Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Core FFO results for the second quarter were ahead of expectations due to strong demand for apartment housing.
- MAA's unique portfolio diversification strategy helps mitigate supply pressure and capture higher demand.
- Strong rent income ratios and low delinquency performance indicate financial stability.
- MAA's balance sheet remains strong, supporting future growth through acquisitions and development.
- High resident satisfaction and strong lease renewal performance reflect effective management and service.
Negative Points
- New lease rates are facing pressure due to elevated new supply deliveries.
- Some larger markets like Austin, Atlanta, and Jacksonville are heavily impacted by new supply, affecting overall performance.
- Construction costs have not broadly declined, impacting development project economics.
- Real estate tax expense remains a significant cost, though slightly moderated.
- Insurance costs, while stable this year, have increased significantly over the past three years.
Q & A Highlights
Q: I was hoping you could discuss your seasonality assumptions and what you're expecting for the fourth quarter this year versus what you saw last year.
A: We expect normal seasonality to play out, with some acceleration through this time of the year and then moderation in the fall and winter. However, we are in a good spot with current occupancy and lower exposure compared to last year, which could extend the peak seasonality by a month or two. Adjustments to pricing guidance were mainly for new lease pricing in Q2, with minor tweaks for Q3 and Q4.
Q: It looks like your guidance includes some uplift from other revenues. Could you talk about what the opportunity looks like there and whether that contribution could potentially increase as we go into 2025?
A: Other revenues are growing slightly more than rents, driven by fee income and application fees. Long-term opportunities include ubiquitous WiFi, which we are testing this year and expect to be a significant opportunity over the next several years.
Q: Is there a way to get the blended lease pricing that is assumed for the back half of the year?
A: For the full year, new lease pricing is expected to be around 4.25%, about 100 basis points lower than our original guidance. Renewals are expected to be in the mid 4% to 5% range, resulting in a blended lease pricing of 0.5% to 1% for the back half of the year.
Q: You talked about some markets being more impacted by supply, like Austin, Atlanta, and Jacksonville. When do you think these markets will be less of a drag on overall new lease pricing?
A: These markets saw peak starts and deliveries around mid-2022, similar to the rest of our portfolio. We expect 2025 to look better than 2024, with less supply pressure and strong job growth, making these markets less of a drag.
Q: Can you provide more details on the insurance renewal and how you achieved favorable terms?
A: Our insurance costs have increased by about 50% over the last three years. This year, we benefited from a stabilizing insurance market and favorable claims history, resulting in the same coverage levels as last year with a slight decrease in premiums.
Q: How are you managing real estate taxes, and what should we expect for the rest of the year?
A: We have good visibility into our real estate tax expenses for the year, except for Florida, which typically lags. We expect property valuations in Florida to be favorable, and we have a good idea of what the millage rates will be, providing us with a clear outlook for the rest of the year.
Q: What gives you confidence in maintaining your original assumptions for the second half of the year despite seasonal slowing trends and elevated supply?
A: We are in a better spot with occupancy and exposure compared to last year. Additionally, we are starting to lap easier comps from last year, and we expect the impact from supply to moderate. Demand remains strong, with low turnover and solid rent-to-income ratios.
Q: How are renewals trending at an ask versus take rate basis?
A: Renewal rates were 4% in July, with August and September expected to be in the 4% to 4.5% range. Renewal accept rates are higher than last year, indicating strong performance in this area.
Q: Can you talk more about the development opportunities and how much more you think you could ramp up?
A: We feel comfortable ramping up our development pipeline to about 4% to 5% of our enterprise value, which would be around $1 billion to $1.2 billion. We have a sufficient pipeline of owned and controlled sites and are well-positioned to start additional projects if construction costs come down or rents improve.
Q: Do you expect to maintain historically low turnover and renewal pricing power in a potentially lower interest rate environment?
A: While turnover may pick up if interest rates drop significantly, it would likely indicate a strong economy, which would support rent growth. The gap between single-family home payments and our average rent is substantial, so it would take a significant decrease in interest rates to impact turnover levels materially.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
