Earnings Call Transcript
Mid America Apartment Communities Inc. (MAA)
Earnings Call Transcript - MAA Q4 2020
Operator, Operator
Good morning, ladies and gentlemen. Welcome to the MAA Fourth Quarter and Full Year 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, the company will conduct a question-and-answer session. As a reminder, this conference is being recorded today, February 4, 2021.
Tim Argo, Senior Vice President of Finance
Thank you, Ashley, and good morning, everyone. This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our CEO; Al Campbell, our CFO; Rob DelPriore, our General Counsel; Tom Grimes, our COO; and Brad Hill, our Head of Transactions. Before we begin with our prepared comments this morning, I want to point out that as part of the 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. These reports, along with a copy of today’s prepared comments and an audio copy of this morning’s call, will be available on our website. 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, which are available on the For Investors page of our website at www.maac.com. I will now turn the call over to Eric.
Eric Bolton, CEO
Thanks, Tim. We appreciate everyone joining us this morning. As detailed in our fourth quarter earnings report, MAA ended 2020 on a positive note. Results were ahead of expectations, and we carry good momentum into calendar year 2021. During the fourth quarter, leasing traffic was strong, and we captured 6% higher move-ins compared to the prior year. And despite the normal seasonal slowdown during the holidays, we were able to capture positive blended lease-over-lease rent growth that equals the prior third quarter, with particularly strong renewal lease pricing averaging 5.2% in Q4. Average physical occupancy also remains strong at 95.7% in the fourth quarter, a slight improvement from the performance in Q3. We believe these trends, supported by improving employment conditions and the positive migration trends across our footprint, position MAA for continued outperformance into the coming spring and summer leasing season. Overall, conditions are setting up for a solid recovery cycle for apartment leasing fundamentals across the Sunbelt over the next three years or so as demand recovers and supply levels moderate a bit into 2022. I believe for several reasons that MAA is in a particularly strong position as we head into the recovery part of the cycle.
Tom Grimes, COO
Thank you, Eric, and good morning, everyone. The recovery we saw beginning in May and June continued across the portfolio through the fourth quarter. Leasing volume for the quarter was up 6%. This allowed us to improve average daily occupancy from 95.6% in the third quarter to 95.7% in the fourth quarter. In addition to the improvement in occupancy, we were able to hold blended rents in the fourth quarter in line with the third quarter at an 80 basis point increase. Year-on-year effective rent growth improved 1.3% for the fourth quarter. As noted in the release, collections during the quarter were strong. We collected 99.2% of billed rent in the fourth quarter. This is the same result we had in the third quarter of 2020. We’ve worked diligently to identify and support those who need help because of COVID-19. The number of those seeking assistance has dropped over time. In April, we had 5,600 residents on relief plans. The number of participants has decreased to just 491 for the January rental assistance plan. This represents less than 0.5% of our 100,000 units. We saw steady interest in our product upgrade initiatives. During the fourth quarter, we made progress on our interior unit redevelopment program, as well as the installation of our Smart Home technology package that includes mobile controls, lights, thermostat, security, and leak detection. For the full year 2020, we installed 23,950 Smart Home packages and completed just over 4,200 interior unit upgrades. January’s collections are in line with the good results we saw in the fourth quarter. As of January 31, we’ve collected 98.7% of billed rent, which is comparable to the month-end number for the third and fourth quarters of 2020. Leasing volume in January was strong, up 4.9% from last year. Blended lease-over-lease rent growth effective during January exceeded last year’s results for the first time since March. Effective blended lease-over-lease pricing for January was positive 2.2%, a 40 basis improvement from the prior year. Effective new lease pricing for January was negative 1.8%, which is a 70 basis point improvement from January of last year. January renewals effective during the month were up 6.3%. Our customer service scores improved to 110 basis points over the prior year. This aids our retention trends, which are positive for January, February and March, as well as lease-over-lease renewal rates for those months, which are in the 5.5% to 6.5% range.
Brad Hill, Head of Transactions
Thanks, Tom, and good morning, everyone. While most buyers have returned to the market, the lack of available for-sale properties continues to restrict transaction volume. Investor demand for multifamily product within our region is very strong, and this supply-demand imbalance is driving aggressive pricing. Due to the robust demand, supported by continued low interest rates, cap rates have compressed further and are frequently in the high 3% and low 4% range for high-quality properties in desirable locations within our markets. We expect to remain active in the transaction market this year, but based on the pricing levels we’re currently seeing, we’re not optimistic that we will succeed in finding existing communities that will clear our underwriting hurdles in 2021. While acquiring will be a challenge, as noted in the earnings guidance, we do plan to come to market with $200 million to $250 million of planned property dispositions this year. We will redeploy those proceeds into our growing development pipeline, which currently stands at $595 million with eight projects and just over 2,600 units. In the fourth quarter, we started construction on the MAA Windmill Hill in Austin, Texas, as well as Novel Val Vista, a pre-purchase in Phoenix, Arizona. Both of these are lower density suburban projects that we expect to deliver stabilized NOI yields around 6%, well in excess of our current acquisition cap rates. Despite increased construction costs and some supply chain issues related specifically to cabinets and appliances, our development and pre-purchase projects remain on budget with no significant delay concerns at this point. We have several other development sites owned or under contract that we hope to start construction on in 2021 and into 2022. We are encouraged that despite facing some supply pressure, our phase 2 lease-up property located in Fort Worth continues to lease up at our original expectations, as does our soon-to-be-completed Phase 2 in Dallas, where over 90% of the units have been delivered.
