Good morning, and welcome to Mid-America Apartment Communities or MAA's First Quarter 2024 Earnings Conference Call. (Operator instructions provided.) Afterwards, the company will conduct a question-and-answer session. (Operator instructions provided.) This conference call is being recorded today. I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MAA for opening comments.

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 with prepared comments are Eric Bolton, Brad Hill, Tim Argo and Clay Holder. DelPriore and Joe Fracchia are also participating and available for questions as well. 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 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 Eric.

Thanks, Andrew, and performance trends in the first quarter were in line with our expectations, and we enter the summer leasing season well positioned. Pricing trends for new resident move-ins continue to reflect the impact from new supply delivering in several of our markets. Our renewal pricing remained strong. Encouragingly, blended lease-over-lease pricing in the first quarter captured 100 basis points improvement as compared to the prior quarter, followed by April pricing that was ahead of the first quarter performance. While the bulk of the leasing year is still in front of us, we do like our early positioning as we head into the summer leasing season. We continue to believe that our high-growth markets are producing solid demand sufficient to absorb the new supply in a steady manner that will enable continued stable occupancy, strong renewal pricing, strong collections and overall revenue results that are aligned with the outlook that we provided in our prior guidance. Our leasing traffic remains strong and record-low resident turnover, favorable net migration trends and stable employment conditions across our diversified portfolio and markets continue to drive solid demand. While we expect leasing conditions will remain pressured by new supply deliveries through the year, our on-site teams, actively supported by our asset management group, are doing a terrific job. Superior resident services as reflected by our sector-leading Google ratings and record-high resident retention rates, along with several new technology capabilities introduced over the past couple of years, are making a meaningful difference in this competitive environment. With new supply deliveries poised to begin tapering later this year, demand trends remaining stable and occupancy remaining strong, we remain optimistic that leasing conditions should recover quickly and begin improving in early 2025. While the transaction market remains slow, we are seeing more acquisition opportunities for new lease-up projects, which Brad will touch on in his comments, and we remain comfortable with our transaction expectation for the year. I continue to be optimistic about our ability to work through the current supply cycle within our high-growth markets' ability to absorb new supply. With a 30-year performance record focused on these high-growth markets, we've operated through prior supply cycles. Today, we believe our diversified and higher-quality portfolio, our stronger operating platform and our stronger balance sheet have us positioned to compete at an even higher level. We're excited about the outlook over the next few years. Our high-growth markets continue to offer attractive long-term appeal for employers, households and real estate investors. We have meaningful future growth on the horizon as new supply deliveries decline and leasing conditions strengthen. Several new technology initiatives will drive further efficiencies and higher operating margins from our existing portfolio and a pipeline of redevelopment opportunities will also drive higher rent growth from our existing properties. And finally, our external growth pipeline continues to expand, setting the stage for meaningful additional NOI growth. I'd like to send my appreciation to our MAA team for a solid start to 2024. And with that, I'll turn the call over to Brad.

