MAA is a multifamily-focused, self-administered, and self-managed real estate investment trust (REIT) that primarily owns, operates, acquires, and selectively develops apartment communities in the Southeast, Southwest, and Mid-Atlantic regions of the U.S. . The company's main business activity involves leasing multifamily residential apartments to residents under operating leases, typically on a monthly basis with terms of approximately one year or less . MAA's revenues are primarily derived from rental activities, with additional income from non-lease reimbursable property revenues and other non-lease property revenues .
- Multifamily Residential Leasing - Provides leasing of apartment units to residents, generating rental revenues through operating leases typically on a monthly basis with terms of approximately one year or less.
- Non-Lease Reimbursable Property Revenues - Generates income from utility reimbursements and other similar non-lease related activities.
- Other Non-Lease Property Revenues - Earns revenue from nonrefundable fees and commissions related to property management.
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What went well
- Strong demand drivers such as job growth, population growth, and migration trends remain positive in MAA's markets, with 400,000 new jobs expected in 2024. Additionally, the cost of homeownership is 50–60% higher than rents, pushing more demand into multifamily rentals. Move-outs to buy a home are down 20% year-over-year.
- Supply pressures are expected to moderate, with peak new supply deliveries occurring now and easing by Q4. MAA anticipates new lease pricing to improve in Q2 and Q3, supported by stronger leasing traffic in the summer and normal seasonal patterns. Prior year comparisons become easier, further supporting improved performance.
- MAA sees attractive acquisition opportunities emerging later this year into 2025, as merchant builders struggle with lease-ups. Acquiring these properties provides a more attractive long-term investment return, especially on an after-CapEx basis, than share buybacks. The company is also investing in new technology initiatives that offer the opportunity for meaningful margin expansion over the next few years, creating significant value.
What went wrong
- MAA expects new lease pricing to remain negative until 2025, indicating prolonged pressure on rental rates due to high supply levels.
- Planned acquisitions are expected to be dilutive to Core FFO in 2024, and MAA is comfortable increasing leverage up to 4.5% to 5%, potentially increasing financial risk.
- High supply levels in key markets like Austin are expected to cause prolonged challenges due to oversupply, negatively impacting MAA's performance in these markets.
Q&A Summary
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Same-Store Revenue Guidance
Q: What affects high and low ends of revenue guidance?
A: Higher new lease rates due to strong demand could push us to the high end, while lower new lease rates might result in the low end. We assume blended rent growth of 1% for the full year, with renewals at 4.5% to 5% and new leases at around negative 3% to 3.25%. -
Lease Rate Growth Timing
Q: When will lease rate growth turn positive?
A: We expect new lease pricing likely won't turn positive until 2025. It may get close to flat in the middle of this year but typically turns negative in the back half. Improvement should start to appear in 2025 as supply pressures moderate. -
Impact of Supply on Rent
Q: What's the outlook for rents in weakest markets?
A: In markets like Austin, which face high supply, rent growth may struggle through 2024 and improve in 2025 as supply is absorbed. Strong job growth in these markets helps mitigate the impact. -
Acquisition Plans and Leverage
Q: How high can leverage go for acquisitions?
A: We're comfortable increasing leverage up to 4.5% to 5%, translating to a total buying power of roughly $1.5 billion for acquisitions if the right opportunities arise. -
Renewal vs New Rent Rates
Q: Why is there an 8% spread between renewal and new rents?
A: The gap, with renewals at 5% and new lease rates down 3%, is slightly wider than historical norms but consistent with seasonal patterns. Tenants value the cost and convenience of staying, and our customer service contributes to higher renewal rates. We expect the gap to narrow as new lease rates improve. -
Demand and Job Growth Assumptions
Q: What's driving demand in guidance?
A: Steady job growth, with an assumption of about 400,000 new jobs in our markets for 2024, along with migration trends and limited single-family home affordability, support demand. Early indications show job growth holding up well. -
Expense Pressures
Q: Which expenses are under pressure?
A: Uncontrollable expenses like real estate taxes are projected to grow 4.8%, and insurance is expected to increase by 15-16%. Controllable expenses are moderating, with repair and maintenance being the biggest driver among them. -
Potential for Share Buybacks
Q: Will you consider share buybacks?
A: While we focus on acquisitions and investment opportunities that support earnings growth and dividends, we have a buyback program authorized and wouldn't hesitate to use it if conditions warrant, especially if there's significant dislocation between public and private pricing. -
Development Starts and Yields
Q: What are expected yields on development starts?
A: We plan to start 3 to 4 developments this year, targeting stabilized yields in the mid-6% range. We're working to reduce construction costs and have seen 5-6% reductions on some projects, supporting our yield goals. -
January Effect on Rents
Q: Why did rents recover in January?
A: Post-holiday season, leasing traffic typically picks up as people are more willing to move. Additionally, developer lease-up aggressiveness eased after year-end, contributing to improved rental rates in January.
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With your guidance indicating a $0.04 dilution to core FFO from refinancing activities and a $0.05 drag from developments not yet stabilized , how do you plan to mitigate these headwinds to maintain shareholder returns in 2024?
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Given the expectation of refinancing $400 million of bonds maturing in June 2024 at an interest rate north of 5%, up from the current rate of 4% , how will this impact your overall cost of capital and investment strategy moving forward?
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You've mentioned that transaction volumes remain tepid and that pricing expectations from sellers are still in the low 5% cap rate range ; how confident are you in achieving your acquisition guidance of $350 million to $450 million , and what adjustments will you make if cap rates don't adjust upward as anticipated?
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With increased competition from new supply leading to pressure on new lease pricing and increased concessions in key markets like Charlotte and Raleigh , what specific strategies are you implementing to sustain occupancy and rental growth in these challenging environments?
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Considering the delays in your planned development starts due to permitting issues and expectations of construction costs coming down later in the year , how confident are you in commencing 3 to 4 projects this year as revised, and what contingencies are in place if these challenges persist?
Recent developments and announcements about MAA.
Corporate Leadership
Leadership Change
H. Eric Bolton, Jr. is retiring as CEO of MAA, effective March 31, 2025. His retirement is part of a planned succession and not due to any disagreements with the company . A. Bradley Hill will step up as the new President and CEO, effective April 1, 2025. He is currently the President and Chief Investment Officer of MAA .
CEO Change
H. Eric Bolton, Jr., the CEO of Mid-America Apartment Communities, Inc. (MAA), will retire from his position effective March 31, 2025. He will transition to the role of Executive Chairman to support the company during the leadership change. A. Bradley Hill, currently the President and Chief Investment Officer, will take over as CEO starting April 1, 2025 .