Al Campbell, CFO
Okay. Thank you, Brad, and good morning. Core FFO of $1.65 per share for the fourth quarter produced full-year core FFO of $6.43 per share, which represented a 2.7% growth over the prior year and was well above our internal expectations following the outbreak of the pandemic. Stable occupancy, strong collections, and positive pricing performance were the primary drivers of continued same-store revenue growth for the fourth quarter, which was 1.8%. For the full year, that number was 2.5%. As expected, same-store operating expenses for the fourth quarter were impacted by growth in real estate taxes, insurance costs, and the continued rollout of the bulk internet program, which is included in utilities expenses. Some of this pressure will carry into 2021, but overall, we expect same-store operating expenses to begin moderating this year, which I’ll discuss a bit more in a moment. Our balance sheet remains in great shape. We had no significant refinancing activity during the fourth quarter, but we continue to fund our development pipeline and internal redevelopment programs. As Brad mentioned, our development pipeline has increased to eight deals with total projected costs of $595 million.
Operator, Operator
We’ll take our first question from Sumit Sharma with Scotiabank. Please go ahead.
Sumit Sharma, Analyst
Hi, good morning. Thank you for taking my questions. Thank you for providing all the color on the stats in Q4. I guess to kick things off in terms of the SS revenue growth this year, I know you mentioned that Tampa and Phoenix were some of your stronger markets. So, just wondering, as you looked at 2020, Phoenix was the strongest performer, Orlando was the weakest. The spread in SS revenue was 630 bps. In Q4, that changed; Tampa was better and Orlando was the weakest. So, I guess what’s that spread look like in the context of your 2021 guidance of 1% to 3%. And where do you see the most meaningful change in performance? In terms of things you already know about?
Tom Grimes, COO
Yes, I’ll start with that one, and I’ll let Tim or Al wrap it up on the forecast. What I would tell you is, as I mentioned in the call, the thing that is most different for us in 2021 is the shift in job growth going from negative 6.4% to positive 3.4%, and that's going to be the thing that drives us and that moves across the markets. We see that at the high end, where we’ll continue to see markets like Tampa, Raleigh, Phoenix, and Jacksonville accelerate. But we’ll also see it in places like Orlando, Houston, and D.C., which are weaker now, but they will begin to improve as job growth comes into play in those markets.
Al Campbell, CFO
Yes, just looking at the future in our – what we have in our forecast, the 2% overall. I mean, I think you just think about the markets and some of the markets that we’re thinking would be the strongest as Tom talked about and mentioned; Phoenix, Raleigh, Tampa, Jacksonville, some of the ones that are going to be okay. Markets that are going to be reasonable still include challenging spots like Atlanta, Dallas, Austin, and then some of the more challenging markets, Houston, Orlando, and D.C. I think all of those together basically represent the pricing trends we see right now and expect for the year, given that job growth comes, the 2% expectation.
Sumit Sharma, Analyst
All right, got it. Thank you so much for the color. One more if you could indulge me on supply; now you talked about 2021 supply being priced 25% higher and centered in urban and downtown markets or submarkets. I guess we’ve heard from other market participants as well. So, keeping that in mind, do you have any insights to share on what types of markets or products or price points that are being emphasized by the new permits? So, not the 21 deliveries, but what’s being started right now; is it more garden style, more urban, less urban? Any color on that?
Brad Hill, Head of Transactions
Yes. this is Brad. I would say that just giving the economics of what we’re seeing today, it’s really hard to underwrite more urban high-density product. So, I think it’s safe to assume that a higher percent of the product that’s being developed today is more suburban in nature. But having said that, when we look at the spread between the rents of new supply that’s coming online versus our properties, that spread is still really good and as Eric said that, that’s leading to more redevelopment opportunities for us. So, we think that continues. It’s hard to say just from the permitting trends while they’re clearly down versus pre-COVID levels. I would say construction starts are down even more. It’s hard to say just from the permitting data where that supply is located, but my sense is that it’s going to be more suburban in nature, but given the economics of where costs are, the rent levels of those are still going to be pretty substantial compared to our current product.
Eric Bolton, CEO
This is Eric, Sumit. I’ll add to what Brad is saying. I agree, based on everything that I’ve seen that it does – it would appear that the majority of a lot of this permitting activity is oriented more suburban in nature. But having said that, one of the things that we’re really starting to see more evidence of is frankly entitlement and permitting is getting more challenging as more of this multifamily product heads to the suburbs. We’re seeing a lot of – particularly in the satellite cities, the suburban cities, if you will, that have their own school systems and municipal governments. They are becoming very restrictive about what they are allowing in terms of apartment permitting, believing that these additional households will put some level of stress on the infrastructure, and we’re seeing that permitting activity starting to get a lot more restrictive than it ever has been in a lot of these Southeastern markets. So, I think there’s another hurdle starting to develop across some of these Southeast markets that will make it increasingly a little bit more challenging to supply some of these suburban locations.
Sumit Sharma, Analyst
Thank you so much for the color. I’ll use my time. Thank you.
Operator, Operator
And we’ll take our next question from Neil Malkin with Capital One. Please go ahead.
Neil Malkin, Analyst
Hey everyone. Good morning.
Eric Bolton, CEO
Good morning.
Neil Malkin, Analyst
So, this is the first time, I think that you guys have really called or Eric, your comments have called out the in-migration. Can you maybe talk to that; what you’ve seen over the recent months in terms of that sort of out-migration from the coast just given the confluence of bad factors that the coasts are facing, which has been exacerbated by COVID and work from home. I think last quarter you laid out some statistics about what percentage of your new leases were from out of state. If you could just update us on that and any incremental commentary from the property level managers would be great to hear. Thank you.
