Mid America Apartment Communities Inc. Q3 FY2025 Earnings Call

Good morning, ladies and gentlemen, and welcome to the MAA Third Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded today, October 30, 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-F filings with the SEC, which describe risk factors that may impact future results. During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data. Our earnings release and supplement are currently available on the For Investors page of our website at www.maac.com. A copy of our prepared comments and an audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. I will now turn the call over to Brad.

Thank you, Andrew, and good morning, everyone. As highlighted in our earnings release, our third quarter core FFO results met our expectations, reinforcing the resilience of our platform and strategy. While the broader economic environment has introduced some challenges, including slower job growth and tempered pricing power in new leases, we are still seeing recovery. Strong occupancy, solid collections and year-over-year improvements in new renewal and blended lease rates in the third quarter demonstrate our momentum. Demand across our markets remains healthy and we are encouraged that the record level of lease-ups in our region are being absorbed with occupancy levels increasing 450 basis points over the past 5 quarters and now approaching pre-COVID levels. Supply levels in our markets, though elevated historically, are trending down at a faster pace than many other regions. As new deliveries continue to decline each quarter, we anticipate a strengthening recovery in pricing power and operating performance. Importantly, new starts remain below long-term averages and have for the past 10 quarters, and we see no indication of an acceleration in starts. In fact, per our third-party data provider, our markets saw just 0.2% of inventory in new starts in the third quarter. And starts over the trailing 4 quarters were just 1.8% of inventory, roughly half the historical norm, positioning us for sustained improvement. Our diversified presence across high-growth markets and more affordable price point provides access to a broader segment of the rental market that is financially strong, supporting continued strong collections. Additionally, our region continues to capture one of the highest levels of annual wage growth, as evidenced by the increasing incomes of our new residents, driving favorable rent-to-income ratios, which remain at a healthy low of 20%. Improving leasing conditions also bolster our redevelopment pipeline and offering residents a newly renovated unit at a more affordable price compared to the higher-priced new multifamily supply. Due to persistent single-family affordability challenges, our strong customer service and demographic trends that support renting, residents are choosing to stay longer with only 10.8% of our move-outs occurring due to home purchases. Our balance sheet remains a key strength with our recent credit facility expansion, which Clay will discuss in a moment, providing exceptional flexibility. While the transaction market has been active at sub-5% cap rates, we continue to identify select accretive opportunities such as our recent Kansas City acquisition, a stabilized suburban 318-unit property that we purchased for approximately $96 million and is expected to deliver a year 1 NOI yield of 5.8%. Subsequent to quarter end, we purchased an adjacent land parcel for an 88-unit Phase 2 that will expand the stabilized NOI yield on our total investment to nearly 6.5% after capturing additional scale and efficiencies from the Phase 2 development. We are also advancing our development pipeline and securing additional attractive long-term investment opportunities. In today's equity-constrained environment, our access to capital and development expertise remain competitive advantages. Following quarter end, we acquired land, plans and permits for a shovel-ready project in Scottsdale, Arizona scheduled to begin construction in the fourth quarter. This project, like others we've recently launched, reflects our ability to capitalize on situations where developers face equity challenges, allowing us to secure projects at a compelling basis. The Scottsdale development is expected to deliver a stabilized NOI yield of 6.1%. In total, we now own or control 15 development sites with approvals for over 4,200 units. And if market conditions remain supportive, we anticipate starting construction on 6 to 8 projects over the next 6 quarters driving meaningful earnings contribution in the years ahead. With a 30-year track record of delivering through economic cycles, we remain confident in our ability to execute during this transition. Our focus on high-demand, high-growth markets, significant redevelopment opportunities, efficiency gains from technology initiatives rolling out in '26 and beyond and a growing external growth strategy position us for stronger earnings growth. Our portfolio will continue to benefit from job growth, wage growth, household formation and migration and population trends that outpace other regions. We are encouraged by the building blocks that are in place in what we expect will be an acceleration of the recovery cycle in 2026 leading to sustained revenue and earnings growth, as new deliveries continue to decline and the recovery advances. To all our associates across our properties and corporate offices, thank you for your unwavering dedication and commitment during this busy leasing season. Your efforts continue to drive our success. So with that, I'll turn the call over to Tim.

