Mid-America Apartment Communities - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 was operationally steady but mixed vs consensus: GAAP diluted EPS was $0.92 while S&P “Primary EPS” printed 0.876* vs 0.862* consensus (beat); revenue was $549.9M vs $551.4M* consensus (slight miss); Adjusted EBITDAre was $305.9M vs $306.7M* consensus (slight miss). Same Store revenue fell 0.3% YoY and Same Store NOI declined 2.6% YoY, offset by stronger renewals and record retention.
• Management reaffirmed the full‑year Core FFO midpoint ($8.77), narrowed the range ($8.65–$8.89), trimmed GAAP EPS guidance ($5.25–$5.49 from $5.51–$5.83), and lowered expense growth assumptions on favorable taxes and insurance; Q3 Core FFO guided to $2.08–$2.24 (mid $2.16).
• Demand/supply setup improved: absorption outpaced deliveries for four consecutive quarters; blended lease pricing turned positive (+0.5%) with July new lease rates tracking best YTD; retention was record high and delinquency just 0.3% of billed rents.
• Balance sheet remains a differentiator (Net Debt/Adj. EBITDAre 4.0x; ~94% fixed-rate debt; 6.7 years average maturity), enabling selective development (pipeline ~$943M, eight active projects) and potential M&A as opportunities arise.

What Went Well and What Went Wrong

• What Went Well

  • Resilient operations with record resident retention; Same Store blended lease rate growth turned positive to +0.5% (renewals +4.7%; delinquency ~0.3% of billed rents), supporting stable 95.4% occupancy.
  • Expense tailwinds emerging: 2025 real estate tax growth midpoint cut to 0.25% and insurance to +1.3% YoY; Same Store expense growth midpoint lowered to 2.25%, preserving the full‑year Same Store NOI midpoint at -1.15%.
  • Improving demand/supply: “absorption across our markets [is] the highest level in over 25 years,” with absorption outpacing deliveries for four straight quarters; July new lease pricing is best YTD and occupancy ended July at 95.7%.

• What Went Wrong

  • Growth still pressured: Same Store revenue -0.3% YoY and Same Store NOI -2.6% YoY in Q2, reflecting supply pressure and operator focus on occupancy; average effective rent/unit -0.5% YoY.
  • New lease pricing remains a headwind near-term (-4.8% in Q2), particularly in Austin, Phoenix, and parts of Nashville; management expects positive new lease spreads more likely in 2026.
  • Lease-up portfolio weighed on non-Same Store performance (unfavorable $0.02/sh vs plan), contributing to the mixed result relative to guidance despite favorable overhead and taxes.

Transcript

Speaker 3

Good morning, ladies and gentlemen, and welcome to the MAA second quarter 2025 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, the company will conduct a question-and-answer session. As a reminder, this conference call is being recorded today, July 31, 2025. In consideration of time, we have a two-question limit. I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer, and Director of Capital Markets of MAA for opening comments.

Speaker 4

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 statement 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 an audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. I will now turn the call over to Brad.

Speaker 0

Thanks, Andrew, and good morning, everyone. As detailed in our release, second quarter core FFO results were ahead of our expectations, with the sequential improvement in new, renewal, and blended lease-over-lease rates all exceeding the prior year's sequential improvement. While the economic uncertainty has caused the pace of recovery in pricing power to slow across the country, the recovery in our portfolio is underway. As the economic uncertainty stabilizes and deliveries continue to decline, the recovery should accelerate. Demand remains resilient, with absorption across our markets reaching the highest level in over 25 years. Encouragingly, absorption has now outpaced new deliveries for four consecutive quarters, with the gap between the trailing 12-month absorption and new deliveries in our markets approaching the level last seen during COVID. The downward trend in new deliveries is helping market conditions to firm up, with market-level occupancies improving in many of our markets.

We are seeing pockets of decreasing concessions, a combination that should lead to improved pricing power. With a stable employment sector and strong wage growth, our residents are financially healthy, leading to continued good collections and improving rent-to-income ratios. Our diversified portfolio, focused on high-growth markets and operating scale, continues to position MAA best to capitalize on these favorable trends to a greater degree as the demand-supply balance moves more in our favor. The resilience of our platform is evident. In the midst of still elevated supply, we have maintained stable occupancy, achieved higher renewal rates, and increased our retention, the result of our team's focus on customer service and operational consistency. On the external growth front, because of our access to capital, we continue to find select compelling development opportunities. We remain committed to the disciplined expansion of our development pipeline, and we are making progress toward that goal.

In the second quarter, we started construction on a 336-unit suburban project in Charleston, South Carolina, which is expected to deliver a stabilized NOI yield of 6.1%, bringing our active pipeline to 2,648 units at nearly $1 billion. We own or control 12 additional sites with approvals of nearly 3,300 more units. Amid record pressure from competitive lease-ups in our markets, we remain patient in our approach to leasing up our new communities and are prioritizing rents and long-term value creation, allowing us to achieve our expected lease-up rents and deliver stabilized NOI yields that continue to trend above our original expectations. Our development projects are well-positioned to benefit from the declining new starts and the tightening supply backdrop. The acquisition market remains relatively quiet. Transaction volumes are still muted as bid-ask spreads persist and capital remains cautious given elevated interest rates. That said, we are evaluating several opportunities.

We have a stabilized suburban acquisition with a small phase two development component in the Kansas City market under contract, and we expect it to close upon the completion of our due diligence review during the third quarter. Our strong balance sheet and liquidity position will allow us to be opportunistic should more attractive acquisition opportunities become available in the second half of the year. With a 30-year track record of navigating economic cycles, we remain confident in our ability to execute through this transition period and that our focus on high-demand and high-growth markets will continue to lead to higher earnings and lower volatility over the full cycle. Our markets continue to benefit from higher job growth, wage growth, household formation, and demographic tailwinds than the national average.

We're encouraged by the building blocks that are in place and the growing momentum heading into the back half of the year and remain confident in our ability to deliver compounding revenue and earnings performance as the recovery continues to accelerate. To all our associates across our properties and in our corporate and regional offices, thank you for your continued dedication and focus during this pivotal leasing season. With that, I'll turn the call over to Tim.