Thank you, Eric, and good morning, everyone. In preparation for what we believe will be a stronger leasing environment in 2025 through at least 2028, we continue to make progress in putting our balance sheet capacity to work to deliver future earnings growth. Subsequent to quarter end, we started construction on a 302-unit prepurchase development in Charlotte, North Carolina, and we expect to start construction this quarter on a 345-unit project under our prepurchase development platform in the Phoenix, Arizona MSA. Both projects are expected to deliver first units by mid-2026, and deliver stabilized NOI yields in the mid-6% range consistent with what we are achieving on our current developments that are leasing. With the addition of these two projects, our active development pipeline represents 2,617 units at a total cost of approximately $866 million. With continued interest rate volatility and tight credit conditions, transaction volume remains low. But we have seen cap rates firm up a bit from fourth quarter with market cap rates on deals we track that closed in the first quarter, averaging approximately 5.1%, 30 basis points lower than the previous quarter. Despite the low transaction volume, our team continues to find compelling select acquisition opportunities. We currently have an off-market 306-unit suburban property in Raleigh under contract to acquire for approximately $81 million that we expect to close this month. This newly constructed property is currently in its initial lease up at 49% occupancy and is expected to stabilize in mid- to late-2025. At this point, we believe our forecasted acquisition volume of $400 million is achievable. Despite the increased pressure from new supply, our four developments that are actively leasing—three of which are under construction and one that has completed and is in lease-up—continue to deliver good performance. While new lease rates are facing slightly more pressure at the moment with concessions on select units, up from four weeks to six weeks, we continue to achieve rents on average approximately 18% above our original expectations, driving higher-than-originally-projected NOI and earnings and creating additional long-term shareholder value. For these four projects, we expect to achieve an average stabilized NOI yield of 6.5%, exceeding our original expectations by 70 basis points. We continue to make progress on the predevelopment work for a number of projects. In addition to the two second-quarter development starts I mentioned a moment ago, we expect to start construction on one to two more projects later this year. While we have not seen a broad reduction in construction costs, encouragingly, we have achieved some level of reduction on our recent pricing supporting our ability to start construction on these projects. We have seen better subcontractor bid participation, which we expect to lead to better execution with stronger subcontractors throughout the construction process for our new starts. We are hopeful that the significant drop in construction starts that we've seen in our region will lead to more substantial construction cost declines as we progress through the year, allowing us to start construction on additional opportunities in our development pipeline, which today consists of 10 well-located sites that we either own or control, representing additional growth of nearly 2,800 units. We maintain optionality on when we start these projects, allowing us to remain patient and disciplined in our execution timing. Any project we start this year will deliver first units in 2026 and 2027 aligning with what is likely to be a strong leasing environment, supported by significantly lower supply. Our development team continues to evaluate land sites as well as additional prepurchase development opportunities. In this liquidity-constrained environment, it's possible we could add additional in-house and prepurchase development opportunities to our current and future pipeline. While we continue to pursue numerous external growth opportunities, our existing portfolio remains in a good position heading into the busier leasing season. Our broad diversification provides support during times of higher supply with a number of our mid-tier markets currently outperforming. As Tim will outline further, despite the high level of new supply, we continue to see solid demand and absorption, leading to improved current occupancy with future exposure better than this time last year. Our collections are strong and near pre-COVID levels at 99.6% of billed rents. Our resident base is stable with more residents choosing to live with us longer, supported by our focus on customer service, coupled with high single-family housing costs. Before I turn the call over to Tim, I want to say thank you to all of our associates at the properties and in our corporate and regional offices. I want to say thank you for all you do to improve our business and serve our residents and those around you while exceeding expectations of those that depend on us. With that, I'll turn the call over to Tim.