Tom Grimes, COO
Yes, Neil. it’s Tom. I’ll jump in on that one if that’s all right. Move-ins from people moving into our footprint from outside of our footprint were 12.2% of total move-ins in the fourth quarter. That’s the highest we’ve seen and reflects the steady upward trend that we’ve seen over the past couple of years. It was – for context, it was 9.2% in Q1 of 2019. So, almost a 300 basis point increase; we’ve seen that steadily happening from 2019 on. Just to give you a little bit more color on the Q4 move-ins, New York move-ins were up 36%. Apartment searches – we pull some information from Google, apartment searches in Atlanta were up 60%. In New York City, move-ins from Massachusetts were up 43%, and apartments in Raleigh searches were up 68% in Boston. And trends go on from there. The other notable is probably California, which is up 60%, and apartments in Austin searches were up 90% in Los Angeles.
Eric Bolton, CEO
And Neil, this is Eric. Just to add on to some of that detail that Tom laid out there. I do think that there are a lot of reasons to believe that a lot of this migration trend that we saw in the U.S. population to the Southeast over the past year, as I mentioned in my comments earlier, a lot of these trends were evident prior to COVID. COVID accelerated those trends somewhat. And I would tell you that I believe a lot of the moves that took place during 2020 are pretty sticky in nature. And I think that the trends are likely to continue post-COVID. I think you have to recognize a lot of these Southeastern markets continue to offer all the same attractive qualities that I think started the trend some years back. What is happening as more employers bring in more knowledge-based and tech jobs into this region of the country? The employment base is really starting to further diversify, and of course, work from home and these knowledge-based jobs allows a lot more remote working, which I think is also working in our favor. And so I think that a combination of just how these economic trends have been building and these jobs and migration trends have been building for the last 10 years or so, recognizing they accelerated a little bit last year, but those trends were in place well before COVID. I think we’ll continue past COVID. The affordability of the region, particularly as it relates to housing continues to be very attractive. It will become even more so over the next 10 years. I think we also have to recognize that these Sunbelt markets are continuing to become very desirable places to live, and what Nashville, Austin, and Raleigh have to offer people today, versus where they were 20 years ago, is a night-and-day difference. I’m very optimistic that we are at the beginning of some continued favorable trends for housing needs throughout this region.
Neil Malkin, Analyst
Thank you, all. Eric, so I guess what you’re saying is you think it will take longer or it may not happen for the people who’ve moved here to make the trek back to the coastal urban city.
Eric Bolton, CEO
Yes. I think the idea that once the vaccine is in place and if you will, society returns to normal, the idea that there’s going to be this giant reversal, our population shifts back to the gateway markets. I think that’s a ridiculous argument. I don’t think that’s going to happen. Those trends were in place in the Southeast and Sunbelt markets before COVID. COVID accelerated a little bit, and I think those trends are going to be. We learned a lot last year, and employers learned a lot in and households learned a lot. And I think the attractiveness of this region is better understood today than it ever has been, and I think these trends are going to continue.
Neil Malkin, Analyst
That’s great. The other one for me, the single-family market has been very strong. You have new and existing home sales and mortgage applications at multiyear highs. I’m just wondering, obviously, you guys are theoretically more exposed to that sort of risk, just given the relative affordability. Have you seen any uptick in move-out for home purchases or home rentals or anything like that that would give you some reticence just in terms of potential demand erosion, let’s say over the next 12 months?
Tom Grimes, COO
Hey, Neil, it’s Tom. I mean, nothing; I would say we’re quite pleased with the way the market conditions are going at this point. In the fourth quarter, home buying this time was up slightly by like three percentage points as a move-out reason, or about 200 move-outs in total. So, we saw a little bit there. But as you look forward, our acceptance rates are at their normal level, so we’re not seeing any turnover go up over time. Home renting is flat again, so that continues not to be a major factor. We agree with you that the overall home-buying market is certainly getting stronger, and we wouldn’t be surprised to see that tick up from time to time, but it is reflective of a strong jobs market and a good economy, and that produces jobs, and frankly, jobs are what drive our business. So, that would be my thought thus far.
Neil Malkin, Analyst
All right. Thank you guys for the time, and I love the Sunbelt.
Tom Grimes, COO
Thank you, Neil. We do too.
Operator, Operator
We’ll take our next question from Nick Joseph with Citi. Please go ahead.
Michael Bilerman, Analyst
It's Michael Bilerman here with Nick. So, I had a question and Nick had another one as well. Eric, as you think about – I know how positive you are on the current markets in the Sunbelt and all the trends that have been accelerated away from the gateway market. You inherited D.C. when you thought a post, I don’t know if it was a gift with purchase or whatever, but you got some exposure to some coastal exposure in the Northeast. What would make you want to come in and buy or develop any gateway markets? I guess, at what point does the risk-reward change? What needs to happen, a) from a diversification standpoint? Is it trends? Is it relative values, growth profiles? I guess, where is your mindset about that today? Because if everyone is zigging, maybe you want to zag, and maybe there would be a good opportunity from a value perspective there.
Eric Bolton, CEO
Well, Michael, I would tell you that my principles and sort of the philosophy that I’ve always had in terms of how we think about deploying capital is really grounded in the overriding belief that the most important thing that we’re charged with doing is deploying capital in a manner to create the highest recurring quality revenue stream and earnings stream that we can to pay a steady growing dividend throughout the cycle. And if you will, creating an optimized sort of full cycle performance profile. At the end of the day, I think rewarding shareholder capital over time – over a long period is largely rewarded through steady earnings growth, obviously, and particularly, dividend growth. And having said that, I’ve always believed the best way to accomplish that performance objective is to deploy capital where demand is likely to be the best and the strongest and growing in a consistent fashion over a long period. I get it that the Southeast markets for years, the argument and the criticism was that there are lower barriers to supply and new supply can come in and oversupply the market. What I would tell you is, what supply causes is it causes moderation. What demand causes is steady earnings growth over time, and a fall-off in demand can have catastrophic consequences. An oversupplied market is unlikely to be catastrophic in nature; it can be weak for a year or two, but it’s unlikely to trigger a massive upset in your earnings stream, which can put a company in trouble, create dividend stress, or things of that nature. So, I’ve always believed that these Sunbelt markets offer the performance profile we’re after, and that’s what we should be doing and where we should focus our capital. It’s a very long answer to your question, but no, we have no interest in now using this opportunity to go into these gateway markets. I don’t think that what we’re trying to do for capital for shareholder capital would not be sufficiently rewarded for pursuing that. At this point, we don’t see a reason to do that, and we like what we’re doing.