Speaker 2

Thank you, Brad. Good morning, everyone. For the second quarter, we saw steady progression in new lease-over-lease rates from what was achieved in the first quarter. Though, as Brad mentioned, broad economic uncertainty did slow the pace of new lease pricing recovery that we saw through April and caused May and June new lease pricing to be a bit below our expectations. The uncertainty showed up twofold, with prospects being more selective in making decisions and operators continuing to lean toward occupancy despite broadly improving market-level occupancies. However, renewal lease performance, represented by the high level of renewal acceptance and the rates achieved, continued to outperform expectations. As a result, we saw lease-over-lease pricing improvement from the first to second quarter that exceeded 2024 for new leases and renewals, which manifested into stronger sequential blended pricing growth as compared to the prior year.

Blended pricing for the quarter was 0.5%, which represented a 100-basis point improvement from the first quarter. Along with the stronger pricing trend, we had stable average physical occupancy of 95.4% and another quarter of strong collections, with net delinquency representing just 0.3% of billed rents. Our strongest performing markets continue to be consistent with what we have seen in the last few quarters, led by many of our mid-tier markets. Our Virginia markets remained strong, and other mid-tier markets such as Kansas City, Charleston, and Greenville all demonstrated strong pricing power. Of our larger markets, Tampa continued to show pricing recovery, and Houston was steady as well. We also continue to see a slow but steady recovery in Atlanta, which had our largest year-over-year improvement in both blended pricing and occupancy of any of our higher concentration markets.

Austin continues to face record supply pressure, resulting in weaker new lease pricing. Phoenix and Nashville are two other markets facing significant pricing pressure. We have seen the uncertainty in higher leasing pressure particularly impact the leasing velocity of our lease-up portfolio, and in turn, we pushed the stabilization dates by one quarter for three of our lease-up properties: West Midtown, Vale, and Valvista. However, across our lease-ups, we've achieved rents to date 2.5% ahead of pro forma. We had one property, MAA Boggy Creek, reach stabilization in the quarter, and our six remaining lease-up properties ended the quarter with a combined occupancy of 80.7%. Despite supply concerns, we continue to execute various targeted redevelopment and repositioning initiatives in the second quarter, and we expect to accelerate these programs over the remainder of 2025 and into 2026.

Through the second quarter of 2025 year to date, we completed 2,678 interior unit upgrades, achieving rent increases of $95 above non-upgraded units and a cash-on-cash return in excess of 19%. This was an acceleration of both volume and rent growth achieved from the first quarter. Despite this more competitive supply environment, these units leased on average 9.5 days faster than non-renovated units when adjusted for the additional turn time. We still expect to renovate approximately 6,000 units in 2025, with more expected in 2026. For our repositioning program, we began repricing in the second quarter at five of our six recent repositioning projects, with the last slated to begin repricing in August. Early results are encouraging, with NOI yields in the low teens based on current pricing. We have identified several additional projects to start later this year, with anticipated repricing in time for the prime 2026 leasing season.

Work also continues on 23 retrofits for community-wide Wi-Fi, with go-live dates planned through the remainder of 2025. With July closeout in process, we continue to see seasonal pricing and occupancy trends that are aligned with our guidance. July pricing is trending better than the second quarter, and our current occupancy at the end of July is 95.7%. Our 60-day exposure for July is 7.1%, 10 basis points lower than this time last year, and keeps us in a position for stable occupancy to allow for pricing power, assuming demand fundamentals remain intact. Brad noted the exceptionally strong absorption, with absorption in our markets exceeding new supply for the fourth straight quarter, or said another way, the fourth straight quarter with fewer available units for lease in our markets than the prior quarter.

Strength in our renewals continues, with the percentage of our residents accepting renewal offers exceeding last year's record level and lease-over-lease growth rates on renewals accepted for July, August, and September in the 4.5% range. Strong absorption, declining deliveries, and high retention rates underlie our optimism for an expected continuously improving lease environment over the next several quarters. That's all I have in the way of prepared comments. Now I'll turn the call over to Clay.

Speaker 0

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.15 per diluted share, which was $0.02 per share ahead of the midpoint of our second quarter guidance. The favorability to our guidance was driven by $0.025 related to favorable overhead expenses, $0.01 of favorable interest expense and other non-operating income, and $0.005 from our same-store NOI performance, partially offset by unfavorable non-same-store NOI of $0.02, which was mostly driven by the impact of elevated supply pressure on the lease-up portfolio. Our same-store revenue results for the quarter were in line with our expectations, as revenues benefited from strong collections during the quarter. Our same-store expense performance was better than expected, primarily driven by real estate tax expense.

We now have more information relating to our real estate expense for the year, as municipalities have started providing 2025 property valuations, which I'll discuss more with our revised guidance in a moment. During the quarter, we funded approximately $92 million in development costs for the current $943 million pipeline, leaving an expected $326 million to be funded on our current pipeline over the next two to three years. Our balance sheet remains well-positioned to support future growth opportunities, with $1 billion in combined cash and borrowing capacity under our revolving credit facility and our low net debt to EBITDA at four times. At quarter end, our outstanding debt was approximately 94% fixed, with an average maturity of 6.7 years at an effective rate of 3.8%. We have an upcoming $400 million bond maturity in November that we plan to refinance later this year.

Finally, we are reaffirming the midpoint of our same-store NOI and core FFO guidance for the year while revising other areas of our detailed guidance that we've previously provided. Given our operating results achieved through the second quarter, we are making slight adjustments to our guidance associated with same-store rent growth. We are lowering the midpoint of effective rent growth guidance to negative 0.25% while maintaining average physical occupancy guidance at 95.6% for the year. Total same-store revenue guidance for the year is revised to 0.1%, which also reflects continued strong rent collection performance over the back half of the year. We are lowering our same-store property operating expense growth projections for the year to 2.25% at the midpoint. We have better insight into our real estate tax expense for 2025 and have lowered the midpoint of our guidance to 0.25%.