Thanks, Brad, and good morning, everyone. As Eric mentioned, new lease pricing in the first quarter continued to be impacted by elevated new supply deliveries in several of our markets. This, combined with typically slower traffic patterns that are evident this time of the year, resulted in new lease pricing on a lease-over-lease basis of negative 6.2%. Renewal rates for the quarter stayed strong, growing 5%. Because traffic tends to be relatively low as compared to the second and third quarters, we intentionally repriced less than 20% of our leases in the first quarter. The new lease to renewal pricing resulted in blended lease-over-lease pricing of negative 0.6% for the quarter, an improvement of 100 basis points from the fourth quarter. Average physical occupancy was 95.3%, and collections outperformed expectations with net delinquency representing less than 0.4% of billed rents. All these factors drove the resulting revenue growth of 1.4%. From a market perspective, in the first quarter, larger markets such as the Washington, D.C. metro area and Houston continue to hold up well and Nashville showed improvement. Many of our mid-tier metros also continue to be steady with Savannah, Richmond, Charleston and Greenville, all outperforming the broader portfolio from a blended lease-over-lease pricing standpoint. Our diversification between larger and mid-tier markets helps balance performance through the cycle. The improving performance of a market like Nashville, which is getting a lot of new supply, demonstrates the benefit of submarket diversification along with the market diversification. Austin and Jacksonville are two markets that continue to be more negatively impacted by the absolute level of supply being delivered into those markets. Touching on some other highlights during the quarter. We continued our various product upgrade and redevelopment initiatives. For the first quarter of 2024, we completed nearly 1,100 interior unit upgrades. Given the number of units and lease up across our portfolio currently, we expect to renovate fewer units in 2024 than we would in a typical year, but would expect to reaccelerate the program in 2025. We have now completed over 94,000 smart home upgrades since the inception of the program, and we expect to complete the remaining few properties this year. For our repositioning program, we have four active projects that are in the repricing phase, and we have targeted an additional six projects to begin later in 2024 with a plan to complete construction and begin repricing in 2025. Regarding April metrics, we are encouraged by the accelerating trends from both the first quarter and March in both pricing and occupancy. April blended pricing is negative 0.4%, a 20 basis point improvement from the first quarter and a 70 basis point improvement from March. This is comprised of new lease pricing of negative 6.1%, a 10 basis point improvement from the first quarter and notably a 70 basis point improvement from March. And renewal pricing of 5.1%, slightly ahead of the first quarter and an improvement of 50 basis points from March. Average physical occupancy for April was 95.5%, also up from both the first quarter and March. And as Brad noted, 60-day exposure also remained lower than this time last year at 8.5% versus the prior year of 8.8%. As we've discussed, new supply being delivered continues to be a headwind in many of our markets, but we still believe the outlook is similar to what we discussed last quarter. While we do expect this new supply will continue to pressure pricing for much of 2024, with demand and leasing traffic expected to increase in the spring and summer, we believe we have likely already seen the maximum impact to new lease pricing and that the outlook is better for late 2024 and into 2025. It varies by market, but on average, new construction starts in our portfolio footprint peaked in early to mid-2022. And we've seen historically that the maximum pressure on leasing is typically about two years after construction starts. While supply remains elevated, the strength of demand is evident as well. Absorption in the first quarter in our markets was the highest for any first quarter in the last two decades and the highest of any quarter since the third quarter of 2021. Job growth is still expected to moderate some in 2024 as compared to 2023, but has recently been revised upwards and growth is still expected to be strongest in the Sun Belt region of the country. Job growth combined with continued in-migration accelerate the key demand factor of household formation. Additionally, we saw resident turnover continue to decline in the first quarter, and we expect it to remain low with fewer residents moving out to buy a home. In fact, the 12.9% of move-outs in the first quarter that were due to a resident buying a home was the lowest ever for MAA. 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 $2.22 per share, which was $0.02 per share above the midpoint of our first quarter guidance. About half of the favorability was related to the timing of real estate taxes, while the remaining outperformance is related to the collective timing of overhead cost, interest expense and nonoperating income. Our same-store operating performance for the quarter was essentially in line with expectations. Same-store revenues were slightly ahead of our expectations for the quarter, driven by strong rent collections. Excluding the favorable timing of real estate tax expenses, same-store operating expenses were slightly higher than our first quarter guidance, primarily due to one-time property costs. During the quarter, we funded approximately $44 million of development cost of the current expected $647 million pipeline, leaving nearly $202 million to be funded on this pipeline over the next two years. Although we expect to complete three projects in the second half of 2024 with the additional starts that Brad mentioned earlier, we expect to continue to grow our development pipeline over the remainder of the year, which our balance sheet is well positioned to support. During the quarter, we invested a total of $9.4 million of capital through our redevelopment, repositioning and smart rent installation programs, which we expect to produce solid returns and continue to enhance the quality of our portfolio. Our balance sheet remains in great shape. We ended the quarter with nearly $1.1 billion in combined cash and borrowing capacity under our revolving credit facility, providing significant opportunity to fund future investments. Our leverage remains low with net debt-to-EBITDA at 3.6x. And at quarter end, our outstanding debt was approximately 95% fixed with an average maturity of 7.2 years at an effective rate of 3.6%. During January, we issued $350 million of 10-year public bonds at an effective rate of 5.1%, using the proceeds to pay down our outstanding commercial paper. We have an upcoming $400 million maturity in June that has an effective rate of 4%. Following this maturity, the next scheduled bond maturity is in the fourth quarter of 2025. Finally, with the bulk of leasing season ahead of us, we are reaffirming the midpoint of our core FFO guidance for the year while slightly tightening the full year range to $8.70 to $9.06 per share. We are also maintaining our same-store as well as other key guidance ranges for the year. That is all that we have in the way of prepared comments. So Regina, we will now turn the call back to you for questions.

We will now open the call up for questions. (Operator instructions provided.) Our first question will come from the line of Austin Wurschmidt with KeyBanc.

Just want to hit a little bit on the operating side of the business. And I was hoping you could provide some detail on sort of the operating playbook in the next couple of months and how you're thinking about pushing on lease rate growth and occupancy. And has the breakdown between new and renewal lease rate growth that you embedded in guidance changed at all at this point?

Austin, this is Tim. Yes, I'll give you a little bit of an overview. I mean I think we're—as I mentioned in my comments, with where we are in exposure, where we are with occupancy, we feel like we're in a good place there. So we'll continue as we get into that, certainly, busier part of the season now, the push on new lease rent growth where we can and balance a little bit depending on property by property. It's not necessarily a portfolio-wide decision. We look at everything based on occupancy and exposure by property, but we're comfortable with where occupancy is. We'll continue to push on pricing where we can. As far as the mix between new lease and renewal, first quarter was about where we expected it to be with renewals probably 51% to 49% in terms of the total leases that we did in Q1. I would expect it to blend a little more towards renewals over the next couple of quarters. So that's a key thing to keep in mind as you think about pricing trajectory for the rest of the year is that we do expect turnover to remain low, and that the renewals have a little bit heavier weight than the new leases.