Michael Bilerman, Analyst
How do you think about just the risk-reward from a return perspective? Right? I think you’re extraordinarily fortunate to be so heavy in these markets, having built the platform that you’ve done through a lot of hard work in acquisitions and M&A and development. But there’s a lot of capital chasing these markets too, right, which is going to drive down returns overall. And I’m not ignoring the fact that the demand is extraordinarily strong, but is there a financial side of it that as money’s coming out of these gateways, you could create a better total return by deploying capital or reallocating capital in the portfolio? Or is that just not – in your view, the demand is not there, so I’m not going to – it doesn’t matter if I can get 100 basis points or 200 basis points higher initial return out of it.
Eric Bolton, CEO
No. I get your point. And I mean, obviously, I think it depends somewhat on your investment horizon as you think about risk return or risk reward return. I think that clearly, there are going to be opportunities that are going to emerge in some of these gateway markets, where you can go in and deploy capital and make an investment and create an exceptional return on your investment. I think it somewhat depends on your horizon and how long you want to think about the capital being deployed in that market. Again, from our perspective, we’re very long-term investors, very long-term holders, and we’re trying to create an earnings profile from that investment action to match up with how we’re trying to perform for capital over a long period of time. And so we just don’t believe that with that horizon that we’re working with and that objective we’re shooting for, that the gateway markets really align for us in the way we want to try to perform for capital. I’m not suggesting that focusing on those markets is wrong, and I think there are certainly ways to make a lot of money in those markets. But I think you have to think about your horizon perhaps a little bit differently. And I will say that while we continue to see capital coming into these markets, I think that there are times when these gateway markets over the last and this over the last 10 or 15 years, I mean, just attracting an enormous amount of capital and a lot of international capital sometimes that I think was really motivated by not necessarily looking for a great return on their capital; in some cases, they were looking for a place to preserve capital, if you will. And so you get a lot of different influences with some of these bigger gateway markets, particularly with international capital that can create some distortions from time to time in terms of assets being priced relative to the long-term earnings potential of the investment. So, we see volatility and other aspects of those gateway markets that just don’t align well with how we’re trying to perform for capital. And we’re going to continue to focus on it the way we do.
Nick Joseph, Analyst
Thanks. Appreciate that. And this is Nick, just one other question on guidance. The first-quarter range is pretty wide. Obviously, we’re a month into the quarter, and there are fewer leases that are signed. I recognize still the uncertainty, but just wondering if you can walk through how you could end up at the high end or the low end, and then specific to your same-store revenue comment, where you expect same-store revenue to be in the first quarter. I know you said it should be the lowest point of the year.
Al Campbell, CFO
Yes, Nick, this is Al. I think just overall, given the uncertainty that’s in the marketplace, I think the first quarter being the first quarter of the year and where you have the most uncertainty, I think the range was just to reflect that. The driver for the forecast for the whole year is based on revenue performance, and I think that’s the key to be at the top or the bottom of the range and really for the year or for the quarters. And I think the first quarter, as talked about a little bit in the comments, is expected to be the lowest revenue quarter for the year, but that’s really reflecting effective rent per unit, which is a combination of the pricing you did last year plus what you’re doing this year. We expect improving pricing trends, but the first quarter will be the lowest revenue quarter because it will reflect the bulk of last year’s pricing, which was 1.3% on average, and we certainly expect that to be higher in 2021 based on the forecast we’re putting together. So that’s really the key factors. Hope that answers your question.
Nick Joseph, Analyst
Okay. Thank you.
Operator, Operator
And we’ll take our next question from Rob Stevenson with Janney. Please go ahead.
Rob Stevenson, Analyst
Good morning, guys. Tom, there was nearly an 800 basis point delta between the new lease rate and the renewals. How sustainable is that type of spread, and given the pricing out there on the Internet, why aren’t residents pushing you guys harder on renewals?
Tom Grimes, COO
The spread is always going to be kind of the widest at this time of the year because new lease pricing is at its most challenged, but that delta will close over time. But that gap will always be there. The real variation is with a new renter, they have a level of leverage because they’re shopping, they can move anywhere and their switching costs are really the same. If we have done our job and provided good resident services and taken care of the residents, we’ve earned the opportunity to charge a little bit more. That is where we have the most pricing power because we’ve worked with them, we’ve earned them, and their switching costs are a little bit higher. So that delta that you talked about has always been there. It is widest at this time of year, and it will be tightest in the summer months, but we expect that and we plan for that, and we ask our residents for a little more to reflect the value that we’ve created for them.
Rob Stevenson, Analyst
And implied in the guidance for the year, where are you guys thinking that new lease versus renewals winds up coming in? We’re talking about something that’s more or less flat on new leases or still negative there, and how significant should the guidance anticipate renewals be?
Tim Argo, Senior Vice President of Finance
Rob, this is Tim. What we would expect overall is that new lease pricing probably slightly negative. It’s very seasonal, as Tom mentioned, and depends on the leading edge of demand. You’ll see pretty negative in Q1, Q4 move to positive as we get into the summer. Over the average, probably a little bit negative, and then renewals kind of hanging in there like they have anywhere in that five to six range and, again, varying somewhat with a little bit higher in the summer, a little bit weaker in the fall and winter.