The lowered guidance is primarily due to favorable property valuations in certain jurisdictions as compared to our original expectations. Also, we recently renewed our property and casualty insurance programs on July 1 and achieved an overall premium decrease on our property and casualty lines. We now expect our insurance expense for the full year to increase by 1.3% as compared to last year. The changes to our property operating expense projections, combined with our updated same-store revenue expectations, resulted in us reaffirming our original expectation for same-store NOI at negative 1.15%. In addition to updating our same-store operating projections, we are revising our 2025 guidance to reflect favorable trends in overhead expenses, along with adjusting our acquisition and disposition volume for the year given the current transaction market.

The impact of these adjustments, combined with our continued focus on pricing and our lease-up portfolio, resulted in us maintaining the midpoint of our full-year core FFO guidance at $8.77 per share while narrowing the range to $8.65 to $8.89 per share. That is all that we have in the way of prepared comments. Regina, we will now turn the call back to you for questions.

Speaker 3

We will now open the call up for questions. If you'd like to ask a question, please press star, then one on your touch-tone phone. If you'd like to withdraw your question, press star one a second time. In the interest of time, the company has requested a two-question limit. Our first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Great. Thanks. Good morning, everybody. Tim, you mentioned that July trends are trending better than the second quarter. I was hoping you could expand a little bit on that comment and whether that's new lease-rate growth that's driving the improvement and exceeding what you've seen in recent months, or if it's more of a function of the renewal strength and stronger retention you highlighted.

Speaker 2

Yeah. I mean, it's a little bit of both. I'll mention the renewal trends in the prepared comments. We're continuing to see in that 4.5% range really through the rest of the third quarter and continuing to see the acceptance rates be a little bit higher than what we saw before. That's certainly playing a part of it. We are seeing new lease rates so far trend better than what we saw in Q2, and actually, the best new lease rate on a lease-over-lease basis we've had so far this year. That's what gives us some confidence in what we're expecting to continue to see an improving environment as we get to the last part of the year.

Yeah, that's really helpful. I guess, how much of the changes to your 2025 lease-rate growth assumption reflect kind of what's happened in the first half of the year versus how much was a function of changing sort of the second-half projection and just that trajectory of fundamentals from here? Thanks.

I would say, effectively, what occurred in Q2 was the biggest impact. There's obviously a lot of leases that expire in Q2. We intentionally, obviously, moved them toward the strongest part of the leasing season. We revised the total lease-over-lease guidance by roughly 100 basis points. We were somewhere around 1.5% in our prior guidance, roughly around half a percent. It's a little bit of a combination of both, but what we saw in the second quarter was the biggest part of the adjustment.

Speaker 3

Our next question comes from the line of Cooper Clark with Wells Fargo. Please go ahead.

Great. Thanks for taking the question. I just wanted to follow up on Austin's question and curious kind of what the expectation for new lease-rate growth is in the current embedded guidance and what gives you confidence in the updated range given continued volatility from the lease-up inventory?

Speaker 2

Yeah. I mean, we're somewhere in the negative 4% range, give or take, for the back half of the year on the new lease side that's driving the pricing guidance. As we mentioned, continue to see renewals play a larger part of the combination and continue to see the renewal rates be strong. What gives us the confidence is a few things. One, the renewal strength we're seeing. We've got good visibility into September for that and starting to get October as well. Current occupancy, where we stand right now, as I mentioned, is 95.7%. Expect that to trend through August at a similar rate. Our exposure is at a better spot than it was this time last year. At a macro level on some of the uncertainty, we're seeing consumer sentiment tick back up. Chances of recession are lower than they were before.

I think there's less uncertainty in the market as well that helps from a consumer and operator sentiment standpoint. The absorption that Brad Hill and I both mentioned in the prepared comments continues to be really strong. In fact, if you look at the net absorption we've had over the last four quarters, there's about 85,000 fewer units in our markets available to lease than there was 12 months ago with the absorption. I expect that to continue to grow, be well over 100,000 as we move through the back part of the year. The last point I would make is just from a comp standpoint. The last two years in Q3, our cumulative new lease rates were down about 8%. In Q4, our cumulative new lease rates were down about 15%. There's an easier comp component to it as well.

Speaker 0

Okay, that's helpful.

Speaker 2

Cooper, real quick, this is Brad. I agree with everything Tim said. The one thing that I would add to that that gives us confidence as we head into the back half of the year is in second quarter, we continue to be in a high level of supply situation that continues to decline. Yet, if you look at our performance in the second quarter, clearly, we saw blended lease pricing turned positive. We saw a pretty good improvement in blended lease pricing second quarter versus first quarter. If you look at the rate of improvement this year versus what we saw last year, we've seen an acceleration in the midst of an environment where we saw increased uncertainty, and we saw still high levels of supply.

All of that really comes together to give us confidence that the back half of the year should progress in line with what our current expectations are.

Okay. That's super helpful. Thank you. Switching to the capital allocation with the Charleston, South Carolina development start and the Kansas City acquisition noted earlier, is it fair to say your incremental dollar will continue to be away from more of the mature Sunbelt markets and into your Midwest and small-format Sunbelt markets like your Charlestons or Savannahs? Any comments on cap rate or expected yield from the Kansas City acquisition you can share would be great.

Yeah. Sure. I mean, I wouldn't read anything into where our incremental dollar is going away from the Sunbelt. That is not our focus at all. We certainly believe in the merits of investing our capital in the highest demand region of the country. If you look over time, performance in earnings growth, dividends performance is most highly correlated with the strength of demand, which we think correlates highly with the Sunbelt markets in the U.S. We will continue to invest our capital in those markets. You will see us continue to invest capital both in our large markets as well as our mid-tier markets, which Charleston and I'd say Kansas City are both more of our mid-tier markets. You will see us continue to invest capital in that manner. As I mentioned in my opening comments, the Charleston development is a 6.1% yield.