Thank you, Brad, and good morning, everyone. For the third quarter, we saw increasing occupancy and strong retention and renewal lease rates but experienced continued lack of traction and the ability to push on new lease rates. We believe broad economic uncertainty and slower job growth, as evidenced by a downward revision to the job growth numbers, contributed to prospects being more cautious about making decisions to move and to operators prioritizing occupancy over new lease rents. Despite the challenging environment for new leases, we continue to see new lease-over-lease pricing improve over the prior year at minus 5.2%, up 20 basis points compared to the third quarter of 2024, combined with the strong renewal lease-over-lease performance of plus 4.5%, which was up 40 basis points over the prior year. Blended pricing for the quarter was positive 0.3%, improving 50 basis points from the third quarter of last year. As mentioned, average physical occupancy sequentially improved to 95.6% in the third quarter, representing a 20 basis point increase from the second quarter. Additionally, we had another quarter of strong collections with net delinquency representing just 0.3% of billed rents. A number of our mid-tier markets, particularly in the Mid-Atlantic region continue to be outperformers relative to the portfolio. Richmond and the D.C. area markets remain strong and other markets such as Savannah, Charleston and Greenville all demonstrated strong pricing power in the quarter. Of our larger markets, Houston continues to be steady and we are seeing encouraging progress in Atlanta and the Dallas-Fort Worth area properties, where blended pricing in both of these markets improved sequentially from the second quarter and outperformed the same-store portfolio. The lagging markets we have noted for the past few quarters remain consistent with Austin continuing to work through its record supply pressure, resulting in weak new lease pricing and Nashville facing significant pricing pressure as well. In our lease-up portfolio, we had three properties: West Midtown, Daybreak and Milepost 35 reach stabilization in the third quarter. We continue to make progress with our other 4 lease-up properties, which have a combined occupancy of 66.1% as of the end of the third quarter and the 2 development properties that are currently leasing units. We have seen the uncertainty and higher leasing price impact a portion of our lease-up portfolio and pushed the stabilization date by one quarter for Valvest and Phoenix. While Liberty Road just started leasing, the other 5 properties with units delivered are well into the lease-up process and rents are in line with the original performance. This helps preserve the long-term value creation opportunity despite the overall leasing velocity being a little bit behind original expectations. Our various targeted redevelopment and repositioning initiatives continued in the third quarter, and we still expect to accelerate these programs into 2026. During the third quarter of 2025, we completed 2,090 interior unit upgrades, achieving rent increases of $99 above non-upgraded units and a cash-on-cash return in excess of 20%. This was an acceleration of both volume of completed units and rent growth achieved from the second quarter. Despite this more competitive supply environment, these units leased on average 10 days faster than non-renovated units when adjusted for the additional turn time. We still expect to renovate approximately 6,000 units in 2025. And for our common area and amenity repositioning program, we continue the repricing phase at 6 recent projects with 5 of the 6 past the halfway point in repricing. So far, the results are encouraging with double-digit NOI yields and rent growth far exceeding peer MAA properties. Five additional projects are now underway with the anticipated repricing to coincide with the prime 2026 leasing season. We are live on five 2025 retrofit projects for community-wide WiFi with go-live base planned through the remainder of 2025 at an additional 15 communities. As we approach the end of October, our current occupancy is 95.6% and 60-day exposure at 6.1%, 20 basis points and 30 basis points, respectively, better than this time last year, which keeps us in a position for stable occupancy heading into the slower traffic season. As Brad referenced, new supply pressure continues to moderate and absorption remains strong with market-level occupancies including lease-ups at the highest level since mid-2019. Our theme of strong renewal performance continued in the fourth quarter with higher retention rates and lease-over-lease growth rates on renewals accepted for October, November, December, ranging between plus 4.5% and plus 4.9%. Moderating construction starts, Sunbelt market demand dynamics, and high retention rates underlie our optimism for an improving leasing environment, particularly as we get into the spring and summer leasing season of 2026.

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.16 per diluted share, which was in line with the midpoint of our third quarter guidance. Favorable overhead expenses of $0.01 and same-store expenses of $0.05 were offset by unfavorable same-store revenues of $0.05 and non-same-store expenses of $0.01. As Tim alluded to in his comments, our occupancy and renewal lease performance remained strong and were in line with our projections for the quarter, while new lease rates performed below our expectations. During the quarter, we funded approximately $78 million in development cost for our current $797 million pipeline, leaving an expected $254 million to be funded on the current pipeline over the next 3 years. Our balance sheet remains well positioned to support these and other future growth opportunities. At the end of the quarter, we had $815 million in combined cash and borrowing capacity under our revolving credit facility, and our net debt-to-EBITDA ratio was 4.2x. At quarter end, our outstanding debt was approximately 91% fixed with an average maturity of 6.3 years at an effective rate of 3.8%. Subsequent to quarter end, we amended our revolving credit facility, increasing the capacity of the facility from $1.25 billion to $1.5 billion and extending the maturity of the facility to January 2030. In addition, we amended our commercial paper program to increase the maximum amount of outstanding commercial paper borrowings to $750 million. We have an upcoming $400 million bond maturity in November that we expect to refinance in the fourth quarter. Finally, we have adjusted our core FFO and same-store guidance for the year as well as revised other areas of our detailed guidance previously provided. Primarily due to the lower recovery trajectory on new lease rents as the broader economy and employment markets moderated over the summer months, 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 0.4% while maintaining average fiscal occupancy guidance at 95.6% for the year. Total same-store revenue guidance for the year is revised to negative 0.05%. We are also lowering our same-store property operating expense growth projections for the year to 2.2% at the midpoint. The lower guidance is primarily due to favorable third quarter property tax valuations as compared to our original expectations. The changes to our same-store revenue and property operating expense projections resulted in us adjusting our same-store NOI expectation to negative 1.35%. 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 transactions market. The impact of these adjustments, combined with the updated expectations for our non-same-store portfolio, resulted in us adjusting the midpoint of our full year core FFO guidance to $8.74 per share and narrowing the range of $8.68 to $8.80 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 will come from Eric Wolfe with Citi.

