Good morning, ladies and gentlemen, and welcome to the MAA Second Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded today, July 31, 2025. 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 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 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 supplemental data 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 able to answer questions. I will now turn the call over to Brad.

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. And 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, and 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, focus on high-growth markets, and operating scale continue 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 towards 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 for 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 2 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.

Thank you, Brad, and good morning, everyone. For the second quarter, we saw a 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 continue 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 remain 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 and higher leasing pressure particularly impact the leasing velocity in 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 Val Vista. 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 above 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 WiFi 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.

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 2 to 3 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 debt-to-EBITDA at 4x. 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 in 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 fiscal 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 and 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 lower 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 program on July 1 and achieved an overall premium decrease on our property and casualty lines. We now expect our interest 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 in our lease-up portfolio resulted in us maintaining the midpoint of our full year core FFO guidance at $8.77 per share by narrowing the range to $8.65 to $8.89 per share. 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.

Our first question comes from the line of Austin Wurschmidt with KeyBanc.

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 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?

Yes, it's a combination of both factors. I noted the renewal trends earlier, and we are maintaining that 4.5% range through the end of the third quarter, with acceptance rates slightly higher than before. This is certainly contributing to our outlook. Furthermore, we are observing that new lease rates are performing better than we did in Q2, marking our highest new lease rate on a lease-over-lease basis this year. This gives us confidence that we can expect an improving environment as we approach the end of the year.

That's really helpful. And 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 then just that trajectory of fundamentals from here?

I would say, effectively, what occurred in Q2 was the biggest impact. There's obviously a lot of leases that expire in Q2, and we intentionally moved them towards the strongest part of the leasing season. But 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 0.5%. So 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.

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

I just wanted to follow up on Austin's question. I'm 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?

We're experiencing approximately a negative 4% for new leases in the second half of the year, affecting our pricing guidance. Renewals are becoming increasingly important, and we're seeing robust real rates. Our confidence stems from several factors, including strong renewal performance and good visibility for September and into October. Currently, our occupancy rate is at 95.7%, which we expect to maintain through August. Our exposure is better than it was a year ago, and the overall market is facing less uncertainty, with rising consumer sentiment and a lower likelihood of recession. Additionally, absorption rates remain strong, with about 85,000 fewer units available to lease compared to last year, and I anticipate this will exceed 100,000 as the year progresses. Lastly, it's important to note that in the last two years during Q3, new lease rates were down about 8%, and in Q4 they were down about 15%, making for a more favorable comparison this time around.

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 the second quarter, we continued 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 turn positive. We saw a pretty good improvement in blended lease pricing second quarter versus first quarter. But 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. So 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. And then switching to the capital allocation with the Charleston 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 Charleston's or Savannah's? And then any comments on cap rate or expected yield from the Kansas City acquisition you can share would be great.

I wouldn’t focus too much on where our additional investment is being directed away from the Sunbelt. Our primary focus remains on investing our capital in the regions with the highest demand in the country. Historically, the performance in terms of earnings growth and dividends is closely linked to demand strength, which we believe is particularly strong in the Sunbelt markets in the U.S. Therefore, we will keep investing our capital in those areas. You will see continued capital investments in both our large markets and our mid-tier markets, such as Charleston and Kansas City, which are classified as mid-tier. As previously mentioned, the Charleston development has a yield of 6.1%. The projects we have undertaken in the past 12 months have yields in the 6% to 6.5% range, and we are still identifying selective opportunities within that spectrum that we plan to pursue as we develop our pipeline. Regarding acquisitions, the Kansas City acquisition consists of two phases. The first phase is a stabilized acquisition with a net operating income yield likely in the high 5% range. The second phase is a small development that, when combined, will increase the total development yield to approximately 6.3%.

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

It's Nick Carr speaking for Eric this morning. My first question is about Atlanta. We've seen a decline of 40 basis points in same-store revenue growth quarter-over-quarter. I expected that to be a bit stronger on a sequential basis considering we discussed some improvements last quarter. Could you provide some insight into what you're observing on the ground there?