The developments that we've executed over the last 12 months or so have been in that 6% to 6.5% range. We're still seeing select opportunities in that range that you can expect us to continue to execute on as we continue to build out that development pipeline. On the acquisition side, the Kansas City acquisition, there's two phases there. One's a stabilized acquisition that's probably in the high 5% from an NOI yield perspective. We have a small phase two development to go along with that, which combined will expand the total development yield to about a 6.3% or so on the entire development.

Speaker 3

Our next question comes from the line of Eric Wolfe with Citi. Please go ahead.

Hi. It's actually Nick Curran for Eric this morning. Thanks for taking the question. The first one I have is just on Atlanta. Obviously, it's minus 40 bps same-store revenue growth quarter over quarter. I would have thought that would have been a bit better on a sequential basis given we talked about some improvement there last quarter. If you could just kind of walk through what you're seeing on the ground there, that would be helpful.

Speaker 2

Yeah. I mean, we're continuing to see some positive momentum out of Atlanta. I mean, it was coming from a pretty low spot with, if you think back to early 2024, there were occupancy and pricing concerns there. The revenue growth is trailing looking. It'll take some time for it to really start to show up. I mean, it's still at a level below, I would say, the average of our portfolio. When you think about the improvement from last year, it's one of the best. In fact, as I mentioned, when you combine our improvement in blended lease and release in Atlanta compared to last year and our improvement in occupancy, the combination of those two is better than what we saw in any of our other large markets. The delinquency continues to not be an issue. It's down to almost the portfolio average.

We've started to see concessions come down a little bit. Particularly Midtown Atlanta has been a spot where we've seen huge concessions still there, but they've come down a little bit. We've seen it down a little bit in Northwest Atlanta as well. It'll take some time to really show up on the revenue side, but we're encouraged with where it's trending.

Right. Got it. Thank you. I apologize if I missed it, but did you give a specific blended lease expectation for the back half of the year? If you didn't, could you inform us on that?

Yeah, we're somewhere around 0.8% or so for the back half of the year on a blended basis.

Speaker 3

Our next question comes from the line of Nick Yulico with Scotiabank. Please go ahead.

Thanks. Good morning. I guess first question is, as we think about the pricing and I think your leasing, you said, being a little bit slower than expected in the last couple of months, what is the driver of that? Is it, I know we've all known about supply for a while, but it feels like there's also a general demand problem that's hitting multifamily. I'm not sure as well for the Sunbelt market if you're also facing the opposite of the benefit from in-migration, if now you're facing out-migration or just other issues in those markets from a demand standpoint. Can you just talk a little bit about what you're seeing on the ground? Thanks.

Speaker 2

Yeah. Hey, Nick, this is Brad. I would start out by saying that we are certainly not seeing any problems whatsoever on the demand side. If you go back to what we saw going into the second quarter, we were seeing very significant and very strong new lease-over-lease improvement on a monthly basis. Even going into April, we saw new lease-over-lease rent growth in the 100, 150 basis point range, which was in line with kind of what our expectations were. We expected that to continue. As we got into May, we saw that the market operators began to focus a little bit more on occupancy, which clearly had an impact in terms of the rate of the recovery that we expected. There's no demand concerns whatsoever in our region of the country. In fact, if you look at the varying demand metrics that are out there, we monitor absorption.

As I mentioned in my comments, we're seeing record absorption in our region of the country, the highest that we've seen in the last 25 years. If you look at the gap between the trailing 12-month absorption and supply, we are approaching COVID levels in terms of the gap between excess supply. What that means is that absorption is significantly outpacing new deliveries. The point that Tim made a moment ago, based on that excess absorption, we have 85,000 fewer units to lease in our market today than we had at this time last year. You couple that with the fact that supply continues to decline significantly from where we are today, and demand continues to hold in there.

That gap in the reduction of supply that's available to lease will quickly become 100,000 units, 120,000 units, and that will have a significant impact on the acceleration of performance in our region of the country. We're not seeing any slowdown on migration trends. That's still a net positive of 6% or so. It's down from COVID highs, but in line with pre-COVID numbers. We're not seeing any concerns whatsoever on the various demand metrics that we look at.

Okay. Thanks for that, Brad. Just second question is, I know you gave some numbers about the back half of the year, new lease rate growth, and you talked about the prior couple of years. It was down, I think, definitely last year in the back half. I mean, at what point, can you just explain to us at what point do your comps become easy? Because we thought that if you were down substantially a year ago on new lease rate growth in the back half of the year, you'd get some comp benefit this year, but it doesn't seem like that from what you talked about with new lease expectations.

Yeah. Nick, this is Tim. We do think there is some comp benefit. I mean, the biggest drivers are everything we've talked about from a demand standpoint, absorption, and all that. There is a piece of it that's easier comps, particularly to your point in the back part of the year, and particularly in fourth quarter where we've seen it trail off quite a bit the last two years. If you look at just our new lease rents over the last couple of years, they were down cumulatively 8% in Q3 and 15% in Q4. We've obviously got much better supply-demand fundamentals now and in good shape, as I mentioned, with occupant exposure. We do think that plays a component in our expectation for less seasonality than what we would typically see.

Speaker 3

Our next question comes from the line of Adam Kramer with Morgan Stanley. Please go ahead.

Hey, guys. Thanks for the time here. I think you guys were talking a little bit about sort of pace of recovery here. Maybe sort of piggybacking on that, I wanted to ask about how absorptions that you're seeing today, how does that compare to maybe what your forecast would have been three months ago or six months ago, recognizing that sort of the pricing is what it is? I think just maybe underscore what's happening with demand. We'd love to hear just about how absorptions are trending relative to your expectations.

Speaker 2

Yeah. This is Tim. I mean, we expected absorption to continue to be strong. It's hard to pinpoint exactly what's dialed into the numbers, but we know, to Brad's point a minute ago, that demand factors have continued to be strong, particularly in the Sunbelt. We know supply deliveries each quarter have been dropping. We expected a level of absorption. There's a few markets, few spots where, and we talked about with the lease-up portfolio, where leasing velocity has slowed a bit. It's more in pockets with a lot of supply. I would say, in general, absorption has been really strong. We expected it to be really strong. I think it'll be even stronger over the next couple of quarters.