Rob Stevenson, Analyst
Okay. And then the other one from me is, you guys did call it $424 million of revenues in 2020. How much of that is non-residential, so retail, commercial, and other spaces at your properties? And where did that wind up coming in versus expectations a year ago? What was the negative delta, and how significantly was that impacted over the last year versus what you would have expected this time a year ago?
Eric Bolton, CEO
I think the major component that’s outside of residential is really just commercial. It’s only about 1.5% of our revenue stream, so it’s really minor overall, Rob. We’ve had pretty good performance. I mean, we’ve looked at our tenants, and we certainly have some programs to sort of rent where we need to, but we’ve had good collection on a lot of our tenants who are fair strong and have strong businesses that have been able to continue paying well. So, on a small number, we’ve had pretty good performance still on a relative basis.
Rob DelPriore, General Counsel
Hey, Rob, it’s Rob DelPriore. We’re sitting at about 85% to 90% occupied, and we’ve collected about 90% of the revenues and cash on the commercial side.
Rob Stevenson, Analyst
Perfect. Thanks, guys. Appreciate it.
Operator, Operator
We’ll take our next question from Amanda Sweitzer with Baird. Please go ahead.
Amanda Sweitzer, Analyst
Great, thanks. Good morning, everyone. Can you talk a little bit more about what you’re seeing today in terms of construction financing? Have you seen the large money center banks come back to the market at all? And then how have development loan terms changed relative to pre-COVID both in terms of interest rates and then LTVs?
Brad Hill, Head of Transactions
Yes, Amanda. This is Brad. I’d say that the construction financing is really kind of a mixed bag. I think it depends on a few things. One is the markets that folks are looking in. Certainly, some markets are easier to get financing in or less hard to get financing in than others. I think it also depends on the sponsor. I mean, I think what we’re seeing is generally for the larger developers, the strong sponsors that historically have had a pretty good pipeline; they’re still able to get financing. But I think the smaller developers that do just a handful of deals a year, they’re not as strong, and they don’t have as strong a relationship with the banks and are having a little bit tougher time getting their debt financing lined up. So that certainly has been an impact in financing. That also leads to some of our pre-purchase opportunities. In terms of loan terms, we’re seeing, call it, 10-year rates in that 4%, 4.5% range for a construction financing, which I think is still decent at the moment. The only change we’ve seen – the biggest change we’ve seen in financing has to do with the low cap rates that we’re currently seeing for where these stabilized assets are; the low cap rates are starting to drive some LTV movement in order for debt service coverage ratios to continue to be held. So, we are seeing loan to values come down a bit. We’re not seeing any impact yet on pricing, but we’ll really just see how that unfolds later this year as more opportunities come to market, but that’s basically what we’re seeing at the moment.
Amanda Sweitzer, Analyst
That’s helpful. And then on your comment about that cap rate compression, what’s kind of a reasonable assumption for a cap rate for your targeted disposition this year?
Brad Hill, Head of Transactions
I think for our dispositions, given that we’re selling our Jackson, Mississippi portfolio, which we had on the market last year, it’s 30- to 35-year-old product in a tertiary market. You’re talking 5% to 5.5% cap rate for what we’ll look to sell this year. We’re looking to sell properties that really don’t fit well with our overall growth strategy. It’s going to tend to be older property in some of these smaller markets initially, where really, after CapEx, cash flows are really not what we’re looking for, and then the long-term growth is obviously not what we’re looking for as well. But on a historical basis, the cap rates for these properties are still really good at the moment, but I’d say around 5% to 5.5%.
Amanda Sweitzer, Analyst
Okay. That makes sense. That’s it from me. Thanks for the time.
Operator, Operator
And we’ll go next to Alex Kalmus with Zelman & Associates. Please go ahead.
Alex Kalmus, Analyst
All right. Thank you for taking my question. Quick one on stimulus checks; given your market backdrop, the stimulus one-time payments will likely go further for your residents than compared to the urban environments. So, is there a limited historical fact in, how do you think these will play out in terms of your rent negotiations this year?
Eric Bolton, CEO
I wouldn’t think any stimulus check is going to help that situation, but we’re frankly in such a strong position on that with our collection rate where it is. It’ll help close the gap to give us back to last year and would be welcome, but it would just primarily help a little bit.
Alex Kalmus, Analyst
Got it. Thank you. And just touching upon the recurring CapEx, I noticed year-over-year, there was a little jump there. Can you provide some additional color on which will be increased?
Al Campbell, CFO
I think recurring CapEx can be the timing of certain jobs, whether it’s some of the significant jobs like paint jobs and some of the things of that nature. Over time, we expect for what we put recurring and revenue enhancing together, and we’d expect to spend call it $1,100 per unit to $1,200 per unit for those two together in 2021, which is fairly significant compared to what 2020 was, but somewhere in that field for the long-term.
Tom Grimes, COO
Yes. And I would add, we had a little bit bigger jump from 2019 to 2020 in recurring CapEx, but for 2021, we’re projecting a very modest increase in terms of recurring CapEx.
Alex Kalmus, Analyst
Got it. Thank you very much.
Operator, Operator
We’ll take our next question from John Kim with BMO Capital Markets. Please go ahead.
John Kim, Analyst
Thank you. On your prepared remarks, you mentioned blended lease growth rate was 2.2% in January. You expect improving pricing trends this year, but then effective rental growth of 1.7% for the year; assuming that these are apples-to-apples numbers or pretty close to it. Why would that effective rent growth for the year be higher?