We are seeing some positive momentum in Atlanta, although it is coming from a low point. Reflecting on early 2024, there were concerns about occupancy and pricing. Revenue growth is still lagging, and it will take time for improvements to be reflected. Currently, performance is below the average of our portfolio; however, compared to last year, Atlanta shows some of the best improvement. Specifically, the combination of better lease rates and occupancy in Atlanta outperforms our other major markets. Delinquency rates are no longer a concern and have approximated the portfolio average. We've also observed a slight reduction in concessions, particularly in Midtown Atlanta, though they remain significant there and in Northwest Atlanta. While we expect it to take time for this progress to impact revenue, we are optimistic about the trends we are seeing.

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

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

Our next question comes from the line of Nicholas Yulico with Scotiabank.

So I guess the first question is, as we consider pricing, it seems that leasing has been a bit slower than anticipated in the past couple of months. What is causing that? We are aware of the supply issues, but it also seems like there might be a general demand issue affecting multifamily properties. Additionally, I'm curious about the Sunbelt market. Are you experiencing out-migration, or are there other demand-related challenges in those areas? Could you elaborate on what you're observing in the market?

Yes, this is Brad. I want to emphasize that we are not experiencing any issues with demand. Looking back at the second quarter, we witnessed significant and strong improvements in new lease-over-lease on a monthly basis. In April, new lease-over-lease rent growth was around 100 to 150 basis points, aligning with our expectations, which we anticipated would continue. However, in May, market operators began to concentrate more on occupancy, impacting the recovery rate we projected. That said, there are no concerns about demand in our area. In fact, our absorption metrics show record levels, the highest we've seen in the past 25 years. The gap between the last 12 months of absorption and supply is nearing COVID levels, indicating that absorption is considerably outpacing new deliveries. As Tim mentioned earlier, due to this excess absorption, we currently have 85,000 fewer units available to lease than we did at this time last year. Combined with a significant decline in supply and stable demand, the reduction in available units for lease could soon reach 100,000 to 120,000 units, which will greatly enhance performance in our region. Migration trends show no slowdown, with a net positive of about 6%. Although this is down from COVID highs, it remains consistent with pre-COVID figures. Overall, we are not seeing any concerns with the various demand metrics we monitor.

Okay, my second question is about the numbers you provided for the second half of the year regarding new lease rate growth. You mentioned that it was down last year in the second half. Can you explain when your comparisons will become easier? We expected that since you were significantly down a year ago on new lease rate growth in the second half of the year, you would see some benefit in comparisons this year, but it doesn't seem that way based on your comments about new lease expectations.

Yes, 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. But there is a piece of it that's easier comps, particularly, to your point, in the back part of the year and particularly in the fourth quarter, where we've seen it trail off quite a bit in the last two years. So if you look at just our new lease rents over the last couple of years, they're down cumulatively 8% in Q3 and 15% in Q4. And so we've obviously got much better supply/demand fundamentals now in good shape, as I mentioned, with occupancy and exposure. So we do think that plays a component in our expectation for less seasonality than what we would typically see.

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

I think you guys have talked a little bit about sort of pace of recovery here. And so 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 3 months ago or 6 months ago, recognizing the sort of the pricing is what it is, but I think just to maybe underscore what's happening with demand. I would love to hear just about how absorptions are trending relative to your expectations?

Yes, this is Tim. We anticipated that absorption would remain strong. It's challenging to specify everything reflected in the numbers, but as Brad mentioned earlier, demand factors continue to remain robust, especially in the Sunbelt, while supply deliveries have been decreasing each quarter. Therefore, we expected a certain level of absorption. There are a few markets where, as we've discussed regarding the lease-up portfolio, leasing velocity has slowed somewhat, but this is mainly in areas with significant supply. Overall, however, absorption has been very strong, and we expected it to be strong. I believe it will become even stronger in the upcoming quarters.

Great. And 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? And whether that's national or in your markets, I think it would be helpful context.

Yes. 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. So I would expect it to accelerate a little bit from what we saw in the first part of the year.

Our next question comes from the line of Jana Galan with Bank of America.