Great. Maybe a similar question on deliveries. What is sort of the forecast, I guess, for 3Q and then 4Q for deliveries? How does that compare to maybe the first half of 2025? Whether that's national or in your markets, I think it would be helpful context.

Yeah. I mean, in our markets, if you compare last year to this year, we're expecting about a 25% or so drop in new supplies as compared to last year. We saw that occur a little bit in the first half, but it was probably down 10% or 15% in the first half of the year compared to what it's been trending. I would expect it to accelerate a little bit from what we saw in the first part of the year.

Speaker 3

Our next question comes from the line of Yana Gallon with Bank of America. Please go ahead.

Thank you. Good morning. It's great to see the renewals for the third quarter remaining in the mid-4% range, but just kind of curious, how long do you feel that they could stay in that range? Is it a function of wage growth, or is it kind of the churn in the portfolio that it's not the same residents that received a similar increase last year?

Speaker 2

Yeah. This is Tim. I think it's some of that. I think those points you just made play into part of it. I think the service we provide plays into a lot of it. I mentioned this, I think, last quarter that we have the highest Google scores in the sector. I think that customer service plays a part in it. We do a very thoughtful analysis when we go out with our renewal offers, tiering it based on where people are relative to market. We've been in this period for now going on about eight quarters where new lease pricing has struggled, but we've continued to see renewal rates hold in this 4.5% range. I think there's a lot of qualitative factors I just mentioned beyond the just straight numbers that help that. Even though turnover is down, we're still turning 40% or so of our portfolio each year.

There's a factor there that plays into it. No reason to expect that we should see anything different going forward from what we've seen the last two years.

Thanks. Maybe just following up on the turnover, do you expect that in the second half to be similar to 2024 or even lower, kind of given what's going on with interest rates?

I think so far, with what we've seen in Q3 and renewal accept rates, we continue to be a little bit lower than where we were in 2024. I would expect that into Q3. Q4 is always a little bit higher turnover quarter. Again, we don't see any reason to expect that's going to change. People aren't leaving us to buy houses. The turnover due to rent increase is down. I don't see any larger factors that would suggest that number would creep back up in the fourth quarter.

Speaker 3

Our next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. How has the competitive pricing environment across all operators in your markets trended? Are other operators pushing occupancy? If so, how much occupancy improvement do you think they would need in order to be comfortable to return to pushing rate again?

Speaker 2

Yeah. I mean, I do think we have seen operators push more towards occupancy broadly. I think that was a factor that played into Q2, where even though we saw in our markets occupancy increase from Q1 to Q2 broadly, 40 or 50 basis points, I think there was still some hesitancy on the operator front to push pricing, perhaps when they could have a little more. We've been pushing pricing where we think we can or where we should. I mean, with where we sit today, we're at 95.7%. As I mentioned, we'll continue to have a targeted approach where we have exposure and current vacancy in a good position. We'll push price, and where we don't, we'll push occupancy.

I think broadly, with where the macro environment is and where consumer sentiment is and improving fundamentals, it'll become more of a rate-pushing environment, particularly as we get into 2026.

Got it. I recognize it's a small market for you, but Northern Virginia had a material slowdown in same-store revenue growth in the quarter relative to the first quarter. Can you discuss what trends you're seeing in that market in particular?

Yeah. I mean, we've seen it slow down a little bit. Obviously, that market has been strong for going on six, seven quarters now. I think a little bit is just coming into tougher comps. We did see, similar to what we saw more broadly, just a little more, a little more choosy on the prospect side. Particularly in our Pentagon area asset, we've seen renewal accept rate go down a little bit just with some of the uncertainty on people taking the buyouts and that sort of thing. I don't think there's anything necessarily unique to that market different than others. I think it's more just naturally slowed a little bit as it's had a really strong six or seven quarters.

Speaker 3

Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey, morning down there. Two questions. First, just big picture because everyone's asking about new rents. You guys talk about improving fundamentals, improving demand. 85,000 fewer units this year than last, yet new rents are still down and things are still lethargic. How much of it do you think is just pure rent fatigue over the past few years that new prospects, even if they're relocating within the market, are just sort of fed up with the rent increases? Therefore, as they're looking, they're just being much more cautious about what they're going to pay versus someone who's renewing has already made the decision that they're just staying there. How much of it do you think is that dynamic versus other factors?

Speaker 2

Hey, Alex, this is Brad. There's nothing that we see that indicates that there's a level of rent fatigue in the market that's causing the rate of recovery to be less than what we expected. In fact, if you look at the wage growth in our region of the country, it continues to be strongly positive. Our rent-to-income ratios are actually down this quarter versus prior quarters, so we're seeing improvements in those levels. We do continue to get the 4% to 5% renewal increases. From our perspective and from what we see in the market, the consumer confidence readings that we get really decreased, corresponding with some of the uncertainty that came into the market after Liberation Day.

All of that plays into, I think, the psychology of the operators in the market, really getting a bit nervous to performance, what performance looked like, and really focusing, as Tim mentioned, on occupancy. To us, everything that we're seeing seems to indicate that that's the issue that we're facing right now, not rent fatigue or a demand issue or anything on that side of the equation. The demand continues to be very, very strong.

Okay. Second question is, you mentioned that deliveries are taking a little bit longer. In general, I think you guys said some of yours, and I think broader market is. Do you have a sense for how much of this year's supply will slip into next year? Just trying to understand the peak supply is last year and this year, trying to understand how much are we going to have to contend with. Spillover in 2026?

Yeah. This is Tim. I don't think it's material. I mean, if we look at quarterly supply that's been delivered, it has dropped off pretty good over the last two quarters. I expect it'll drop off even more in Q3 and Q4. There's certainly some of that. I think more of the leasing velocity slowdown that we've seen is for the reasons we've been talking about, which is just some of the uncertainty that we saw in Q2 and less units taking longer to be delivered.

Speaker 3

Our next question comes from the line of Steve Sackwell with Evercore ISI. Please go ahead.