That's helpful. And then the March data implies there was a pocket of softness, which I think you alluded to a little bit in your prepared remarks, comparing the March versus April. I mean anything from a comp issue or a 60-day exposure perspective that caused you to pull back in March to just position the portfolio better heading into April and May? Just looking for some additional detail there.

Yes. I mean there was a little bit more of a push towards occupancy, I would say, in late February and early March based again on looking at it on a targeted basis where exposure was. Late February or early March time frame is always the time of the year where you start to see lease expirations pick up and you're kind of waiting on that demand to pick up as it has and it starts to do in March. So there was a little bit of a lean towards occupancy during that period. And as you saw, as we got into April, we saw acceleration both in pricing and in occupancy from where we were in March.

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

Just sticking with the leasing spreads. Typically, you see a decent sized uptick in April. Obviously, I know March was weak and so there was an uptick, but it seems like it's not tremendously different than what you saw in January and February. So I guess has traffic picked up a lot in April? And are you surprised that the leasing spreads didn't increase more sequentially?

To the first question, yes, we have seen traffic pick up—leads, lead volume—and we look at it kind of going back to the exposure factor. We look at leads per exposed unit, and that's as good as what it was. We've kind of talked about we haven't seen a normal year since probably 2018, 2019. So we're sort of exceeding those levels when you think about traffic volume and leads per exposed unit and all the things that we look at internally for demand. I mean, with the March new lease pricing, when you get into individual months, it can be volatility, and there's not a ton of leases getting done in the first quarter. So it's going to ebb and flow from month-to-month. What we're looking to see is kind of quarter-to-quarter, see that general trajectory moving up, and we're seeing that and it will play out over the next three or four months. I mean we will reprice about 50% of our leases for the year between May, June, July and August. Obviously, that will be the biggest part of the impact of what it has on the year, and that's also when we start to see the traffic really pick up. So that's where it will really play out over these next three or four months.

Okay. Got it. And then in the prepared remarks, you said a stronger leasing environment through at least 2028 when the supply drops off. I think a lot of people would agree on 2026. But I'm curious why you would project strength that far out—is the expectation that a low level of starts is just maintained indefinitely and that's what's driving it? Or could you give your thinking there?

Brad, this is Brad. Yes, I think relative to that comment, it's a realization that the high level of supply that we are seeing today is partly a result of cheap financing that's been available over the last couple of years and just realizing that in general, those times are behind us. And so getting back to a more normal supply environment going forward into the future. I do think over the next couple of years, the supply environment will be below long-term averages, but perhaps we get back closer to long-term averages as we get out a few years. But then when you layer on top of that the demand strength that we are seeing in our region of the country, it leads us to believe that the fundamentals could be very, very good for a number of years.

Your next question will come from the line of Josh Dennerlein with Bank of America.

This is Stephen Chen on for Josh. Just a quick question on the concession usage. Wondering whether you can kind of comment on that across your markets. Where you see the biggest concessions and where you see maybe the improvements?

Yes. At a high level, concession usage is pretty similar to what we saw in Q4. We haven't seen it get materially worse or better. For us as a portfolio it was about 0.5% of rents last quarter; it's about 0.4% of rents this quarter. At a market level, it obviously varies a little bit. I would say, again, not a lot of movement from last quarter. One market where we've seen it probably get a little bit heavier is Charlotte, where we're seeing about 1.5 to 2 months there. Austin continues to be a heavy concession market, with 1 to 5 months in most submarkets in Austin, probably closer to 2 months in Central Austin. The other one we're keeping an eye on is Atlanta. In the Midtown area, we've seen concession usage pick up a little bit. But broadly, as I said, kind of stable and not seeing quite the usage from developers that we saw late last year.

And then on a different subject on the development yield—can you comment on what's the yield you're underwriting for the new starts? And maybe also some comments on the construction costs you're seeing right now?