A number of your peers have talked about the worsening trends in late September and into October, specifically on new leases beyond just the sort of normal seasonal curve. Can you maybe talk about recent pricing trends that you're seeing on new leases? And are there any markets that are moving abnormally at this time of year? And just sort of any thoughts on sort of how that could trend through the rest of the quarter?

Yes, Eric. This is Tim. Overall, we've observed typical seasonal patterns. On the new lease side, the decline was slightly less than usual from Q2 to Q3, which typically shows a moderation of 60 to 70 basis points. This time, it was 40 basis points, and we performed even better on the renewal side. So, we are generally experiencing normal seasonality. Pricing usually peaks in July and gradually moderates for the remainder of the year as traffic decreases, and that has been the case. The trend was a bit less seasonal, but still aligned with our typical expectations. Regarding markets, the DC market is performing relatively well, although there has been some moderation in new leases. As for some of the weaker markets I mentioned, they continue to lag. On a positive note, both Dallas and Atlanta showed new lease acceleration from Q2 to Q3. Together, those are our two largest markets, and they are displaying encouraging trends. But overall, it’s typical seasonality.

That's helpful. And then could you maybe talk about any early thoughts on 2026 in terms of earning and contribution from other income? Essentially, the more sort of predictable items for next year. Obviously, if you want to give your view of market rent growth, we'll take it, but I realize it's a dynamic environment.

Hey, Eric. This is Brad. I'll start, and Tim can certainly jump in here. But I think as we look at and start thinking about what '26 is likely to look like just big picture, I mean, I think really for us to start with, we talk about the demand fundamentals. And for us, everything ultimately boils down to what the demand side of the equation ultimately looks like long term. And as we look at 2026 today, we really think that the demand fundamentals look pretty similar in '26 to the way they looked this year. Whether you're looking at migration trends, population growth, household formation or just single-family affordability headwinds, we really think all of those look very, very similar next year. Clearly, the unknown for us is the job market and really what that looks like next year. The early projections that we see for next year show the job market looking a little bit softer than it does this year. But I think one thing to keep in mind is next year is an election year. So I do think the administration is going to be very focused on getting the tariffs kind of behind them and then really focused on job growth the balance of the year, which we think could certainly help on the job growth side. And then I think certainly from a supply perspective, we know the supply pipeline next year is set to decline considerably from where it is this year, where next year's deliveries will be about close to a 50% drop from the peak that we had in 2024. So certainly, the picture looks a lot better on that front. So despite our recovery certainly not being quite as robust as what we had hoped for this year, we are making progress. And I think that progress will continue to manifest itself as we get into 2026. Tim, what would you add on the earning piece?

Yes. On the earning piece, I mean, I think based on where we see rents at the end of this year, you're probably somewhere around flat to slightly negative, which is a little bit of improvement on where we were heading into 2025. And then last point I'll make, you asked about the other income, it will be the WiFi projects that will drive that. They've been slow to materialize this year as we wait on circuit deliveries and other things, but we've got 20 or so that we think will be live by the end of this year. And that group as a whole, once fully rolled out, is about a $5 million NOI piece. So we'll get a piece of that. So that will be the biggest thing sort of above and beyond our normal run rate on fee and other income.

And then just to follow up on the point on the earning. As Tim mentioned, for next year, flattish going into 2026. And just as a reminder, coming into 2025, it was a negative 40 basis points headwind. So a significant improvement going into 2026 as we sit here today.

Our next question will come from the line of Jamie Feldman with Wells Fargo.

I guess following up on the guidance line of questioning. On the expense side, anything, as we think about year-over-year comparisons, anything in 2026 that we should be aware of?