Yeah. Thanks. Good morning. Could you guys talk about maybe some of the changes that you've made on your underwriting for the development, either on the revenue side, the cost side, the time to lease up, and what maybe changes or cost changes are you seeing on the construction cost side?

Speaker 2

Yes, Steve. Hey, this is Brad. We haven't honestly made a whole lot of changes in terms of our underwriting. Our development underwriting is pretty conservative. If you look at the yields that we're achieving on our development deals, they're 20% to 30% higher than what we originally underwrote. We feel pretty good about our underwriting process and our ability to achieve the returns that we have in our development. The properties that we have in lease up today, we are prioritizing achieving the rents that we expected versus pulling forward some maybe performance from 2026 into 2025 by lowering prices to get occupancy. That has some implications for this year. Our long-term value creation opportunity is still intact with all of our development. We still feel really good about our approach to development on the cost side. Honestly, we're not seeing costs are pretty flat at the moment.

We're not seeing really any increase associated with tariffs or immigration or anything like that at the moment. Certainly something that we'll continue to keep an eye on, the labor market and things of that nature. I feel really good about our development opportunities that we are under construction on right now, as well as the few others that we're pursuing at the moment.

Okay. Second, just maybe on real estate taxes, maybe just broadly, kind of what are you seeing from the various municipalities? I know that number is down about 2.5% through the first six months. Is that more of just a one-off thing this year, or do you think that's maybe something that could be more of a tailwind on the expense side for the next couple of years?

Yes, Steve, this is Clay. Yeah, I do think it could be a bit of a tailwind as we move forward. Or maybe said a little differently, maybe not as much of a headwind as it had been in years past. When you think about the environment that at least that we're in in our markets and with a negative same-store NOI growth the past couple of years, that should continue to carry through. Over the next cycle or two, depending on when some of these municipalities re-value, some re-value once a year, some re-value once every four years. That'll be a little dependent on each respective municipality's timing. I do think that we can see some potential help there in future years as they look back to these periods of declining NOI growth.

If I could take that and we also factor in the cap rates that are out there, those seem to be relatively stable. We talk about new developments being in the mid to upper fours. I think overall, cap rates in general on the average are relatively stable over the past couple of years. It'll probably lean a little bit more towards the operating income results.

Speaker 3

Our next question comes from the line of Rich Hightower with Barclays. Please go ahead.

Speaker 0

Hey, good morning, guys. I think I want to sort of follow up and combine a couple of prior questions, just to dig a little deeper on this peak delivery phenomenon. There's obviously a kind of a longer tail when it comes to lease up after a property is delivered. You have talked a little bit about sort of slower lease velocity that's impacting your numbers. When does that dynamic, do you think, peak? How does that flow through to when, again, to sort of echo other people on this call, to when new lease pricing would improve and really start to reflect that dynamic tailing off, if that makes sense?

Speaker 2

Yeah. I mean, we saw deliveries in our markets peak around Q2, Q3 of last year, and we've seen it slowly trend down from there. Now, it's still obviously at an elevated level in terms of comparing to what historically a normal year may be. Obviously, still seeing the pressure from that. Going back to the absorption point, each quarter that's gotten greater absorption, we see the excess units that are out there drop significantly. I think the challenge for the rest of this year is you also have sort of the normal seasonality, and you have less traffic generally looking for apartments in the back part of the year. It won't show up quite as much as it probably otherwise would if it were the peak leasing season. I think you'll really start to see that momentum as you get into the spring of next year.

Speaker 0

Okay. That's very helpful. Just on the transaction environment, you did mention, I think, in the prepared comments that there remains a fairly wide bid-ask spread, at least in certain pockets. Anecdotally, you would kind of see that lenders are maybe starting to get a little more aggressive with troubled borrowers or troubled assets from the COVID era. Does that reflect anything you're seeing? Does that create opportunity, or is that just more sort of headlines that don't really apply to this situation?

Speaker 2

Yeah, this is Brad. I mean, I would say in our markets, we're not really seeing distress in the markets, honestly. We're not seeing that manifest itself in the way of good buying opportunities. In fact, cap rates for deals that traded in the second quarter that we tracked were down from first quarter. They were about 4.7% in second quarter. There's not a lot of transactions. I think there were only maybe 10 or 12 that we tracked, which is very low. Not a lot of transactions. We're not seeing a lot of distress in the market at this point. We'll continue to certainly keep our eyes on that, but nothing at the moment in that area.

Speaker 3

Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please go ahead.

Yeah. Hi. Thanks, everybody. Previously, you expected positive new lease spreads in the third quarter. Obviously, you aren't guiding to that at this point. I'm curious, when do you think you will see those spreads turn positive?

Speaker 2

I mean, it's difficult to say, but I do think 2026 looks a lot better for all the reasons we've talked about. I think as you get into spring and summer of next year, it is most likely the time.

Okay. Got it. Do you have a lost lease or gained lease figure that you can give?

Yeah. If you look at the way we think about loss to lease, if you look at all the leases we did in July compared to all of our in-place leases, there's about a 2% loss to lease. It's always the largest this time of year. July is kind of the peak of the year typically, so that number tends to gap out a little bit this time of year, even in a tougher supply-demand year. I would expect it to trend back down a little bit as we get to the back part of the year.

Speaker 3

Our next question comes from the line of Haendel St. Juste with Mizuho. Please go ahead. Haendel, your line might be muted.

Yes. Sorry. Thank you. A couple of questions here. First one, I guess, I'm curious how long you think this low supply narrative for the Sunbelt plays out. It looks like the low supply window is now being pushed out to 2028. I think a couple of months ago, we were talking about 2027. Can you talk about how difficult it is perhaps for private developers to get equity debt capital, and how much either rents have to grow or how much their capital costs have to come down for the private side of the business to be able to hit the hurdles and maybe get the development engine starting again? Thanks.