Yes. The yields that we're expecting on our new starts for this year are in the mid-6% range, which is consistent with what we're delivering today on our existing development portfolio. So that is a pretty good spread from where current cap rates are—call it low 5s as I mentioned in my comments. So we're still in that roughly 150 basis point spread or so range with current cap rates, which feels really good to us. In terms of construction costs, as I mentioned in my comments, we haven't seen a broad reduction in construction costs. It's really market specific. There are some markets where the supply pipeline has dropped faster and earlier than other markets, and we're seeing some cost reduction in those markets. For the two projects that we are starting, we have seen our partners be able to get construction cost reductions without scope reductions in those projects, which I think is a positive for both of those. But we're not seeing across-the-board construction cost reduction in our markets in general.

Your next question will come from the line of Michael Goldsmith with UBS.

It seems like the quarter was generally in line with expectations just above the midpoint, yet demand was unseasonably strong. So does that mean that demand needs to stay at unseasonably strong levels to hit the high point of the guidance going forward?

I don't think it needs to necessarily stay at higher levels than what we expected. I think it needs to be at levels that we've seen pretty consistently now for a while. Demand has been there in our markets for a while. Job growth and migration continue. The number of move-outs that we're seeing to outside of our footprint has declined, so that net in-migration is pretty consistent with where it's been. So it's really just continuing to see the demand at a steady level. And now as we get into a heavier traffic period, we would expect that to obviously benefit, which is what you didn't see in Q4. Q1 is the lower traffic period, but demand is there, and now we're getting into the heavier traffic season and heavier lease expirations, which will have a greater benefit. So I think mainly just seeing that demand at a high level— it would take some sort of economic shock, I think, to move it to where it's something that is not attainable in terms of thinking about our guidance.

And my follow-up is, what is your expectations of leasing spreads during the peak leasing season? And how much momentum can be picked up on the new lease side? And along with that, can you hold renewals at 5% when new leases are down 6%? Does that lead to increased negotiation on renewals?

This time of the year there's always a fairly wide spread when you're looking at new leases versus renewals. It's gapped out a little bit from where it typically is, but not hugely different, and I expect those spreads to narrow a little bit as we get into the spring and summer. Our expectation for renewals—and I think we talked about a little bit last quarter—is in that 4.5% to 5% range. We've been closer to 5% right now. We think somewhere in that 4.5% to 4.75% range is reasonable for the rest of the year. And keeping in mind, too, with lower turnover, those renewals are going to have an outsized impact on the blended leasing spreads more so than new lease pricing. And our expectation for new lease pricing is for it to accelerate from here over the next few months and then moderate back down as we get into Q4. Still, it's going to be negative for the full year. We don't expect to see new lease pricing get to 0 or get positive. I think it's probably well into the spring and summer of 2025 before we see that. But that's a high-level how we're thinking about it.

And Michael, just to add on to what Tim is saying: another thing to keep in mind is when you look at that negative 6% on new lease pricing versus 5% on renewal in terms of a lease-over-lease comparison, that implies, in some people's mind, a bigger dollar difference than what's really at play. If you look at the actual rent amount that we're achieving on new leases and the actual rent amount that we're achieving on renewals, the spread is only about $150, and that, of course, as Tim mentioned, is kind of the biggest spread we see from a seasonal perspective. And then it tends to narrow a bit over the course of the spring and the summer. The friction cost of moving and some of the other issues you run into moving suggest to us that spread is manageable—and again, recognizing it's going to narrow a bit over the spring and summer. We think it yields an opportunity for us to continue to achieve the renewal pricing performance along the lines of what we've outlined, and we don't see any particular concerns about the spread in terms of what you're referring to.

Your next question will come from the line of Eric Wolfe with Citigroup.

Maybe just a follow-up on Michael's question. Based on your guidance, it looks like you need around 1.7% to 1.8% sort of blended growth to hit your blended spread guidance for the year. Is that the right way to think about it? And when do you think we'll hit that level?

When you say blended spreads, are you talking about blended? I mean a couple of things to keep in mind—we sort of alluded to this—Q2 and Q3 will represent about 60% to 65% of all the leases, which is also the strongest period. So that will weigh heavier into the full year blended. Along with that, we tend to see the renewal portion of that mix tick up even more in Q2 and Q3 as well. So you have to think about a heavier weighting on renewals and the lease mix during those months. I think we talked about kind of 4.5% to 5% in the renewal range and new leases staying negative but certainly accelerating from where they are now. As you get into September and beyond, you'd expect it to drop back down, not quite to the level we saw in Q4 of last year, but certainly a little bit further negative. But the main thing to keep in mind is the weighting both in terms of leases per quarter and then the weighting between new leases and renewals.

Got it. That's helpful. And then there was a comment in the release and you alluded to it in your remarks about a quick turnaround in rental performance later this year into next year. Which markets do you think we'll see that turnaround the fastest based on your supply projections?