James, this is Clay. I want to highlight a few points. Starting with real estate taxes, we've seen favorable outcomes compared to our initial projections for this year due to some one-time adjustments from previous years that we recognized. We'll need to account for that in the future. However, considering our expectation of negative NOI growth for the year, we anticipate a significant increase in property valuations going into next year. Therefore, we expect real estate taxes to rise at a typical rate of around 2.5% to 3.5%. While I'm not providing specific guidance right now, this is our outlook. Additionally, we believe insurance will benefit from our recent renewal, positively impacting us in the first half of the year, although we'll need to reassess that next year. For other costs like personnel and repairs and maintenance, Brad mentioned the tariffs and we expect those expenses to align with standard inflation trends. Everything seems within the normal range for those areas. We also expect a slight decrease in marketing expenses next year as we move past this year's supply challenges. Overall, I’m not offering comprehensive guidance, but this is our current thinking on those items.

I might add one point real quick just on the utility side. We talked about the WiFi projects a minute ago. There is an expense component that hits in that utilities line. It's obviously a much larger revenue component, but that will impact utilities a little bit as well.

Okay, great. That's very helpful. Regarding concessions in your major development markets or areas with higher supply, how would you assess the current pace of concessions? Is it improving or declining? Is there anything noteworthy to mention?

Yes. I would say, broadly, concessions in Q3 were a little bit higher than what we were in Q2. When we look at our comps, there is probably 55%, 60% or so of our comps have some sort of specials, and that's up a little bit from what it was in Q2 but not significantly. I think the level of concessions at a given property is pretty similar. You're seeing anywhere from half a month to a month free is pretty typical with a little bit higher in some of the highest supplied submarkets. We've seen a couple of submarkets really come down. I mentioned Atlanta earlier. We've seen a little bit lower concessions in Buckhead. Uptown Dallas, we're seeing a little bit lower concessions. So it's actually some of the more urban submarkets we've seen concessions come down a little bit. And then we've seen it up a little bit in Phoenix, a little bit in suburban Orlando, a little bit in downtown Nashville, but broadly ticked up a little bit but not hugely different than what we've been seeing.

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

Maybe I just wanted to ask about sort of lease up for your development properties and maybe just how the cadence of that today compares to lease-up cadence maybe 6 months ago or the same time a year ago.

Yes. This is Tim. I mean, the leasing velocity broadly has been a little bit slower. I don't think it's necessarily gotten slower than what it has been over the last couple of quarters. I mean, we've seen obviously with the supply over the last couple of years that that velocity has been a little bit slower to occur than what we originally underwrote. But broadly, rents are in line. When you think about the overall lease-up portfolio, we're holding tight there and keeping, as I mentioned in the comments, just keeping our value proposition in line. So broadly, leasing velocity a little bit slower than what we expected. And we pushed back one of the stabilization dates on one of our lease-up properties. But broadly, the rents are intact and feeling good. Particularly as we move into the spring and summer, we expect that as it really starts to increase on that velocity.

Great. I know you mentioned it earlier, but could you provide the specific new renewal and blended lease growth for October?

We're not going to get into the details of the monthly. But I would say, generally, what we're expecting for Q4, and I mentioned this earlier, is pretty normal seasonality, perhaps a little bit less than what we typically see as supply continues to moderate. I mentioned in the comments the renewals are holding up really well. So I think on a blended basis could be a little bit better than last year. And new lease probably trending somewhere maybe slightly better than where we were last year. But typically a normal seasonality with a little bit better performance on the renewal side.

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

I guess I wanted to circle up on the Scottsdale project. I think you mentioned that the initial yield on that was 6.1% and maybe with the new piece of land that would go to 6.5%. But your stock is kind of trading sort of in that mid-6s right now. So just how are you thinking about capital allocation, development yields? And what kind of hurdles do you need on projects going forward, given the changing cost of capital?

Yes, this is Brad. Let me clarify a couple of points. The Kansas City deal was an acquisition at 5.8%. We went under contract when our stock price was in the 150s, so the cost of capital has changed since then. Adding the Phase 2 component will raise the total investment yield to about 6.5%. You're right that the Scottsdale development has a 6.1% NOI yield. As for capital allocation, we consider where our capital comes from, its cost, and the potential long-term impact on our business. Our main focus is generating compounded earnings growth to support a steady and growing dividend over time. If you look at our dividend performance over the last decade, we've achieved significant success, with one of the highest 10-year CAGRs in dividend growth at 7%. Earnings and dividends are our best means of delivering total shareholder return on our REIT platform. We can invest in external growth through development or acquisitions, as well as in internal opportunities like technology investments that enhance our efficiencies and improve margins, or we can reinvest in our shares. Currently, scaling through acquisitions has become more challenging due to the dislocation between private and public markets. However, we still find selective acquisition opportunities, although those may become harder to source. Despite that, we see compelling development opportunities where we can achieve yields in the 6% to 6.5% range, which remains accretive compared to our cost of capital. After considering capital expenditures, the returns are similar to what we could get from investing in our existing portfolio. By carefully selecting where to deploy capital in developments, we believe we can enhance our long-term growth prospects. We expect to start 6 to 8 projects over the next 6 quarters at a cost of $850 million, providing a good runway for growth. We'll also continue to pursue internal investment opportunities into 2026, particularly expanding our renovation and repositioning efforts. Ultimately, our focus is on driving long-term earnings growth and increasing share value. If investing in our existing portfolio through share repurchases proves to be the best opportunity, we have authorization in place and would not hesitate to proceed if conditions are right. We will continue to evaluate all our investment opportunities.