It's great to see the renewals for the third quarter remain in the mid-4% range, but just kind of curious how long do you feel that they could stay in that range? And 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?

Yes, this is Tim. I think it's some of that. I think those points you just made play a part of it. I think the service we provide plays a lot of it. We have mentioned this, I think, last quarter that we have the highest Google scores in the sector, and I think that customer service plays a part in it. And we do a very thoughtful analysis when we go out with our renewal offers on tiering it based on where people are relative to market. But we bidded this period for now going on about 8 quarters where new lease pricing has struggled, but we've continued to see renewal rates hold in this 4.5% range. So I think there's a lot of qualitative factors I just mentioned beyond the just straight numbers that help that. And even though turnover is down, we're still turning 40% or so of our portfolio each year. So there's a factor there that plays into it. But no reason to expect that we should see anything different going forward from what we've seen in the last two years.

And then maybe just following up on the turnover. Do you expect that in the second half to be similar to '24 or even lower kind of given what's going on with interest rates?

So far in Q3, we've observed that renewal acceptance rates remain slightly lower than they were in '24, and I expect this trend to continue into Q3. Q4 typically sees a bit more turnover, but I don't anticipate any changes in this pattern. There's no indication that people are leaving us to buy homes, and turnover due to rent increases is down. We don't see any significant factors that would suggest turnover will rise in the fourth quarter.

Our next question comes from the line of Michael Goldsmith with UBS Financial.

How has the competitive pricing environment across operators in your markets trended? Are other operators pushing occupancy? And if so, how much occupancy improvement do you think they would need in order to be comfortable to return to pushing rate again?

Yes, I believe we have observed operators increasingly focusing on occupancy overall, which contributed to the performance in Q2. In our markets, occupancy rose by approximately 40 to 50 basis points from Q1 to Q2. There seems to be some caution among operators regarding raising prices, even when there might be room to do so. We are strategically increasing prices where we can and should. Currently, our occupancy stands at 95.7%. We will maintain a targeted strategy: where we have exposure and low vacancy, we will raise prices, and where we don’t, we will focus on boosting occupancy. Overall, considering the current macroeconomic conditions, consumer sentiment, and improving fundamentals, I anticipate that the environment will shift more towards price increases, especially as we approach 2026.

Got it. And 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. So can you discuss what trends you're seeing in that market in particular?

Yes. I mean we've seen it slowdown a little bit. I mean, obviously, that market has been strong for going on 6, 7 quarters now. So 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 choosy on the prospect side and then 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. So 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 6 or 7 quarters.

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

Two questions. First, just big picture because everyone is asking about new rents, and you guys talk about improving fundamentals, improving demand, 85,000 fewer units this year than last. And 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, and 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. So how much of it do you think is that dynamic versus other factors?

There is nothing we see that suggests rent fatigue in the market is impacting the rate of recovery negatively. In fact, wage growth in our region remains strong. Our rent-to-income ratios have actually improved this quarter compared to earlier quarters. We continue to experience 4% to 5% renewal increases. From our viewpoint and based on market observations, consumer confidence readings decreased following some uncertainty after Liberation Day. This uncertainty has created a sense of nervousness among market operators regarding performance and has led to a focus on occupancy. We believe that the current issue is more about this psychological effect rather than rent fatigue or demand concerns. Demand remains extremely strong.

Okay. Second question is, you mentioned that deliveries are taking a little bit longer. In general, I think you guys said some years, and I think the 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 we're going to have to contend with spillover in '26?

Yes. This is Tim. I don't think it's material. I mean, if we look at quarterly supply that's been delivered, I mean, it has dropped off pretty good over the last two quarters, and I expect it will drop out even more in Q3 and Q4. So I mean, there's certainly some of that, but 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.

Our next question comes from the line of Steve Sakwa with Evercore ISI.

Could you guys talk about maybe some of the changes that you've made on your underwriting for the developments, either on the revenue side, the cost side, time to lease up? And what maybe changes or cost changes are you seeing on the construction cost side?

