 million on total development costs for the full year. Our balance sheet remains well positioned to support our development pipeline and other growth initiatives. At September 30, we had approximately $661 million of combined cash and capacity under our revolving credit facility and net debt to adjusted EBITDA was 4.7x. Our outstanding debt had an average effective interest rate of 4.1% and an average maturity of 5.6 years. During the quarter, we borrowed the remaining $250 million available under the delayed draw term loan we established in June, bringing total borrowings under that facility to $350 million at quarter end. The proceeds were used to help refinance $300 million of bonds that matured in September. We also continued our measured approach to share repurchases, repurchasing approximately 400,000 shares of common stock at a weighted average price of $126.72 per share for a total investment of $50 million. In addition, during September, we see a [ forward ] sale agreement under our ATM program and issued approximately 300,000 shares at a forward sale price of $13.34 per share. Those proceeds were used on October 1 to fund the approximately $43 million redemption of our Series I preferred shares. Turning to our outlook for the remainder of the year. We have lowered the midpoint of our full year core FFO guidance by $0.04 to $8.49 per diluted share and established a revised range of $8. 43 to $8.55. The change primarily reflects the impact of third quarter same-store revenue performance, along with lower projected non-same-store NOI, partially offset by favorable expense performance and lower projected overhead. Within same-store operations, we reduced our full year revenue growth midpoint by 35 basis points to negative 0.25%, primarily reflecting third quarter results. New lease pricing during the quarter was below our expectations. And while we built occupancy during the quarter, average occupancy for the quarter was also modestly lower than anticipated. As Brad discussed, more recent leasing trends support our view that the recovery we anticipated is developing but approximately 1 quarter later than we originally expected. Accordingly, we reduced our expected full year effective rent growth midpoint by 20 basis points to negative 0.1%, and our expected average physical occupancy midpoint by 10 basis points to 95.4%. We also [ heard ] our same-store expense growth midpoint by 35 basis points to 1.4%, driven primarily by lower projected real estate taxes. Together, the revisions to our revenue and expense outlook resulted in a 35 basis point reduction in our full year same-store NOI growth midpoint to negative 1.25%. We also lowered projected full year overhead by $1.5 million, reflecting our third quarter performance and expectations for the balance of the year. For the fourth quarter, we expect core FFO to be in the range of $2.12 to $2.24 per diluted share or $2.18 at the midpoint. The sequential increase from the third quarter primarily reflects normal seasonal decline in operating expenses along with higher contributions from our non-same-store portfolio and lower overhead costs, partially offset by higher interest expense. That is all what we have in the way of prepared comments. So [ Samat ] we will now turn the call back to you for questions.

[Operator Instructions]. Your first question comes from the line of Nick Joseph with Citi.

It's Eric here with Nick. You mentioned in your prepared remarks that you were confident that the improving trends in October would translate all the way through, I think you said next year's peak leasing season. And then I think you also said that November and December pre-leasing was better. Could you just explain sort of what you mean by that and also share what you're expecting for the fourth quarter in terms of blended rate growth? Just so we can see the October trends are translating to better November and December as well.

Yes, Eric, this is Tim. I'll hit on some of the details then. So for October, as we mentioned, we're seeing a trend better than both last October, both in terms of new lease and renewals and a little bit better than September as well on new lease renewals. And what -- when we talk about pre-leasing, what we really mean there is units that are on notice to move out. We pre-leased those units and captured better pricing than we had this time last year. And so when we look at October trends and we look forward to November and December trends, but our pre-leased volume for November, December and our prelease rates for November and December are trending better than they were this time last year. Obviously, it will -- it will be dependent on the rest of the leasing we do still early for November and December, but the trends we're seeing are good. And I think the other point I'll make there is contrasted with what we saw early in Q3 is that we're seeing better pre-lease volume, better prelease rates, occupancy is in a stable position. We have fewer lease expirations in Q4 and more renewals in Q4. So we're less reliant on leasing is maybe -- we're not building occupancy we're less reliant on leasing as many of those current vacant units, which obviously have the most pricing pressure. So feel good with the trends we're seeing far obviously, a little more time to go. And then sitting on the guidance for Q4, if we look at what Q3 was, new lease pricing was about negative 6% or so. We typically see a 300-plus basis point moderation of new lease rates from Q3 to Q4. We expect probably half of that in for the full quarter, we're seeing a little bit better than that for October, but we expect a little bit of moderation in November and December and then continue to see renewals in the 5-plus percent range as well.