At a high level, the markets that have been strong continue to be strong and I would expect to remain strong—I'm thinking about D.C. and Houston and then some of the mid-tier markets like Charleston and Richmond and Savannah to some extent. The ones I would keep an eye on that I think can start really helping some of the Florida markets are Orlando and Tampa; they are starting to show some improvement and we're a little bit further along in that supply absorption than some other markets. Those are a couple, and I remarked about Nashville in the prepared comments as well. That's another one that I think will continue to see some benefit. It's getting a lot of supply and working through it, but where we are in that market is pretty well positioned. So I would say those three beyond the ones that have been pretty steady for us right now.

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

It's Daniel Tricarico for Nick. Maybe for Brad, can you expand on the confidence in the acquisition opportunity that you highlighted in your prepared remarks? And also, what is the initial and stabilized yield on the Raleigh lease-up deal?

Yes. The Raleigh lease-up deal is a 6% NOI yield is what we're expecting out of that. In terms of the confidence in the acquisition opportunity set, if you look at where we sit today, as we've said over the last few quarters, the transaction market has been quiet for a couple of years, but the need to transact continues to build while we're not seeing transactions. The difficulty has been volatility on interest rates, which has really slowed the market down from transactions occurring. But looking at our underwriting activity, the volume is up—what we underwrote in the first quarter was double what it was in fourth quarter. It's still not to where it was a couple of years ago, but we do believe that volume continues to grow from where we sit today. I would also say the other thing that gives us confidence is our history in the Sun Belt. Eric mentioned we've been focused exclusively on this region for 30 years, and we have a reputation of performance in our region of the country, whether it's on the operating side or transaction side. So we get a lot of looks and opportunities that perhaps others do not get. The Raleigh opportunity specifically was an off-market opportunity that we got, and I think we'll have other opportunities like that. Our relationships are strong and deep in this region, especially with the merchant developers who are the largest builders in this region. If you look at what we purchased over the last 10 years, almost $2 billion—over 80% of that was from merchant developers. So we have a very good relationship with those folks, and we think that will lead to additional opportunities as we go through the year.

And then just going back to the revenue outlook, the job growth numbers you talked about in initial guidance obviously seem pretty conservative now four months into the year, but no change to the revenue components in guidance. How should we be interpreting that?

I think it's really just interpreting the fact that we have the heavier leasing season ahead of us. Like I said, the first quarter leasing is about 19% of our leases. We'll do 50% over the next four months. That's really when the driving events occur—so it's just seeing how it plays out over the next few months. We're certainly encouraged where the demand side is.

Our next question will come from the line of Haendel St. Juste with Mizuho.

So I'm encouraged to hear that your development pipeline is leasing up better than expected and concessions are stabilizing. But my question is on the private market—are you tracking how the private market supply is getting leased up, their absorption? I'm thinking back to last summer when private developers blinked and dropped pricing late in the summer to achieve some target goals and ended up impacting demand and pricing on your end. Are you seeing anything in the data or behavior that can give you insight into how their progress is coming along or if we could be facing the same risk later this summer?

We do have some insight via a couple of avenues. One is the comparable properties to all of our properties—we monitor specifically how our comps are performing. And we have relationships with many developers in the market. From the information we have, we are seeing a more measured approach to concession usage this time this year than we did in the third and fourth quarter of last year. We're not seeing as much pressure from the developers at this point in terms of pushing to get ahead of the supply wave. We're in the supply wave now. So now they're starting to look at potentially monetizing and transacting their properties, and leaning too heavily into concessions at this point is going to severely impact their valuation. So they're being a bit more measured at this time of the year than they were last year from what we can see at this point.

We do track properties in our markets that are in lease-up and how quickly they're leasing up. Right now, that does not suggest near-term concerns from that point. Certainly, as we get later in the year and into the fourth quarter, things can change quickly based on what developers do, but we're not seeing it right now. That is part of why we dial in particularly on the new lease side expecting it will moderate back down as you get into the fourth quarter. Even though we think supply will be less than it is today, it probably doesn't manifest itself in terms of seeing that in the numbers until you get into 2025.

Can you remind us—which markets are still left to hit peak supply among your larger markets?

It's pretty consistent where we look back to when construction starts and measure when peak pressure hits. Most of them are in that Q2 time frame. I would say Atlanta is probably one that's a little behind the curve, Charlotte is a little behind, while markets like Phoenix and Tampa are probably a little ahead. At a high level, most are within that range and certainly within a quarter, give or take, of that same range.