Speaker 2

Yeah. Hey, Haendel, this is Brad. Yeah. I mean, it's part of our development platform. We've partnered with a lot of merchant developers to build through our pre-purchase program. We're looking at 30 to 40 equity packages a quarter, and on average, we might find one that really hits our return thresholds of above a 6% NOI yield with realistic underwriting. Most of those are falling in the mid to low 5% range on realistic underwriting. Those are going to need the returns to improve 10% to 20% or so to make those feasible. That's a combination of construction cost reduction and rent growth improvement in order to make those numbers work on a more broad basis. I think really the biggest challenge, the next biggest challenge right now is the availability of capital. Equity capital is very challenged to get in development deals today.

We certainly don't see that on the horizon picking up. If you look at the development pipeline and the new starts that we're seeing, they are significantly below the last 12 months, below historical averages. We certainly have seen that trend down every single quarter for the last year or so in our region of the country. We do think that continues for the next few quarters to years at this point. The availability of capital is a big challenge at the moment.

That's helpful. Thanks, Brad. Maybe one more. You mentioned a few times your desire to acquire assets, talked about the broader market, but also talked about your lower leverage here. I guess I'm curious how much you'd be willing to lean into debt, which obviously carries a lower cost, and how much buying power that could allow you to perhaps do more deals. Maybe how much you can lean into debt to fund deals before you kind of get to leverage levels that maybe bump up against some leverage levels. Thanks.

Yeah. Hey, Haendel, this is Clay. We're sitting at 4x leverage as we are here at the end of the quarter. We'd be happy to take that up to 4.5x to 5x. That would be additional, call it $1 billion, maybe a little bit north of $1 billion. We've got plenty of room there on the balance sheet to really begin to lean into these opportunities that are coming up, whether they're more acquisitions or on the development front.

Speaker 3

Our next question comes from the line of John Kim with BMO Capital Markets. Please go ahead.

Thank you. I had a question on seasonality and how you think that compares versus prior years. I know you mentioned that the July lease pricing is favorable versus the second quarter, but I was wondering if you could discuss how that compares versus June.

Speaker 2

Yeah, I mean, it's trending better than June as well. I mean, on an absolute basis, July looks to be our best new lease pricing month of the year. As mentioned on seasonality, we're certainly dialing in less seasonality in the back part of the year for all the reasons we mentioned, but we still expect that Q4 would be lower on a blended basis than what Q3 is.

Okay. You mentioned Atlanta being one of your best markets in terms of blended pricing and occupancy. I was wondering if you were surprised on the news that net migration turned slightly negative for the first time in the market, and if you'd seen that in your portfolio, and if that changes how you allocate capital to the market.

One point of clarification on Atlanta, we saw the most improvement from last year on pricing. It's still lagging the portfolios. There's still a lot of room to run on Atlanta, but we're encouraged by the trends. Broadly, no, not concerned about the migration trends at all. I mean, as Brad Hill mentioned earlier, we're right at where we were at pre-COVID levels, which is having 10%, 11%, 12% of our move-ins come from outside of our footprint and only 4% to 5% of our move-outs leaving our footprints. It's still a net 5%, 6%, 7% in migration trend, and that's remained very steady over the last several quarters.

Speaker 3

Our next question comes from the line of Rob Stevenson with Janney. Please go ahead.

Good morning, guys. Tim, you talked about Austin, Phoenix, and Nashville this week given supply. Are you seeing any positive signs in those markets, or do they have another tough six to nine months ahead of them?

Speaker 2

I mean, Austin, not seeing a lot of positive trends there. It trended a little bit down in the back part of Q2 in terms of new lease pricing, and it just continues to get, while supply is on an absolute basis down a little bit this year compared to last, it's still really high in that market. For Austin, the demand fundamentals remain one of our top one, two, or three markets in terms of all the migration, household formation, job growth. It will turn around once it gets to this supply mix. One other point I'll make on Austin is that it's actually our lowest rent-to-income ratio market that we have right now. Really healthy resident base there. I think once the supply pressure wanes, that market is poised to do really well. On Nashville, we have seen concessions come down a little bit in the downtown area.

It's really downtown and around that area of Nashville that's been the hardest hit. We're seeing a little bit better performance out in the suburbs. I think that's a market that could turn around a little quicker. Phoenix, probably somewhere in the middle, it's still a struggle with a lot of supply, particularly focused in certain submarkets. The job engine and all the things that are going on there, I expect that probably turns around. If I had to rank it, I'd say probably Nashville, Phoenix, Austin in terms of the time of which turns around a little bit quicker.

Okay. That's helpful. Brad, beyond Kansas City, can you talk about which of the 12 owned and controlled development sites are both ready to start and make sense from a return and supply-demand perspective over the next 6 to 12 months for you guys?

Yeah. I mean, over the next 6 to 12 months, we should have a pretty healthy start level. I mean, we've got a phase two site in Raleigh that we're currently working on. It's out to price at the moment. We've got a site, actually two sites in DC that we're working on right now that are still pretty compelling from a return and long-term value perspective. We have a couple of sites or a site in Orlando with a couple of phases to it that we're working on pricing. Of the 12 sites that we currently have, and the Kansas City deal has the phase two site, which will start in the next, call it, 6 months or so. Of all of the sites that we have control or owned, I think it's important to note that they are all approved.

We are just waiting for market fundamentals to turn a little bit more in our favor to support our disciplined growth of that pipeline and a return that we think makes sense for us. I'd say over the next 6 to 12 months, we will have four to five starts in that development pipeline.

Speaker 3

Our next question comes from the line of Michael Lewis with Truist Securities. Please go ahead.

Great. Thank you. I have just one kind of bigger picture, longer-term question. We've obviously had this big wave of new supply, and I saw now there's a bill in the U.S. Senate to try to make adding housing easier across the country. I read an article that said many southern markets are subtly starting to look a lot more like California and coastal markets in terms of not in my backyard when it comes to adding new supply. In other words, maybe every American feels NIMBY. It just didn't show up in the South because sprawl was still possible, and maybe that's starting to get exhausted. My question is, are you seeing any changes in any of your markets in terms of local communities starting to push back on new supply or raise barriers, so that maybe the next supply wave, whenever it comes, will be more limited?

I know you guys are very much focused on demand. Are there kind of lessons learned the last two years in terms of an eye on supply and the way you pick your markets as well?