Your next question comes from the line of Jamie Feldman with Wells Fargo.

Great. So we were taking a closer look at Atlanta specifically, which is a big market and was also kind of leading the [ Sunbelt ] recovery for a while. But if you look at the 3Q numbers, you had NOI down occupancy down. And so I guess the question for you is just, a, is there something specific about Atlanta in the third quarter, but more importantly, like is this a sign that some of these markets are stalling out already? And what gives you confidence that they're not. I think Jacksonville is another one that seemed like it was kind of ahead of the ahead of the pack and then it slowed down pretty meaningfully. So if you could just provide some more color just on where your head is there? And then also what should give us confidence that these really are going to restart. And then also urban versus suburban, maybe that's part of the issue in Atlanta. We're just curious if there's something playing out there between your urban versus suburban markets?

Yes. So this is Tim. I'll touch on that. So for Atlanta, I think it was really sort of a temporary blip, if you will. We did see in early Q3, really, really [Audio Gap] specifically. We saw concession spike and we're holding on to pricing a little bit. So I saw [indiscernible] little bit there, but it quickly recovered. We're above 95% in Atlanta now as we sit here in early Q4. And actually, when we look at new lease pricing for Atlanta, we've seen a little bit of acceleration from September to October new lease pricing. So nothing we see in Atlanta to be long-term trends. We're still seeing good performance in the more in-town [ Buckhead, Midtown, Downtown], still leading the way there. So we're still seeing the trend in Atlanta and other markets where the urban submarkets are tending, for the most part, still outperformed the more suburban submarkets as that supply came a little bit earlier and they're working through that. So nothing long term, we believe, in Atlanta expect that to bounce back. And then Jacksonville has been a relatively weak market for us for a while, it seems to have stabilized a little bit. We're seeing the pricing in Q3 for Jacksonville was about 70 basis points better than it was in Q3 of last year. So while it's still laggard and the portfolio is still laggard to some of the Florida markets, we think it's sort of stabilized and trending a little bit flat but trending a little bit up. So don't feel like any of these have stalled out. Most of these are -- there's something unique in the market temporarily that's driving little blips from month to month.

Jamie, this is Brad. Further context, I would just add to that is if you look at all of our markets in context and you kind of rank those markets in terms of performance, about 60% of our markets are kind of above portfolio average trend line. And if you look at those markets that are above the trend line are more than 2x the trend in terms of our blended performance. So the -- in terms of the strength of performance and improvement that we're seeing, it's pretty broad-based across our portfolio. And really, it depends on where the market is in terms of its supply cycle because we're seeing strong demand really across the portfolio. Then if you look at the markets, clearly, that are below the trend line for us, clearly, those are the high supply markets that continue to drag down the total portfolio performance. So -- and then the other piece I would just add of those markets that are towards the bottom of the list in terms of high supply, we are seeing improved performance there. You look at the Nashville -- and certainly in Austin, it's still showing pretty good year-over-year improvement. So I'd say we're seeing improvement across the portfolio that is pretty broad-based.

Your next question comes from the line of Austin Wurschmidt with KeyBanc.

So you guys have referenced now a few times that the strong demand trends are providing some optimism around about kind of the recent improvement in the lease rate growth, but during the period where there's really low lease expirations, I guess how do you connect the depth that, that translates into during a period of higher lease expirations improving fundamentals and more specifically, like what have you seen historically that it will take for pricing power to meaningfully improve? Is there some vacancy threshold the market that you need to cross and just trying to understand given the sluggishness in the recovery up into this point.