My second question—what's the indicative pricing today for your June debt maturity? Curious what kind of rates you're seeing in the market right now and what we should assume.

Haendel, right now we're seeing anywhere between 5.6% and 5.7% as we look to that maturity.

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

Just wondering where you've gone out for May, June and maybe even July at this point for your renewals?

For the next couple of months, and we're just wrapping up July now, but for the next couple of months we're in the 4.6%, 4.7%, 4.8% range.

Got it. That's helpful. And then on the development starts—given where your balance sheet is and the opportunity to deliver into much less supply in 2026 to 2028, what would prevent you or encourage you to do more developments today? What are the puts and takes?

We've been building development as a capability and a tool over the last couple of years. What's preventing us from doing more broadly has been hitting the returns that we need on our developments. The two we're starting in the second quarter were able to get some construction cost reductions to get the yields to where we think that 100 to 150 basis point spread to cap rates puts us in that 6% to 6.5% range. Those two are in that 6.5% range. We expect to start two here in the second quarter, another one to two by the end of this year. We have another three that have approvals in place and are ready to go if we're able to get construction costs down far enough to make the numbers work at our hurdles. Aside from those, we continue to evaluate the land market and prepurchase opportunities. There could be merchant developer situations where an equity partner backs out or can't raise debt that provides additional opportunities. Development is an area we continue to focus on and believe in for creating long-term value. To the extent we continue to get the returns that make sense, we'll continue to execute in that area.

Adam, just to add to what Brad is saying: we spend a lot of time thinking about development risk and we'd like to keep our exposure in forward funding obligations to around 5% of enterprise value, which based on where pricing is today would be around $1 billion. Also recognize that more of our development is through the repurchase program where we partner with merchant developers we know, allowing us to share some of the risk. Taking our pipeline up a bit from where it is today is not something we'd hesitate to do given our approach and capacity on the balance sheet and enterprise value. We feel pretty good about pushing on this agenda as much as the numbers support it.

Your next question will come from the line of John Kim with BMO Capital Markets.

I believe you mentioned in your prepared remarks that acquisition cap rates have compressed to 5.1% despite the rise in interest rates. Is it your view that the appetite for negative leverage has come back? Or were these transactions one-offs with below-market debt?

John, I don't think those cap rates are representative of below-market debt. Some of these are reflective of very recent transactions where we've gotten the cap rate information. These are current numbers. The spread of cap rates is wider than what it has been in the past; we're seeing from roughly 4.5% to 5.5%, averaging in the low 5% range. Debt rates are in the high 5% range, almost 6%, so my assumption would be that these underwritings either assume a run-up in fundamentals or a refinance in a couple of years where interest rates come down.

Are you willing to transact at these levels because this is the market now?

If you look at the Raleigh acquisition and the two acquisitions we had in the fourth quarter of last year, that's representative of where we're willing to transact—which from a yield perspective has been in the high 5s, and the Raleigh transaction was a 6% yield. That's where we are comfortable transacting. We believe based on our balance sheet strength and ability to close all cash, focusing on properties that are in lease-up and hard to finance, selectively we'll be able to find opportunities to help us hit our $400 million forecast. But at a broad market level of a ~5% cap rate today, we're not active in that price range.

My second question—your turnover is at a record low level, which is surprising given market dynamics. Is there anything else about residents today that are different than a few years ago? Are they less mobile or more reluctant to move?

I don't think residents are especially different. Resident demographics are pretty consistent with the last couple of years. But it's much more difficult to buy a house today. In our markets in particular, given where interest rates are, it's about 70% more expensive to buy a home than the average rent. That's a significant difference. Consider the cost of moving as well. Those factors play into it. Also move-outs due to buying a home have declined significantly—those were historically a high reason for move-outs. So I think those factors are driving turnover down.

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

Shifting to the expense side: can you talk more about the outsized expenses in the first quarter? As you're thinking about guidance for the rest of the year, has anything changed? Are there areas where you're more or less confident on being able to hit the decline in certain items, or things we should be paying attention to?

Jamie, speaking to the first quarter, the slight unfavorable we called out was really around some one-time property costs tied to storm damages at a number of properties—nothing significant, but outside of what we dialed in for the quarter. As we think about the rest of the year, we're still early on. For larger expense line items—specifically real estate taxes—we still need more information before we can peg that number, but we feel confident about our guidance on real estate tax expenses at about 4.75% growth year-over-year. Insurance expenses are a smaller component but we need more information there as well. Personnel costs, repair and maintenance costs and other line items trended in line with expectations for Q1, and we expect those to continue similarly over the remainder of the year.