Okay. Maybe just as a second and maybe a follow-up. Just, I guess, taking that and maybe stretching it out a bit. Just would accelerating dispositions kind of be part of the philosophy maybe to fund both the development and potential share buybacks? It seems like pricing is pretty good in the apartment market despite some of the slowdowns we all talked about here on the leasing side. So would you lean into dispositions at this point?

Yes. I mean, we definitely could. I mean, frankly, our disposition strategy is really based on trying to improve the overall quality of the portfolio while not introducing earnings volatility. So we wouldn't want to significantly scale up dispositions to take the advantage of some market level arbitrage and introduce earnings volatility. But as part of our annual strategy, we're generally looking to dispose of around $300 million worth of assets. And if we find that we can continue to do that and when we dispose of those assets, the best use of that capital is to go into share repurchases, then I think we would continue to look to do that. From my perspective, the share buyback is really an alternative based on current cost of capital. Current returns is an alternative to what we would do with that disposition capital, where normally we would roll it back into the acquisition market. And that's just not a broad opportunity for us at the moment.

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

Following up on your comments on the transaction market and seeing assets trading at sub-5 cap rates. Can you help us understand how investors are underwriting the rent growth at this point in the Sunbelt recovery and maybe the types of financing they have available to them to get them there?

Sure. I think the #1 driver right now from the deals that we're looking at of those cap rates is the cost of capital. I think if you look today where folks are generally able to get 5-year money today from the agencies is probably in the maybe 5.25% range, maybe just under that. And most folks are able to buy down the rate by 25, 30 basis points. And so by the time they do that, they're at a sub-5% interest rate. And then at that point, they're generally underwriting a couple of years of a little bit more aggressive rent growth to get their returns to make sense. But I would say the #1 driver is, just given where the cost of capital is today, it's really supporting cap rates to be sub-5% and especially when you layer onto that the buy down of the rate.

And then kind of a different topic, but you guys have always been very strong in your Google scores and reviews. I'm curious kind of how you're implementing AI and looking at different ways as search moves more over to those types of platforms to kind of continue this reputation that you have out there.

This is Tim. Yes, I'm glad you brought the reviews. We continue to do really well there. We're #1 in the sector, 4.7 or so is our average with a lot of volume. So we put a lot of emphasis on that. I mean, in terms of our use of AI, I mean, we're using it obviously in multiple areas of the company, and it's something that we're expanding more now as we think about leasing and some of the communications. And we'll have some more pilots and tests on that as we get into next year. So obviously, a key part of our go-forward platform is to continue to look at all the various pieces of that.

Our next question will come from the line of Austin Wurschmidt with KeyBanc Capital Markets.

You talked about how 2026 could look a lot like '25 from a demand perspective and supply obviously coming down pretty meaningfully. I guess should we just continue to see lease rate growth improve versus the prior year? Or I guess, asked a little bit differently, should scheduled rent continue to accelerate from here into 2026?

Yes, I think we're experiencing normal seasonal patterns again. This year has been the most seasonal we've observed in recent years. I expect this seasonality to persist as we progress through spring and summer, with a slight moderation into fall and winter. While we are not providing specific guidance at this moment, we should consider that supply is decreasing, and we anticipate construction starts and deliveries next year to be significantly lower than this year. The demand environment remains strong, supported by various factors such as job growth, household formation, and immigration. Although our region seems a bit weaker compared to earlier this year and expectations for next year may be slightly down, it is still significantly stronger than other areas in the country. Balancing this demand with rapidly declining supply suggests that we will see a normal seasonal trend, but with a more pronounced increase, indicating that new lease rents are likely to accelerate. I expect our renewal rates to remain stable over the next three months, and I foresee that we will continue to witness strength, potentially enhanced, as we approach 2026.

Helpful. And then just going back to the sequential improvement you flagged around Atlanta and Dallas. I guess was this just as simple as less competition from supply? Was there a comp issue? And then are there any markets that you'd highlight that are on the cusp of seeing kind of a similar dynamic that you referenced in Atlanta and Dallas, that sort of sequential acceleration from 2Q to 3Q and new lease rate growth?