Yes, Steve, this is Brad. We haven't made many changes to our underwriting recently. Our development underwriting remains quite conservative. The yields we're achieving on our development projects are 20% to 30% higher than our initial expectations. So, we're confident in our underwriting process and our ability to achieve these returns. Regarding the properties currently in lease-up, we are focused on achieving the expected rents instead of potentially sacrificing some performance from 2026 to 2025 by lowering prices to increase occupancy, which does have implications for this year. However, our long-term value creation opportunities with all our developments remain solid. We are also satisfied with our approach to development costs. Currently, our costs are stable, with no significant increases due to tariffs or immigration issues. We will, of course, keep monitoring the labor market and related factors. Overall, we feel optimistic about our development projects currently under construction and the few other opportunities we are pursuing.

Okay. And then second, just maybe on real estate taxes. Maybe just broadly, kind of what are you seeing from the various municipalities? And I know that number is down about 2.5% through the first 6 months. But 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, I think it could be beneficial as we move forward, or perhaps not as much of an obstacle as it has been in previous years. Considering the current state of our markets and the negative same-store NOI growth over the past couple of years, this trend may persist in the next couple of cycles, depending on when municipalities decide to revalue properties. Some do this annually while others may take four years. The timing will vary by municipality. However, I believe we could see some potential support in the coming years as they reflect on these periods of declining NOI growth. We also need to consider the current cap rates, which seem to be stable. New developments are typically in the mid to upper fours, but overall, cap rates have remained relatively consistent over the last few years. Therefore, we may see a stronger impact on operating income results.

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

I would like to follow up and combine a couple of previous questions to explore the peak delivery phenomenon in more detail. There's definitely a longer period of lease-up after properties are delivered, and you've mentioned the slower leasing velocity affecting your numbers. When do you expect this dynamic to peak? Additionally, when do you think new lease pricing might start to improve and reflect the decline in that dynamic, if that makes sense?

Yes. 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. So obviously, still seeing the pressure from that. But going back to the absorption point, each quarter, we've seen greater absorption; we see the excess units that are out there drop significantly. So 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. So it won't show up quite as much as it probably otherwise would if it were the peak leasing season, but I think you'll really start to see that momentum as you get into the spring of next year.

Our next question comes from the line of Bradley Heffern with RBC Capital Markets.

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

I mean it's difficult to say, but I do think '26 looks a lot better for all the reasons we've talked about. So I think as you get into the spring and summer of next year is most likely the time.

Okay. Got it. And then do you have a loss lease or gain to lease figure that you can get?

Yes. So if you look at the way we think about loss 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, but it's always the largest this time of the year. July is kind of the peak of the year typically. So that number tends to gap out a little bit this time of the year, even in a tougher supply-demand year, and then I would expect it to trend back down a little bit as we get to the back part of the year.

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

So a couple of questions here. First one, I guess, I'm curious how long do you think this low supply narrative for Sunbelt plays out? Looks like that the low supply window is now being pushed out to 2028. I think a couple of months ago, we're talking about 2027. So 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?

Yes, as part of our development platform, we collaborate with many merchant developers through our prepurchase program. We're examining 30 to 40 equity packages each quarter, but typically, only one meets our return targets of over a 6% NOI yield with realistic underwriting. Most fall within the mid to low 5% range under realistic conditions. To be viable, the returns need to improve by about 10% to 20%. This improvement will come from reducing construction costs and increasing rent growth. However, the primary challenge we face right now is the availability of capital. Securing equity capital for development deals is currently very difficult, and we don't anticipate this situation improving soon. The development pipeline and new starts are significantly lower than the past 12 months and historical averages, and we've observed a consistent decline each quarter over the last year in our region. We expect this trend to continue for the next few quarters to years. The availability of capital remains a significant issue at this time.

That's helpful. I wanted to ask about your interest in acquiring assets and the broader market you've mentioned, as well as your lower leverage. I'm curious about how much you are willing to take on in debt, considering that it carries a lower cost, and how that may increase your buying power for additional deals. Specifically, how much you can rely on debt to finance deals before reaching higher leverage levels.