Yes, Austin, this is Tim. Under first point, I mean, certainly fewer lease expirations in Q4. So it's less impactful when you think about the broader portfolio, but there's obviously less traffic this time of the year as well. So I think on a relative basis, the strength we're seeing relative to what we typically see this time of the year is encouraging. And I think to be able to be building occupancy, which we did to Q3, and we expect to build a little bit more into Q4 and see better pricing trends and see it's all the different components. It's the renewals, it's the pre-leasing it's the occupancy. All of those seem to be trending in the right direction and to do that -- for all of those will be moving in the same direction to do that in a quarter with less demand in general from a seasonal perspective. I think that's encouraging for us. And then on the second point, for us being in that 9.5% range, somewhere around there is kind of like where we want to be and where we think we can start pushing on price and balancing that trade-off a little bit. When we look at market level occupancies broadly across the board, they're you're pretty much back to the sort of free supply glut levels. So we think the number of units and lease-up. We think there's 50,000 fewer units available in our markets than they were at the beginning of the year at now. So there's less units to be absorbed. So all those factors kind of last believe that the trends are real, and we'll start to see some real recovery as we get into 2027.

Your next question comes from the line of Nick Yulico with Scotiabank.

I guess for either Clay or Brad, I just -- I wanted to ask about the balance sheet, make sure we're understanding this correctly. So you guys took out the bond maturity with floating rate debt. So your floating rate debt exposure went up this quarter. And so I guess what I'm wondering is a couple of things. Are you planning on reducing that floating rate debt exposure via doing some sort of fixed rate issuance or swaps? And then the other thing is I want to make sure we're sort of looking at this right. In terms of the effective interest rate that you guys have in the sup, I know there's like a mix of different debt in that floating rate debt. Is it possible just to get what the overall spread is on that $1.2 billion? Because I know it's a mix of, again, like commercial paper other forms of debt. And then just lastly as well, if you had any high-level thoughts on capitalized interest next year, just as we're thinking about modeling interest expense going forward.

Yes, this is Clay. I'll take that and make sure I hit them all for you. I think going back to the beginning of the year, we had talked about that we would expect there to be a couple of bond issuances this year. And as we sit here today, we probably expect that to still be the case. And so the term of that maturity term of that issuance would probably be a little different than what we thought at the beginning of the year. But as we sit here today, it's probably going to be by around 5 or so something lower than a 10 for sure, just given where rates are today. So I think that would play itself out over the remaining course of the year. Whenever you look at our floating rate debt and kind of think about the kind of the weighted piece of that. Our commercial all in, it's about a little over 4% for it. So our CP program is -- I'm sorry, our CP program is a little over 4%, and it's about $750 million. And then we've got the $350 million term loan at about $47 million and then the revolver being the difference there, about a 4%, 6.5%. So it's all weighted, it's about 4.5%, a little lower than 4.5% there. And then on cap interest, as we think about next year, I mean, what we'll -- as we sit here today, and we've had the 4 starts this year. Of course, we've had a couple of deliveries this here recently. And that's part of the driver of the increased impact of interest expense that we're seeing in the fourth quarter. I would expect cap interest for next year to be a little lower than what we're seeing this year. just given the timing of some of the deliveries plus some of the timing of the starts that we're expecting for next year. So it will be a small headwind for us as we go into 2027.

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

Can you go through the capital priorities right now? Kind of been doing a bit of everything this year, but I'm wondering if higher rates and a lower stock price maybe shift things in the favor of repurchases or how you rank things otherwise.

Brad, this is Brad. I mean, I think our strategy in that area hasn't changed, certainly trying to drive long-term compounded earnings performance. And I think based on where we are and where interest rates and things of that nature, our priorities, I'd say, number one, continues to be investing in our operating platform. We've done that. Certainly, in a number of ways. We have talked about the reimage initiative that we're focused on. That's strengthening our operating platform. You've seen the benefit of that on the personnel side. This year, we see about $25 million improvement in margins in our run rate by the end of next year. We'll continue to do that. As Tim talked about in his comments, we continue to reinvest in our existing portfolio through our redevelopments pretty strong returns there. Our WiFi initiative, we'll continue to do that as well. I'd say on the external growth front, that's really going to depend on where values go. I'd say if cap rates continue to kind of be in the range of where they are now. They moved up in the third quarter about 25, 30 basis points versus where they were in second quarter. But if cap rates kind of hang in there or move up another, call it, 25 basis points, we'll continue to favor development in that equation. I think the returns we continue to get from our development platform continues to exceed even our current elevated cost of capital from an IRR perspective. So we feel really good about what we're able to achieve there, the longer-term growth rates as well. If we see the capital markets change a bit and force cap rates to move up a bit more. We'll get more active in the acquisition space. We're pretty opportunistic in terms of our deployment of capital in that area. We've been pretty disciplined in the last few years. We've only purchased 1 project in the last 2 years because cap rates have been so low. But if you go back to the GFC period, we bought 10,000 units in one-off transactions over a 3-year period there. So we want to really protect our balance sheet. We want to be flexible in terms of where we're able to lean in -- to drive long-term shareholder value. But I'd say, given where our current leverage is and our dispositions for the year that we've executed at about $150 million net to us, we have reinvested that $150 million into share repurchases. We don't have dispositions planned for the back part of the -- last part of the year. So probably not going to see us active in the share repurchase area right now, given where our dispositions and leverage are.

