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    MID AMERICA APARTMENT COMMUNITIES (MAA)

    Q3 2023 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$121.81Last close (Oct 26, 2023)
    Post-Earnings Price$122.33Open (Oct 27, 2023)
    Price Change
    $0.52(+0.43%)
    • MAA is experiencing historically low resident turnover rates, which remain low despite new supply entering the market.
    • Strong demand fundamentals continue to support healthy absorption rates, underpinned by solid employment markets, low turnover, strong collections, wage growth, and positive migration trends.
    • The company remains confident in the long-term prospects of its key markets, such as Atlanta, due to strong job growth drivers and demand dynamics.
    • Significant decline in new lease rates in heavily supplied markets, particularly in Austin where new lease rates are down in the high negative single digits, around negative 5% for October.
    • Pressure on mid-tier assets (B+, A-) in larger markets with more new supply, narrowing the rent gap between these assets and newer developments, which could impact rent growth and occupancy.
    • Operational challenges in Atlanta due to unique factors such as supply pressure, earlier operational issues (winter storm, fire), and fraud concerns leading to increased write-offs and weaker occupancy and pricing compared to other markets.
    1. Rental Rate Outlook
      Q: Will lower rental rates persist, or is recovery expected?
      A: Management expects rental rates to remain in the current range for a few months, with negative new lease rates around -4% to -5%. They anticipate an acceleration in new lease rates in spring 2024 as normal seasonality returns. Renewal rates remain strong at 4% to 5%, and turnover rates are expected to stay low.

    2. Impact of Supply and Interest Rates
      Q: How are supply and higher rates affecting rental rates?
      A: Aggressive pricing by merchant builders, driven by higher interest rates, has led to quicker moderation in new lease pricing. Developers are rushing to lease up properties before year-end, causing competitive pricing practices. Management doesn't expect conditions to worsen materially and anticipates improvement in the back half of 2024.

    3. Acquisition Strategy and Yields
      Q: What metrics drive your acquisition decisions?
      A: Management prioritizes acquiring assets with stabilized yields comparable to their cost of capital, around 5.5%. The recent Phoenix acquisition matches this yield, with expectations to increase it by 100 to 200 basis points through operational efficiencies and revenue management.

    4. October Rent Growth Figures
      Q: What are the October rent growth numbers?
      A: In October, blended rent growth is around 0%, with new lease rates at -5.3% and renewals at 4.4%.

    5. Turnover Rates
      Q: How are you maintaining low turnover rates?
      A: Turnover rates remain near historically low levels, declining 40 basis points, due to reduced move-outs to buy homes amid higher interest rates. Move-outs due to rent increases were half of last year's.

    6. Atlanta Market Challenges
      Q: What's affecting performance in Atlanta?
      A: Atlanta faces unique issues including supply pressure, prior weather-related damages, and fraud concerns. Occupancy improved by 40 basis points from Q2 to Q3. Fraud issues are being addressed, leading to better revenue quality and reduced delinquencies.

    7. Expense Outlook
      Q: Do you expect changes in operating expenses?
      A: Management anticipates moderation in operating expenses, including personnel and maintenance costs. Property tax growth, currently around 6%, is also expected to moderate as valuations taper.

    8. Rising Interest Rates Impact
      Q: How are rising rates impacting leasing and landlord behavior?
      A: Higher interest rates have caused merchant builders to aggressively price lease-ups to stabilize quickly, intensifying competition. This pressure is expected to persist for a few quarters but should improve as supply pressures ease.

    Research analysts covering MID AMERICA APARTMENT COMMUNITIES.