Haendel, this is Clay. We're currently at 4x leverage as we close out the quarter. We're open to increasing that to between 4.5x and 5x, which would allow us to access an additional approximately $1 billion, possibly a bit more. This gives us ample capacity on our balance sheet to actively pursue the opportunities ahead, whether through further acquisitions or development projects.

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

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.

Yes. 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. And so as mentioned on the seasonality, we're certainly dialing in less seasonality in the back part of the year for all the reasons we mentioned that we still expect that Q4 would be lower on a blended basis than what Q3 is.

You mentioned that Atlanta is one of your strongest markets in terms of pricing and occupancy. Were you surprised to see that net migration turned slightly negative for the first time in that market? Have you experienced that change in your portfolio, and does it affect how you allocate capital there?

One point of clarification on Atlanta is that we saw the most improvement in pricing compared to last year. It still lags behind the overall portfolio, so there’s plenty of potential for growth in Atlanta, and we are encouraged by the trends. However, we are not worried about the migration trends. As Brad mentioned earlier, we are currently at pre-COVID levels, with 10%, 11%, and 12% of our move-ins coming from outside our footprint, and only 4% to 5% of our move-outs leaving it. This results in a net migration trend of 5%, 6%, or 7%, which has remained very stable over the past several quarters.

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

Tim, you talked about Austin, Phoenix and Nashville as weak given supply. Are you seeing any positive signs in those markets? Or do they have enough tough 6 to 9 months ahead of them?

Currently, there aren't many positive trends in those markets. New lease pricing decreased slightly in the latter part of Q2, and although overall supply is somewhat lower this year compared to last, it remains quite high. In Austin, the demand fundamentals still position it as one of our top markets due to factors like migration, household formation, and job growth, so it should recover once the supply situation improves. Additionally, Austin has the lowest rent-to-income ratio among our markets, indicating a healthy resident base. Once the supply pressure eases, I believe this market will perform well. In Nashville, concessions have decreased slightly in the downtown area, which has experienced the most challenges, but we’re seeing better performance in the suburbs, suggesting it might recover more quickly. Phoenix lies somewhere in between; there's significant supply, particularly in certain submarkets, but the job market and other developments there give me optimism for a turnaround. If I were to order them, I would say Nashville, Phoenix, and then Austin in terms of recovery timeframes.

Okay. That's helpful. And then, 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 sort of 6 to 12 months for you guys?

Over the next 6 to 12 months, we should have a strong start level. We are currently working on a Phase 2 site in Raleigh that is out for pricing. We also have two sites in D.C. that remain attractive in terms of return and long-term value. Additionally, we are pricing a site in Orlando with multiple phases. Among the 12 sites we control, including the Kansas City Phase 2 site, which will begin in about 6 months, all sites are approved. We are waiting for market conditions to improve to support our disciplined growth and achieve a return that is reasonable for us. Therefore, in the next 6 to 12 months, we anticipate starting four to five projects in that development pipeline.

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

I have a broader, long-term question. We've seen a significant increase in new supply, and I noticed there's a bill in the U.S. Senate aimed at making it easier to add housing across the country. However, I read about southern markets starting to resemble California and coastal areas in terms of resistance to new development. It seems like many Americans may share this resistance, which hadn't been evident in the South due to potential for growth, but that may be changing. Are you noticing any shifts in your markets where local communities are beginning to oppose new supply or create barriers, which could limit the next wave of supply? I understand your focus is mainly on demand, but have you learned anything in the past two years regarding supply and how you select your markets?

Yes, there is definitely strong pushback against multifamily developments in some of our markets. For instance, in Germantown, where our office is located, there has been a moratorium on new multifamily projects. Similar situations can be seen in many municipalities where we operate, such as Charleston and Mount Pleasant, which also had a moratorium on multifamily developments for a time. This pushback presents numerous challenges and discussions. There’s a common misconception that in the Sunbelt, it only takes six months to initiate construction on a project, but the truth is that it often takes one to two years from the identification of a project before construction can begin. For example, one of our projects in Raleigh took five years from the start of work to actually begin construction. Therefore, I believe there are constraints in these suburban Sunbelt markets that significantly limit the ability to ramp up supply, which will subsequently affect future availability.