Your next comes from the line of John Kim with BMO Capital Markets.

I wanted to ask what your primary metric that you look at when you determine your dividend policy. When you look at your funds available for distribution and you add back redevelopment CapEx, year-to-date, it's down 4% year-over-year. And the payout ratio is 99%. So it doesn't really leave that much capital for reinvestment and maybe you can make the case that it should be reset lower as this continues. On the flip side, is variable, especially revenue-enhancing CapEx, so this number may improve from that and other measures. But just wanted to get your thoughts on dividend policy.

Yes, John, this is Clay. You're hitting on all the things that we look at. And given to your point, CapEx can be variable from time to time. And so that we have -- you have to consider that, especially when you think about the potential for some casualty events to come into play. But that's the way we think about it is that we're looking at it on a kind of pre-redevelopment basis given the fact that those items are typically are going to provide some sort of return that's higher than our cost of capital. So I think you've kind of hit on it. And it's obviously been down a little bit past year versus last year, to your point, it's running right around flat to slightly positive, we'd look for that to -- we're going to continue to manage that to at least that level, if not better. Just given the fact that we don't want to be leveraging up to fund other capital needs that have to be fun.

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

Maybe just want to talk about the sort of cadence of lease growth in the quarter on a monthly basis. I know you guys have sort of shifted away from that. But I think it would be helpful just to understand sort of the degree of improvement you saw over the course of the quarter. And I guess sort of bridging from that into the 4Q commentary, would love to hear October metrics to the extent you're comfortable disclosing at least directionally -- and then maybe just sort of occupancy target for 4Q as you get into what's typically been the seasonally slower months, although it seems like this year has an element of sort of contra seasonality to it as well.

Yes, Adam, this is Tim. As far as Q3 goes, and renewals were pretty consistent in that 5% to 5.3%, 5.4% range. And on the new lease side, I mean, we saw the typical seasonality, I would say. It was a little bit less than normal, but simple seasonality where to was a little better in August. It's always a little better in September and it averaged out to the 6% over the full quarter. September was a little bit over 7%. And so if we think about October, I mean, I'll say October preliminarily with a few days left, trending slightly better than September. And then on the occupancy side, you were 95.3% for Q2 and Q3, we'd expect something better than that in Q4. So we're slowly building occupancy through the quarter. So I think closer to that range, give or take. And for some of the reasons I mentioned earlier, we have better retention, fee release expirations and better pre-lease volume. So we think occupancy will slowly build throughout the quarter and put us in a good position as we head into 2027 to take advantage of improving fundamentals.

Your next question comes from the line of Jana Galan with Bank of America.

Just wanted to follow up on the positive earning comment. Are there any other building blocks for 2027 that you can talk to? It sounds like occupancy can be a slight benefit. Just curious if there's any initiatives to increase the other revenues. And then the bad debt is excellent. So I'm not sure if that can get better from here?

Yes. I mean you hit the point. I mean we'll have a slightly positive earn-in heading into 2027. And then obviously, rate growth will be highly dependent on pricing for what we do in 2027. Occupancy, we would expect to be something similar, if not a little bit better. I mentioned earlier, 95.5% is kind of our sweet spot where we think we can balance out the pricing and occupancy component. As far as other income, I mean, the big one would be our WiFi initiative that we continue to roll out. We had $35 million of revenue from those projects in Q3. I think the full run rate for that group of properties is probably close to $2 million or so, which we'll get to later next year. And then we have 38 properties or so that we're finishing up or starting to go live on right now and those will play out over the course of the next 12 to 15 months in terms of the ramp-up. But that full run rate for those projects is closer to $3 million, representing about 14,000 units. So obviously, take a long time to get to that run rate, but you can get a feel for what the opportunity is on the list side. That would be the big one in terms of other income.