Okay. It sounds like you baked in some risk on those items if you're not quite sure what the outcome looks like, but you're pretty comfortable overall?

I'd say that's fair. Real estate taxes will be the majority of the valuation and by the late second quarter, early third quarter we'll probably have a bit more to say on that in the Q2 call. Same for insurance expense. The other expenses are pretty much in line with what we've dialed in.

Thinking about where we are in the cycle and the opportunities you're seeing—do you think opportunities this cycle will show up more in smaller markets like Kansas City, Birmingham, Fredericksburg? Or will you stick with larger population, faster job growth markets as you put capital to work?

Broadly speaking, we're targeting the high-growth regions of our footprint, which includes both our larger markets and mid-tier markets you mentioned. That's part of the diversification we seek for our earnings stream. When we focus on buying new properties, many are in lease-up—the average age over the last 10 years of purchases has been one year—so those are brand-new properties and tend to follow where supply is. Opportunities are where supply and demand dynamics create attractive economics. Both segments of our portfolio will be areas we focus on.

When you're underwriting acquisitions, what is your rent growth outlook? What are you modeling in '24, '25, '26 for the deal?

It will differ by market. In general, 2024 is going to be flattish. Keep in mind most acquisition deals are predominantly bringing in new leases, which is different than our existing portfolio. 2025 is going to have a positive uptick and 2026 and 2027 are likely to be higher-than-long-term-average on average.

Your next question comes from the line of Alexander Goldvarg with Piper Sandler.

Jobs have definitely been stronger than many collectively imagined. Were you just overly conservative in job expectations, or have jobs truly been much better than anyone expected? Trying to understand what's going on because it's allowing you and others to handle the supply much better than originally believed.

We use a number of different sources to compile our view on demand and job growth. A year or so ago, there was more nervousness about a material slowdown in the economy. We have seen some moderation in 2024 compared to 2023, but broadly we've long believed these Sun Belt markets had strong underpinnings—employer stability and new jobs coming such that employment would hold up. What has probably been more surprising for us is the resident behavior—specifically the decline in move-outs to buy a home and the impact that has on demand. We weren't really surprised by employment and migration trends holding up; the home-buying behavior change has been the bigger surprise.

On the transaction market: is the lack of assets for sale due more to bank regulators being lenient with banks, allowing more extensions, or is it something else? It feels like owners and developers aren't being forced to transact as they might have been in prior cycles.

There are two components. One, we saw many loans coming due in 2023 get extended—about 85% of loans that were coming due were pushed or extended. Two, developers have been able to get longer terms on construction loans than before—four to five years in some cases—and loans often include covenants allowing extensions if certain coverage ratios are met. Those features provide developers more runway before being forced to sell on new construction loans.

I'll add that when you contrast this cycle to the post-2008 period, back then demand fell off materially, creating distress and lots of buying opportunities. We simply haven't seen that demand collapse this time—demand has remained strong—and there's also a lot of capital on the sidelines ready to pounce. That combination has helped pricing hold up better than some expected.

Our next question comes from the line of Linda Tsai with Jefferies.

Just wondering if you're doing anything differently on the marketing side to drive traffic in the higher supply markets?

Probably not anything dramatically different on a market-by-market basis, but we updated our website toward the end of February to drive more organic traffic to our site rather than relying as much on paid channels, which can be more expensive. We're getting more involved in some social media initiatives and continuing to expand how we use technology to drive traffic to our website so prospects can experience the community, neighborhood, floor plans and unit types online. We're also doing more to use technology and social channels to increase awareness and drive visits.

Any automation or efficiency initiatives—any updates to highlight there?

One highlight is our smart home initiative that we're wrapping up this year, which we believe will drive down marketing costs and increase demand. Over the next two to four years, the biggest initiative for margin is continuing our property-wide bulk internet/Wi-Fi program. We have about half of our properties on a bulk internet program now, and there's an opportunity—about $30 million more run-rate opportunity—on the portion not yet on bulk. As we renegotiate existing contracts, there's substantial opportunity over the next several years.

We have no further questions. I will return the call to MAA for closing remarks.

We appreciate everyone joining us this morning, and feel free to reach out for other questions and see most of you at NAREIT I'm sure. Thank you.

This concludes today's program. Thank you for your participation. You may disconnect at any time.