Al Campbell, CFO
Well, John, this is Al. The effective rent growth we talked about earlier. I think that’s more of a trailing indicator. It’s a combination of all the leases you have in place right now. The pricing performance we had for 2020 was 1.3% on average. While projecting for 2020 is certainly higher than that, I think you could do the math, but it's been a pretty easy way to look at it: take half of what we did in 2020 and half of what we expect for 2021, and that’ll drive your effective rent growth of 1.7%. You can do the math on that back into, we’re expecting something in the 2% to 2.5% range on pricing, and January was a good indication toward that.
John Kim, Analyst
Okay. Your redevelopment pipeline sits up 15% sequentially this quarter. Can you just remind us how long you think it’ll take to complete the 10,000 to 15,000 units of redevelopment?
Tom Grimes, COO
In terms of the pipeline going forward, we’ll do over 5,000 units in 2021 towards that. But what we found, John, over time is that as we move forward our product ages another year and new supplies come into the market. So, I would expect us to see the pipeline grow over time as new properties are added to it as market conditions change. But at this rate, it would be about three years, but I would expect us to see the pipeline grow over time as new properties are added to it.
Eric Bolton, CEO
John, just to add to what Tom was saying: as he mentioned, there’s new product that comes into the market; what that does is expand our opportunity for redevelopment. Historically, at least over the last number of years, where the redevelopment opportunity for us has been the best is largely in some of our more urban-oriented locations, which is really where the opportunity lies in our portfolio now, particularly with the legacy post-portfolio. As new supply begins to come in, if it’s more oriented towards suburban locations, that’s actually going to expand our field of opportunity for more extensive redevelopment in the suburban components of the portfolio because obviously, this new product is coming in at a price point that is well above our existing product. We can make these investments with kitchen and bath upgrades and create a competitive product at a slight discount to the newer product, and get great returns on capital while achieving great lease-up success with it. We think this is a real opportunity for us over the next few years, and we expect it to stay at the same high level for the next three or four years for sure.
John Kim, Analyst
Is 19.5% a good run rate in terms of the effective rental growth for the pipeline?
Eric Bolton, CEO
I’m sorry, say that again.
Tom Grimes, COO
Say that again, John. We didn’t get it.
John Kim, Analyst
The 19.5% rent growth that you had...
Eric Bolton, CEO
Yes, yes. I mean we’re – we test and we would expect our return to continue absolutely.
Operator, Operator
We will take our next question from Zach Silverberg with Mizuho. Please go ahead.
Zach Silverberg, Analyst
Hi, good morning. Thanks for taking my question. Could you guys just talk about the opportunity set on your development pipeline? After the two new starts, you’re up to about $600 million properties under development. What type of turns are you underwriting, and how does that compare to the acquisition market in those specific markets?
Brad Hill, Head of Transactions
Yes, Zach. This is Brad. I think Eric touched on it a bit in his comments. We do have a number of sites that we’re currently working on – predevelopment work on; we've got some that are owned, some that are under contract. I’d say in terms of the terms that we’re underwriting, not a lot different than what we’ve underwritten previously. We are fortunate in our markets that the rents have continued to hold up within our markets, so we’re not having to make some aggressive assumptions with rent trending or some large recovery and rent in our underwriting. So, the two that we just started as I said in my comments, we’re still looking at north of a 6% yield, and certainly that compares very favorably with Class A brand-new products in our markets, what they’re trading at today. We continue to believe in that. We have another owned site that we purchased in Denver that we hope to start in 2022. We’re working on a site in Tampa, a site in Raleigh. Those are likely 2022 sites as well. We have under our pre-purchase platform where we’ve got one in Salt Lake City that we hope to start in the second quarter. And then another site in Denver in our pre-purchase platform that we’re hopefully going to start in the third quarter of this year.
Zach Silverberg, Analyst
Got you. Appreciate the color. In your prepared remarks, you mentioned it was about 3%, I think, of gross assets, and it was moderate risk. What is the maximum and minimum risk you’re willing to slide the lever on in between development?
Al Campbell, CFO
I think we’ve discussed, historically, somewhere around 4% to 5% would be a range that we would look at. I think when you’re looking at your actual pipeline relative to your enterprise value, another aspect of risk is how much is unfunded. I’d point to the fact that we have $600 million sort of going right now, and we only have a fairly small amount that’s unfunded. So, I think those two factors together, it’s what you would consider. We’re definitely at the low end of the risk range on that right now. You’ll see our pipeline grow a bit in 2021 as Brad talked about and in early 2022, but certainly, a modest risk program given our profile.
Zach Silverberg, Analyst
Thank you.
Operator, Operator
We will take our next question from Rick Anderson with SMBC. Please go ahead.
Rick Anderson, Analyst
Thanks. Good morning, everybody. And of course, Eric, I didn’t expect you to open up the comments suggesting that everyone’s going to move out of the Sunbelt next year. So, no surprise there. But if you do look at the statistics in the period after the last great recession around 2010, the migration out of New York, for example, substantially slowed. You can argue that there are some real organs in a lot of other areas that you’re not in that could entice people perhaps even more this time around than then. Again, it’s never been positive in-migration; I really don’t think that’s ever happened with the Sunbelt into a market like New York, but it probably would normalize. So when you mentioned this 12.2% of total leasing is moving from outside of your footprint, how much is that impacting your growth profile? Because you really probably don’t want to hang your hat on that type of level for very long.