For Atlanta and Dallas, we observed improved performance particularly in urban areas. We sold several properties in uptown Dallas that performed better, and we have significant exposure in Midtown, Downtown, and Buckhead, Atlanta. We are noticing an inflection point in those submarkets as they begin to manage the high supply levels, leading to reduced concessions. This addresses a comp issue, but there is also a general improvement in performance as they absorb that supply. Atlanta has been one of our highest absorption markets over the last four quarters. These two are the most notable. Currently, there aren't other markets showing this trend. The operations from Q2 to Q3 are behaving differently than usual seasonal patterns, so not many markets followed the trend like Dallas and Atlanta did. However, those that remained strong include the markets I mentioned, and the Carolinas continue to show strength. Dallas and Atlanta are certainly the standout markets.

Our next question will come from the line of Nick Yulico with Scotiabank.

So I guess, first off, on the negative 5% new lease rate growth in the quarter, how much is that number being impacted by concessions, meaning like if you just lifted all concessions? Is there any way to give a feel for what that number would look like?

Well, I'll tell you this, Nick. In terms of cash concessions this quarter, ours was about 0.6%, 0.7% of rents for our portfolio. So that can give you some idea. Obviously, we spread concessions throughout the term of the lease, but that can give you a little bit of insight into that.

Okay. And then second question is, if I go back to the original guidance for the year. And you had that bridge of FFO per share benefit, and there's that bucket of development lease-up and other non-same-store NOI, which was originally said to be a $0.20 benefit this year. I wanted to see if that's still the same number in the new guidance. And then secondly, if there's any way to give a feel for if you just stabilized all the developments or lease-up assets in that pool, like how much extra annual FFO per share benefit would that be from that entire pool?

Yes. Nick, this is Clay. To your point, we introduced the guidance coming into the year with that pool of the portfolio of benefiting about $0.20 for the full year. Going back to the discussion that Tim had with just the longer leasing velocity that we've seen with those properties, and it hasn't been quite that strong but it has been a positive benefit to us over the course of the year. Now where you think about those and when they fully stabilize and are generating ongoing NOI growth, those properties on a year-to-year basis, we expect to be anywhere between $0.10 and $0.12 of earnings growth after considering what the cost of capital is running. So that's kind of what we would see on a long-term basis. And I'm talking specifically about sort of $0.10 to $0.12, really our development and lease-up portfolio itself. Keep in mind, there are some other things in that non-same-store pool that our stabilized properties, properties that haven't moved into the same-store pool. But when I mentioned the $0.10 to $0.12, kind of our current development lease-up pipeline, that's going to contribute another $0.10 to $0.12 in a given year.

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

This is Ami on with Michael. I was wondering, was there any change in your fourth quarter forecast? Or do the updated same-store revenue guide mainly bake in just the softer third quarter?

Yes. This is Tim. We adjusted the new lease rates for the Q4 forecast based on what we observed in Q3. We increased our rates slightly but reduced the new lease rates. In terms of forecast, it's largely reflecting the Q3 new lease rates, which have a more significant impact overall, but we have generally lowered the new lease run rate a bit.

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

Let's see what I have left here. Earlier, you mentioned that new starts on an LTM basis are currently around 1.8% of stock, which is half the long-term average. I'm interested in how that figure is trending. It seems to be improving from earlier this year. My question is about private developers' ability to secure financing and navigate underwriting hurdles, and whether this has improved with the recent decrease in debt costs.

Haendel, this is Brad. In terms of the trend of starts per quarter that we're seeing is, I mean, that trend actually just continues to come down. The trailing 12-month starts in our region, as I mentioned, was 1.8% which implies 45 basis points or so per quarter. Last quarter, third quarter, it was 0.2%. So we're seeing that trend generally come down. And I think that those numbers really track with the anecdotal evidence and information that we get from our partners, from the developers that we partner with. I mean, what we continue to hear from them is it is getting more difficult to raise capital than it is. It's certainly not getting easier. It's getting more and more difficult. Even with the backdrop of interest rates coming down, we're certainly hearing some of the smaller developers are having trouble even getting bank financing at this point. The large developers can get bank financing but they're having a hard time getting equity in the current environment. And then just based on the results that we're seeing on the deals like the Scottsdale, Arizona project, the Richmond project we started last year, I mean, we continue to see opportunities for us to step into developments where someone bought the land, achieved entitlements, sometimes got plans but then could not get their financing lined up. We just continue to see more and more opportunities in that area. Some of those still don't underwrite for us but some do. So just broadly speaking, it seems like it's getting more difficult to put a shovel in the ground than it has been.

Got it. I appreciate the color there, Brad. And then one more, maybe. Just also a bit of a follow-up from last quarter. I think you mentioned where you said you'd be willing to lean into debt a bit more given the lower cost that you had about $1 billion of buying power with your leverage down around 4x debt to EBITDA. I guess I'm curious if that view might be changing, evolving at all given the softer macro, the pricing that you're seeing out there, I don't think cap rates to budge at all really, and maybe other opportunities you might be considering. So I guess I'm curious, that view on leaning into leverage to acquire assets, how that might be different today versus maybe 90 days ago.