Our final question will come from the line of Linda Tsai with Jefferies.

Just one for me. I recall you mentioned a decrease of 85,000 units over the last four quarters in your markets and projected it would rise to a reduction of 100,000 to 125,000 units at some point. Is this expected to occur in the second half of this year or the first half of next year?

Yes. We are emphasizing that absorption has increased with more units being absorbed over the last four quarters compared to what was supplied, reaching about 85,000 through Q2. I anticipate that this will exceed 100,000 later this year. In Q2, that number rose from 45,000 to 85,000. Therefore, when you consider the decreasing number of units being delivered along with stable demand, I believe we will reach that figure by the end of this year.

Our next question comes from the line of Alex Kim with Zelman & Associates.

I just wanted to ask about something that's been asked tangentially by others, but I just wanted to frame it a little differently. Just what, if at all, has surprised you about the supply environment so far this year that has materially impacted pricing power?

I don't think the supply environment has been particularly unexpected. There have been a few delays here and there, but the leasing velocity and some uncertainty that emerged in Q2 were certainly more surprising compared to our expectations. Especially on the operator side, while occupancies increased from Q1 to Q2, there hasn't been much pricing power. I don't believe the nervousness on both the operator and prospects side is what caused this situation; I think the change in our supply expectations has been minimal.

Okay. Yes, that's helpful. And then just a quick one. Just could you talk through what your expectations are for the operating environment in the out years when some of your more recent starts will deliver?

Yes, Alex, this is Brad. I'm happy to provide some insight on that. As we've discussed, our development pipeline is well positioned to succeed in what we anticipate will be a very low supply environment. For context, the long-term average supply in our market is around 3% to 3.5%. However, if we examine the trailing 12 months in our region, we've seen starts at about 1.7%. Additionally, my earlier comment highlighted that this figure is continuing to decrease each quarter. This indicates a strong operating environment for the next few years. To further illustrate, there are a couple of periods worth noting. Referring back to my previous remarks, if we analyze the trailing 12-month gap between demand and supply, where demand surpasses supply to reach the current level, we need to look back to the COVID period of 2022 and 2023. During that time, average net operating incomes (NOIs) were relatively high, in the low double-digit range. On the other hand, if we consider the expected delivery numbers for 2026, we must go back to the period following the Global Financial Crisis—in particular, 2011 and 2012—to find similar supply levels. At that time, we experienced 4 to 5 years of performance with NOIs ranging from 5% to 6%. We will see how things progress from here, but based on our earlier points, we believe that an acceleration in 2026 is likely, driven by diminishing supply and reduced market uncertainty. These factors provide a solid foundation for recovery from our current position.

Our next question comes from the line of Ann Chan with Green Street.

Just following up on the earlier question from Steve, on the cost side of development economics. Just quickly shifting to the revenue side. Could you walk us through the key assumptions behind your yield targets? Like 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? And have you made any recent changes to those underwriting assumptions to account for maybe slower lease-up periods or other market trends you're serving?

No, we really haven't made any changes to our assumptions. The 6.1% yield for the Charleston development is based on the market comparisons we evaluate, and we conduct a thorough analysis of the relevant traffic we will compete for. The difference between our stabilized rents and today's market comparisons in that area is less than 5%. Therefore, when we complete that project in 3 years, we anticipate rents will rise from today's rates by less than 5%. We consider this to be quite conservative, especially since the market forecasts cumulative rent growth of over 11% in the next 3 years. We are confident in our development underwriting. Our current development is projected to yield about 30 basis points more than we initially anticipated. While our lease-up velocity is currently a bit slower, we expect the operating environment to differ significantly when these developments are completed in the next 2 to 3 years. We have not accelerated our lease-up strategy in light of this; it remains consistent with our historical underwriting standards.

Our final question will come from the line of Mason Guell with Baird.

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?

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

And we have no further questions. I will return the call to MAA for any closing comments.

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

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