Eric Bolton, CEO
No, I mean, I think that we still believe that a lot of the growth that we will have in demand will be from people that have been in the Sunbelt will stay in the Sunbelt organically, if you will. So, I don’t disagree that the 12% increase back to years ago before COVID, the move-ins from outside of our footprint were a little over 9%. So, even compared to where we are today with COVID, it’s only moved up from 9% of our movements from outside the footprint to 12%. So your point is valid in that sense; it hasn’t changed radically. But I feel like there is a real fundamental shift that has been in place to some degree before COVID. Employers and job seekers, if you will, were continually drawn to this region of the country as a consequence of all the things that you know about. I believe that those factors have not moderated; they have not lessened. COVID accelerated them a little bit, but I think what we’re finding is that particularly as some of this millennial generation continues to age, they’ve moved into their careers, they’ve moved into jobs increasingly that offer the ability to be more remote than they have been in the past. The drive they had to be in New York and work 60 hours, 70 hours a week, that was then. They’re in a different place now. A combination of the aging millennial generation and how their lifestyle needs evolve and desires change as well as retiring baby boomers looking for change and a more affordable living means that those two big slugs of the demographics of the U.S., the millennials and the retiring baby boomers are huge numbers. As these two age demographics evolve, I think the Sunbelt stands to benefit more so than some of the higher-cost coastal markets. I’ve heard somebody suggest that the coastal markets are going to come back, but they’re probably going to come back a little bit cheaper and a bit younger than they were before and I think there’s probably some truth to that.
Rick Anderson, Analyst
Okay, good enough. That’s good color. Then my second question, perhaps a little uncomfortable, but I never shy away from that. You’ve had some sort of C-suite succession activity in some of your peers, Essex UDR, AvalonBay, and I wonder, to your credit, Eric, you have made MAA not an Eric Bolton show. You have a great bench there. I think everyone recognizes that. But can you talk about how much this team right now today looks to be in place for the next at least, few, three, four years, or we can talk about the succession plan that’s perhaps in place for you and others? How that dialogue is happening at the board level? Thanks.
Eric Bolton, CEO
Okay. Well, we can take a poll around the table right now if you want, but we won’t do that. What I would tell you, Rich, is it’s a very active topic at the Board level. We discuss it to some degree at every meeting. There’s active planning that’s underway and continues to this day. I will tell you that I feel great and have no plans to do anything different. I don’t play golf and don’t really have anything else to do, so I’m focused and planned to continue in that way for some time. But, as you point out, we’ve got a great team, a great bench strength; the company has been through a lot in the last seven to eight years. The team has really come together. We’re developing an interest in leadership development and leadership succession, but frankly, we don’t see a lot of change in the near-term horizon.
Rick Anderson, Analyst
Eric, right. I mean, you’re probably not mentioning £500 anymore either.
Eric Bolton, CEO
Now, it’s down to £490.
Tom Grimes, COO
Hey, Rick. Just a real quick point on what we’re hanging our hat on, as you mentioned earlier. I mean, supply is going to be pretty much the same. Job growth in 2020 was negative 6.1% in our markets; it’s going to be plus 3%, 4%. That 900 basis point swing in job growth is really what we’re hanging our hat on for near-term growth.
Rick Anderson, Analyst
You got it. Thanks, Tom. Appreciate it.
Operator, Operator
We will take our next question from Rick Skidmore with Goldman Sachs. Please go ahead.
Rick Skidmore, Analyst
Hey, Eric. Just a question – just with regards to how you think about development going forward, and the shift and perhaps working from home and people wanting more space, are you changing the design of the developments? Does that change the economics in terms of how you think about returns going forward? Thanks.
Eric Bolton, CEO
Rick, I mean, we are a little bit more focused on creating workspace areas, nooks, and things of that nature in a number of our apartments. We’re also very much more oriented towards outdoor amenity areas and shared office configurations in some of our leasing centers. Frankly, it’s not really having much of an impact on our overall cost of build-out. We certainly think that there’s a lot of reason to continue to introduce more of the support for work from home, but there is no real significant change in terms of the cost impact for us.
Operator, Operator
Okay. We will take our next question from Austin Wurschmidt with KeyBanc. Please go ahead.
Austin Wurschmidt, Analyst
Hey, good morning, everybody. Could you give us the actual data around what the ratio of jobs to new supply is in 2021 for your markets versus maybe, 2019 and some historical averages if you have that with you?
Tom Grimes, COO
Yes. Of course, for our group, the jobs to completion ratio last year was negative 8.1; it swings to positive 7.1. I think we’ve consistently found that 5:1 is a place where we can grow. We’re at. So, it’s a substantial shift and the key to our rent growth aspirations.
Austin Wurschmidt, Analyst
Yes. I appreciate the data point. I think it really goes to some of the questions that I’ve heard asked, and maybe, Eric, your tone, just on the recovery in your markets seems pretty upbeat. Yet when you take where fourth-quarter same-store revenue growth was and you look at the midpoint of the guidance, you layer in the accelerating redevelopment. One of the questions we have, and I think others are driving at, is why isn’t that driving a little more reacceleration other than just the earn-in of last year’s effective rents? Is there anything else you’ve assumed in guidance, higher turnover, lower occupancy that’s contributing to maybe a more muted reacceleration in 2021?
Eric Bolton, CEO
No. I think that what you have to recognize is that getting the revenue impact of pricing changes takes time, and it takes time to go up and it takes time to go down. We went into 2020 with some of the highest earned-in leasing performance that we’ve ever had, and that allowed effective rent per unit to remain fairly strong throughout 2020, which was hugely helpful. I remember late in 2019, people asking me what I worried about, and I said I worried about a slowdown; I worried about something happening with the economy. In preparation for that worry, the best thing we could do was grow rents as hard as we could, even at the expense of giving up a little bit of occupancy, and allow that compounding benefit to be there as a protective performance on revenues should we see the economy weaken, and that certainly helped us this past year. Directly addressing that point, the second factor that is at play here is that we’re still now carrying in the first quarter of this year; it’s going to reflect the full negative impact of the pricing performance that we had to do during the spring and summer leasing season of 2020 when it was at its weakest. All that’s going to continue to roll through the portfolio, and it will peak in the first quarter. But as we get into the spring and summer leasing season of 2021, where we do believe that the leasing environment will be much more positive and better than it will again start to compound that improvement in terms of our revenue performance, and it will build and it will build by the time we get into late 2021 and particularly as we get into 2022. Those two things sort of supply picture, but particularly sort of the compounding effect of lease-over-lease pricing and what it does to revenues takes time for that to work through the system.