Speaker 2

Yeah. I mean, definitely. This is Brad, by the way. In certain markets of ours, there is a strong pushback against multifamily. In fact, the city here where our office is located, Germantown, they've had a moratorium on new multifamily developments. You see that in a lot of the municipalities where we're located. Charleston and Mount Pleasant had a moratorium for a while against multifamily development. There is a lot of pushback against multifamily and a lot of uphill battles and discussions that have to occur. I think sometimes there's a misnomer that in the Sunbelt, it takes you six months to start building a project. The reality is it still takes a year to two years from when you identify a project to be able to put a shovel in the ground. We had a project in Raleigh.

I think it took us five years from when we started working on it to get that project under construction. I do think there are constraints in terms of these suburban Sunbelt markets that really restrict a significant ramp-up in the supply wave that will impact future supply.

Great. Thank you.

Speaker 3

Our next question comes from the line of Linda Sy with Jefferies. Please go ahead.

Hi. Just one from me. I think you mentioned 85,000 fewer units over the last four quarters in your markets and said it would increase to 100,000 to 125,000 fewer units at some point. Was the timeframe for this the second half of this year or the first half of next year?

Speaker 2

The point we're making is on the absorption front where we've obviously had more units being absorbed the last four quarters than what's supplied. That nets about 85,000 through Q2. I would expect later this year it gets beyond 100,000. I mean, we saw that number go from 45,000 to 85,000 just in Q2. I think when you combine just the number of units being delivered, continuing to drop with no really changes in demand, I think you get to that number later this year.

Speaker 3

Our next question comes from the line of John Kim with Zelman & Associates. Please go ahead.

Hey, guys. Good morning. Thanks for taking my question. I just wanted to ask about something that's been asked tangentially by others, but just wanted to frame it a little differently. What, if at all, has surprised you about the supply environment so far this year that has materially impacted pricing power?

Speaker 2

I don't know that. The supply environment in and of itself has been much of a surprise. There's been a few delays here and there. I think it's more some of the leasing velocity and some of the uncertainty that popped up in Q2 has been certainly more of a surprise relative to our expectations. I think particularly on the operator side where, again, the point I was making earlier that occupancies were accelerating from Q1 to Q2, but didn't really see a lot of pricing power. I think the nervousness both on the operator side and the prospect side are what was driving that. I think it's less of a change in the supply expectations that we had.

Okay. Yeah, that's helpful. Just a quick one. Could you talk through what your expectations are for the operating environment and the out years when some of your more recent starts will deliver?

Yeah. This is Brad. I'll give you a little sense of that. As we've talked about, certainly, our development pipeline is pretty well positioned to deliver in what we think is going to be a very low-supplied environment. Just for context, kind of the long-term average supply in our market is probably in that 3% to 3.5% range. If you look at the trailing 12-month starts in our region of the country, it's about 1.7%. Per the comment I made earlier, it continues to trend down every quarter. That really speaks to a pretty good operating environment that we have over the next few years. I think for context, there are a couple of different periods that you can certainly look at.

As I mentioned in my earlier comments, if you go back and you look at the T12 gap between demand and supply, where demand is exceeding supply, to get to the level that we're at today, you have to go back to the COVID period of 2022 and 2023. Certainly, during that period of time, average NOIs were pretty high in the low double-digit range. Alternatively, if you just look at the start, or excuse me, the delivery numbers that are expected in 2026, you really have to go back to the GFC period, after the GFC period, call it 2011 and 2012, to match those supply levels. Of course, we had four to five years of performance at that point where NOIs were in the 5% to 6% range, and that occurred for, as I mentioned, four to five years. We'll see where we go from here.

I think based on the points that we made earlier, we believe that certainly acceleration in 2026 based on diminishing supply and less uncertainty in the market are good building blocks for recovery from where we are right now.

Speaker 3

Our next question comes from the line of Anne Chan with Green Street. Please go ahead.

Hey. Good morning. Just following up on the earlier question from Steve on the cost side of development economics. Quickly shifting to the revenue side, could you walk us through the key assumptions behind your yield targets? What kind of rent growth and leasing velocity assumptions are you using to support the mid-single digit yields that you've mentioned? I think 6%.

Development yields you mentioned recently. Have you made any recent changes to those underwriting assumptions to account for maybe slower lease-up periods or other market trends you're observing?

Speaker 4

No, we really haven't. As I mentioned, we really haven't made any changes to our assumptions. The 6.1% yield for the Charleston, South Carolina development, based on the market comps that we look at, we do a very deep dive in terms of what are truly comps that our traffic—we will compete for traffic for. If you look at that, the difference between our stabilized rents and today's market comps in that market is less than 5%. When we deliver that project in three years, we're expecting rents to increase from today's rates less than 5%. We believe that's pretty conservative given that the market expects cumulative rent growth over the next three years to be over 11%. We feel good about how we underwrite our developments.

We're pretty conservative, as I mentioned earlier, with our current developments trending toward a yield that's about 30 basis points higher than what we originally expected. No major changes in how we look at development. Yes, our lease-up velocity is a little bit less right now, but certainly when these developments are delivering over the next two to three years, the operating environment is expected to be quite a bit different than it is right now. We've not sped up lease-up to take that into account. It's in line with what our kind of historical underwriting standards are.

Speaker 3

Got it. Thank you.

Speaker 0

Our final question will come from the line of Mason Gale with Baird. Please go ahead.

Speaker 2

Hey, good morning. Just one for me. I appreciate all the development lease-up commentary, but can you provide an update specifically on how your two acquisition lease-ups are performing, and are there any changes to those initial yield expectations?

Speaker 4

Yeah, this is Tim. No real change to the yield assumptions on those. As we've talked about with some of the others, the leasing velocity was a little bit behind, but we're doing okay on the rent. I think broadly, once those are fully stabilized, the yield expectations are intact.

Speaker 0

We have no further questions. I will return the call to Mid-America Apartment Communities for any closing comments.

Speaker 4

No further comments from us. If you've got any questions, don't hesitate to reach out. Thank you, everybody.

Speaker 0

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