Your next question comes from the line of Haendel St. Juste with Mizuho.

This is Mike on with Haendel and Mizuho. How would you characterize demand in your pricing power here? And how do you think concessions and consumer AI agents are impacting renter psychology and willingness or ability to negotiate in real time?

I want to stab on the first part, demand, Brad talked a lot about this. And in his comments, where we're continuing to see strong demand. I think that will continue the in-migration job-growth household formation, all those macro level things that we look at are certainly more positive trending well relative to other parts of the country. So we expect that to continue. When we look at more of our internal or metrics, fleet volume, those sorts of things are up, quite a bit over last year. We've been seeing lead volume run 15% higher this year over last year. It's taking more leads to generate those leases as people are taking longer to make decisions, but not really seeing anything concerning and actually optimistic on the demand side. As far as the second part of your question, I know you mentioned concessions. I think concessions has been the limitation, if you will, from seeing the quicker recovery that we had hoped and anticipated and still think is starting has to show its head now where we've had 3 years now of kind of less than normal leasing performance due to all the supply and a lot of operators have gotten very, very comfortable and very used to only being an operating environment where there's heavy concession usage. So I think that is what can create the opportunity going forward with now occupancy stabilized and fewer units and lease-up, I believe operators start to get more comfortable to bring those concessions down. We started to see that a little bit in late Q3 and into early Q4, concessions have ticked down slightly. But I think that's been more of a function of the leasing environment been in the last 2 or 3 years in the work in the supply than anything else.

Your next question comes from the line of Rich Anderson with Cantor Fitzgerald.

So just thinking big picture here, Brad, I remember we had an event, I think it was June of '25 and maybe it was '24, I can't remember they all blend together. But we've been trying to pinpoint this recovery in the Sunbelt for a long time now. And so similar views of improvement in the following year have been expressed and then missed because of this sort of difficult nature of oversupply. But what do you think people should be thinking about in terms of how this will ultimately recover? I mean it doesn't sound like you're looking at a hockey stick is type of opportunity. It's sort of going to be more of a gradual sort of improvement over the course of the next several years. Would that be the right way to think about it? Maybe we transition next year, but it's not going to be anything sort of earth-shattering or sudden. Is that a fair way to say it? And if so, how would you -- why would that be the case? Like besides supply, what other factors are making it so sort of slow in its recovery.

Well, thanks, Rich. I think in terms of the pace of recovery next year from a portfolio level perspective, I mean it really depends on where each individual market is upon -- is on that kind of supply curve because overall, what we're seeing across our markets is this is not a demand issue, this is a supply issue, and it's taking time to certainly work through that supply. As I mentioned earlier, for the markets that have worked their way through the supply pipeline, we're seeing some very good results there. And I think in some of those markets, you are seeing a hockey stick year-over-year recovery. You look at in Austin, for example, it's still a challenged market right now. It seemed the most supply, but it's also got tremendous demand, and we continue to see blended rate performance year-over-year, be the strongest in our portfolio. So I wouldn't rule out a hockey stick type of recovery in certain markets, depending on where it is in that supply pipeline. And then that's obviously where each of those and how they overlay each other is going to determine how the overall portfolio reacts. But broad demand, I think, is pretty strong in our markets. Certainly, job growth has been a little bit underwhelming this year versus what we had hoped it would be. But we've got other things that are tremendously positive from population growth, migration trends, household formation. We're also at this moment. We've got one of the higher levels of bundling that we've seen in the last few years. So if we can get to the point where concession -- these markets, market level occupancies continue to improve. We've seen that time the numbers about the excess absorption versus new supply coming into the market. That sets us up for a pretty good recovery trajectory as we get into the spring next year. We've said for a few quarters now that we -- it's hard to see a significant improvement in the numbers even if the supply demand dynamics improve in the fourth quarter and first quarter, it's really going to be the spring leasing season before you see that. So we do expect that recovery could be pretty significant depending on where markets are in that supply cycle. And there are other things that I think could improve that. If the economy improves, I think that job growth improves, that unbundling begins to happen, and that's a significant demand factor as well that we need to keep our eyes on.