Austin Wurschmidt, Analyst
That’s very helpful. And you guys mentioned the where you expect cap rates on dispositions this year for the assets that you have teed up. Where would you pay cap rates today, just kind of across your markets? I’m curious if you have a sense of maybe, what type of growth buyers are underwriting and how far off you think you are on assets that you’re betting on?
Brad Hill, Head of Transactions
Well, Austin, this is Brad. I would say, talking about cap rates across our markets, certainly, as I mentioned, it’s very aggressive on new assets for these Class A new assets in our markets that we’re looking at. I would say from a growth aspect, it’s hard to pinpoint what the other folks are certainly underwriting. I would say one of the things that’s driving the difference in valuation is really leverage. Certainly, our leverage level is a lot different than high-leveraged buyers that are looking for 65% to 80% leverage on some of these deals, and given where interest rates are, that’s a big difference in the valuation of these assets. I’d say that’s probably one of the levers that’s having the biggest impact on our ability to be able to compete with those folks.
Austin Wurschmidt, Analyst
That makes sense. Any sense where maybe, the cap rate spread is versus long-term interest rates versus a couple of years ago? Has that tightened at all in your markets?
Brad Hill, Head of Transactions
I think it’s certainly pretty low. I think if we’re seeing interest rates right now in that 3% to 3.5% range, it’s probably come up a little bit in the last 30 to 60 days or so. You’re still seeing, again, cap rates in the low-threes or high-threes, low-fours; that spread is certainly low right now. What we’ll just have to see as interest rates move a little bit more, and these LTVs change a little bit, is how that filters through in pricing. We just don’t know right now; there are so few assets coming to market that they’re still able to find a buyer for most of these assets. But as the supply of these properties picks up and comes to market, we’ll just have to see if there’s an impact to pricing once that picks up and the supply demand on investments here changes a bit.
Austin Wurschmidt, Analyst
Got it. That’s very helpful. Thank you.
Operator, Operator
We’ll go next to John Pawlowski with Green Street. Please go ahead.
John Pawlowski, Analyst
Thank you. Just one question from me. The last few quarters, the smaller markets have really outperformed your larger metros. Are you seeing notable in-migration trends in Alabama’s, Memphis, and Greenville, or is this just more of a factor of more supply hitting the larger metros a little harder?
Tom Grimes, COO
I think, we’re seeing the increase in in-migration sort of everywhere, and you do have it in places like Greenville, but it’s consistent, and it’s been the same thing that it has been before; things like BMW, BASF, and Michelin, and those large international manufacturing conglomerates that are in those places. But it is – those are holding; that is continuing. We’re also seeing strong results out of the larger markets like Phoenix and Raleigh, but the spread of in-migration is fairly widespread. Even Huntsville is picking up some of it because of the NASA expansions there.
Eric Bolton, CEO
And John, I would add to what Tom is saying: yes, we do see the supply pressure more pronounced generally in the bigger markets, and that historically has always been the case, which is why we’ve always intentionally embraced a good component or percentage of the portfolio to be invested in some of these secondary markets. We think that secondary market exposure provides some downside protection to our performance profile against the pressures that often come from time to time from supply. So, those secondary markets are doing exactly what we thought they would do during this phase of the cycle.
Tom Grimes, COO
Yes. Sorry, John, I misheard a bit there. Also, I’d add in the supply as you expect, and largely, no on those large markets tends to be more urban, so the suburban balance that we have has helped us there as well.
John Pawlowski, Analyst
Yes. Thank you very much.
Operator, Operator
We will take our final question from Buck Horne with Raymond James. Please go ahead.
Buck Horne, Analyst
Yes, thanks for keeping the call going along. I appreciate it. I’m going to ask one question then. Single-family rentals, thinking about you’re seeing a lot of home builders validate the concept, getting into purpose-built communities of single-family rentals that can operate like horizontal apartments with an amenity, maybe in more kind of outlined locations, but definitely in the Sunbelt. Does a concept like a purpose-built single-family rental community potentially offer you anything attractive in terms of diversifying the product mix? Or how do you think about that concept going forward?
Eric Bolton, CEO
Well, Buck, it is something that we’ve been talking about a bit. I do think that if you get a purpose-built single-family rental community, where you get, if you will, all the homes in a very organized, defined sort of community footprint like you described, then yes, we think that there may be some logic to that. We’ve seen a few examples from time to time, and should – right now, of course, that kind of opportunity is attracting a ton of capital. So, pricing is pretty competitive, but should the opportunity present itself for something along the lines of what you’re describing, it would be something we would take a hard look at for sure.
Buck Horne, Analyst
All right, great. Thanks. Congrats, guys. Appreciate it.
Eric Bolton, CEO
Thanks, Buck.
Tom Grimes, COO
Thanks, Buck.
Operator, Operator
Thanks. No further questions. I’ll return the call to MAA for any closing remarks.
Tim Argo, Senior Vice President of Finance
No further comments. So, appreciate everyone joining us this morning and let us know if you have any additional questions. Thanks.
Operator, Operator
This concludes today’s program. Thank you for your participation. You may disconnect at any time.