Yes. I mean, yes, I think based on our current cost of capital, you generally won't see us much at current pricing. So I mean, the pricing that we would have to be able to achieve on an acquisition would have to be substantially different than it was just a few months ago. And so you probably won't see us lean into acquisitions in any way, shape or form at the moment. But I do think from a funding perspective, what you'll see us do is lean into debt funding for our development pipeline. We'll continue to fund that as we talked about generally through our commercial paper program. And then once we get our debt to a certain level, we'll then look to go and issue bonds to clear that up. So that's generally how we'll continue to look to finance the business right now at 4.2x. We could continue to expand the balance sheet to somewhere in the 4.5%, 5% range, keep it in that range and be completely fine with our credit rating agencies. So we'll continue to move forward with that type of strategy.

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

One of your peers talked on their call about how Sunbelt lease ups are seeing challenges removing concessions when it comes time for the first renewal. Just curious if that's a dynamic that you've seen in your own lease ups and is that a source of any broader pressure.

When renewals begin, it becomes challenging to manage lease-ups, as we strive to maintain a strong influx of new residents while also preventing existing tenants from leaving. We have noticed this trend to some extent. Generally, the concession environment remains high, even though we've experienced five consecutive quarters of increasing market-level occupancy in our areas. The elevated concession landscape reflects the current uncertainty and is affecting lease-ups, contributing to the slower leasing velocity we've mentioned.

Brad, this is Brad. Just one point that I would add with regard to our lease ups. In terms of our renewals on our lease ups, they're performing in line with our existing portfolio generally in terms of retention rates. But the renewal rates that we've been able to get is about 11% in the third quarter on our lease-up properties. So we are getting really good traction there on the renewal side. So I wouldn't think that the hangover of the concession side of things on our renewals has been impacting us, especially in the third quarter.

Our next question will come from the line of Connor Mitchell with Piper Sandler.

I appreciate all the commentary on the pricing in the markets. I guess we kind of would have thought that maybe the smaller markets would have been insulated from some of the pressure that the larger markets are facing, but it sounds like that's kind of dwindling. On the other side of the equation, could you just talk about what you're seeing, any differentiations between the demand factors for some of those mid-tier markets versus the larger markets and how that's impacting performance?

There hasn't really been any significant change. Our strongest markets for several quarters have been Charleston, Greenville, and Richmond, which still have a reasonable amount of supply. However, there are also substantial demand drivers in those areas. Charleston, in particular, is currently our best market for job growth. There remains a high demand despite the supply situation. As I mentioned, it's not that the secondary or mid-tier markets are weak; rather, we're observing some strengthening in the larger markets where they've started to address concessions and see net absorption. This trend is more about cities like Dallas and Atlanta improving, while some mid-tier markets are not seeing the same upward movement.

Okay. That makes sense. And then maybe following kind of the same line but again switching to the supply side of it. It does seem like the supply will be coming down compared to this year and the past couple of years. But it's just kind of dragging out from what we expected earlier in the year, even in the mid-summer. Do you see kind of the extending of supply just dragging out having more of an impact on some of the larger markets than you expected earlier this year? Or just what kind of supply pressure are you kind of expecting now versus earlier in the year, especially from the larger markets, but overall as well?

Yes. I mean on the supply side, I don't think it's moved a ton in terms of our expectations on what that impact is going to be. I mean, I think some of the weakening we've seen in new lease pricing has been more a function of some of the job growth numbers and what we talked about before. So a little bit weaker demand, but certainly much stronger in our region in the country. So the absorption continues to be great. I mean, we've got 5 straight quarters I mentioned of increasing occupancies in our markets. There's been about 300,000 apartments absorbed over the last 5 quarters in our markets. So that continues to hold up strong. So assuming demand kind of hangs in where it is now, we would expect this to continue to get better and strengthen particularly as we get to the spring and the summer of next year.

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

Covered a lot of ground, so just one for me. But I'm going to go back to the stat on, I guess, all-time low move-out for home purchases. And I think we all understand the dynamic driving that. But I guess, in your opinion, is affordability the only gating factor to that number kind of moving up back towards historical averages going forward? And it just sort of feels like there's this massive, massive pent-up demand to buy houses. And so how would that affect your business? What are your thoughts?

Rich, this is Brad. I mean, I think in general, that's certainly a component but I don't think that's the only component. I think if you look at the demographics of our renters, where 80% are single. If you look at the average income for us now is approaching $100,000 given where current home prices are. Yes, I mean, there is definitely an affordability issue there. But I think just given the demographics, we're seeing certainly more single-person households being formed, which definitely, I think, leans more into the rental market than it does the for-sale market. But there are demographic shifts. I think what folks are looking for, one of the #1 reasons why folks are renting is because they want a maintenance-free lifestyle, which you can't get in the single-family market but you can in the multifamily market. So I think there are other things going on that are driving some of the retention rates. We've seen that trend declining for the last 10-plus years. Certainly, it's as low as it is today partly because of the single-family affordability, but there are other trends that were in place years ago that started that trend. And I think it will continue to be in the ballpark of where it is today for the foreseeable future.

Our next question will come from the line of Wes Golladay with Baird.

I just want to see if there's any early indicators of a demand slowdown. Is your exposure in line with normal levels? And you did call out Atlanta as having high absorption. Are there any markets that are having a deceleration in absorption?

Wes, this is Tim. On your first question, exposure, we're at 6.1%, which is about 30 basis points lower than it was this time last year. And as I mentioned, we're around 95.6% occupancy, which is a good 20 basis points or so higher than it was this time last year. So I think as we head into the slower leasing season, we're certainly in a good shape in terms of those metrics. But no, I mean, broadly there's not any markets where we're seeing a material slowdown in absorption. I mean, Q3 absorption wasn't quite as high as Q2, but Q2 is sort of a record of anything that we've ever seen but did still see market level occupancies from Q2 to Q3 moved up about 30 basis points. So outside of some of the weaker markets that are still below, even Austin still at a 91%, 92% occupancy level market-wide, we're much better than that but including the entire market. Huntsville is one that it's a smaller market, but it is at a record ton of supply there. That's another one that's struggled a little bit with absorption, but broadly continuing to see uptick in that absorption level and occupancy levels.

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

On '26 earn-in being flat to slightly down. What was this like 90 days ago and from an internal reporting standpoint, how frequently do you update earning expectations? Do you always have a point-in-time metric available? Just wondering if this could change quickly as supply drops further in '26.

I mean, we look at it typically when we look at our forecast and look at that every month and every quarter. So it certainly came down a little bit just based on our new lease growth expectations. So the way we look at earn-ins is all the leases that we expect to be in place at December 31, you just sort of assume that rent roll carried through to next year. So it's going to be dependent on where those new lease rates head. But right now, that's kind of what we're thinking is that somewhere around flat for next year.

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

Just a quick follow-up on the retention question from Rich earlier and ask, just how do you think turnover should trend during the recovery portion of the cycle?

Yes. Right now, we don't expect material changes in turnover. I mean, it's hard to believe it gets a lot lower from here, but I don't think there's a lot of signs pointing to it getting much higher either. I mean, for all the reasons Brad talked about on single-family homes, don't expect that to move much. I mean, job changes, job transfers are always our #1 reason for turnover. If that starts to tick up, it's probably a sign that the economy is doing pretty well. So even though turnover could pick up a little bit in that scenario, it's probably good more broadly and we're getting better rent growth as well. But nothing we see would suggest that turnover changes a lot from where it is right now.

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

Just one for me. So you noted earlier that migration and household formation trends should remain pretty stable in '26 relative to what we see in '25. So just given that and following up on a comment from a few months ago, do you still anticipate new lease rate growth possibly turning positive by next summer? Or is job growth enough of a wild card in '26 that might cause a slower pace of supply absorption that might push out the new lease recovery timeline further?

We are not providing guidance for 2026. However, if demand stays similar to current levels, we expect to see an improvement in new lease rates. It is challenging to predict where we will be in several months, as lease rates are quite sensitive to competitor actions. Based on current demand trends and supply levels, along with our strong position in other metrics, we anticipate that new lease rates will continue to improve year-over-year, as they have this year.

Our next question will come from the line of Omotayo Okusanya with Deutsche Bank.

While your market generally tend not to be prone to any kind of rent control type provisions, just kind of curious as we're kind of going through the current election cycle if there's anything on any ballot in any of the key states that you're kind of watching that could have implications for your operating performance going forward?

It's Rob. As we've talked about before and as you indicated, our markets, 90% of our NOI is in states that have a state level prohibition preventing local governments from passing rent control rules. We're not really seeing anything on rent control in any of our markets that's going on. There are a few out there in the country, but there are also a lot of pushback really saying that rent control is not really the answer to the affordability issue. And so I think we're keeping an eye on it but nothing that we're really concerned about right now.

Our final question will come from the line of JP Flangos with BNP.

Just one given the time. has been weaker appeared to fall and just have lower annual income relative to the private industry as a whole. Earlier, you mentioned that the projection...

JP, you're breaking up bad. Maybe you can try again. We are having a hard time hearing you.

Now?

Try repeating your question.

Can you hear me?

Yes, you're kind of coming in and out.

All right. Well, we'll just leave it there.

We can follow up with you off-line, JP.

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