Earnings Call Transcript - MAA Q4 2025

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the MAA Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this conference call is being recorded today, February 5, 2026. I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MAA for opening comments.

Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets

Thank you, Julianne, and good morning, everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning are Brad Hill; Tim Argo; Clay Holder; and Rob DelPriore. Before we begin with prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our 34-Act filings with the SEC, which describe risk factors that may impact future results. During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data. Our earnings release and supplement are currently available on the For Investors page of our website at www.maac.com. A copy of our prepared comments and 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. When we get to Q&A, please be respectful of everyone's time and attempt to complete our call within 1 hour due to other earnings calls today, we will limit questions to one per analyst. We ask that you rejoin the queue if you have any follow-up questions or additional items to discuss. I will now turn the call over to Brad.

Brad Hill, CEO

Thank you, Andrew, and good morning, everyone. As highlighted in our release, our fourth quarter core FFO results met expectations, despite continued elevated supply levels. With occupancy up 10 basis points and same-store blended lease-over-lease performance 40 basis points stronger year-over-year, the recovery in fundamentals is underway. As we look ahead, we are entering 2026 in a stronger position with a higher earn-in and more tight top-line revenue momentum that we expect to build throughout the year, particularly in new lease rates, driving an anticipated 110 to 160 basis point improvement in blended lease rates and an 85 basis point improvement in effective rent growth compared to 2025. While uncertainty remains in the broader economy, the level of uncertainty appears lower than what we navigated in 2025, supported by expectations for sustained GDP growth. Several of last year's major headwinds are showing signs of easing. At the same time, the economy should benefit from the working families tax cut, easing inflationary pressure, and improving consumer sentiment, which is showing signs of recovering from multi-decade lows. Looking at our portfolio, rent-to-income ratios have improved, making rents more affordable. New deliveries are decelerating sharply, down over 60% in 2026 from the peak. And new starts are muted and have been for nearly 3 years, down nearly 70% from peak levels. Against this improving backdrop, we anticipate demand across our markets to remain solid and broad-based, supported by stable job growth, continued in-migration, healthy wage gains, and record levels of resident retention. These trends point to a financially healthy resident base, supporting our consistently strong collections, reinforcing the durability of our revenue profile, and suggesting that absent a meaningful shift in the broader economy, underlying demand conditions remain well supported. Building on this foundation, our long-term earnings growth will benefit from numerous strategic investments we're making. This includes expanding our technology initiatives such as community-wide WiFi and other enhancements designed to elevate the resident experience and improve operational efficiency. Our residents value our communities and the exceptional service our teams provide, reflected in record retention levels, strong renewal rates, and sector-leading resident Google scores, averaging 4.7 out of 5 for the year. Persistent single-family affordability challenges, combined with favorable demographic trends continue to support renter demand and keep move-outs to purchase a home near historical lows. These trends, along with fewer competitive units in lease-up, support strong returns from our repositioning and redevelopment projects. As a result, we're expanding our capital investments in these areas by more than 10% in 2026. Beyond these investments, we continue to grow our development pipeline by leveraging our strong balance sheet and development capabilities to invest early to take advantage of growth opportunities at a time when access to capital is more limited for others. As such, during the fourth quarter, we purchased a shovel-ready project in Scottsdale, Arizona from a developer that was unable to line up equity for their project after 3 years of due diligence, bringing our active development pipeline to $932 million. Additionally, during the first quarter of 2026, we purchased a land parcel in the Clarendon neighborhood of Arlington, Virginia and expect to start construction on a 287-unit apartment community later this year. As demand remains robust, new deliveries slow, and new starts track well below historical levels across our region, our development should continue to generate strong returns and earnings growth with stabilized NOI yields between 6% and 6.5%, well above current market cap rates. Subject to market conditions, we expect to begin construction on 5 to 7 new development projects in 2026 that should deliver into a much stronger operating environment than the one experienced over this past year. Additionally, our balance sheet provides the flexibility to pursue compelling acquisition opportunities as they materialize. We remain encouraged by the progress we're seeing across our portfolio. With more than 30 years of navigating economic cycles, we believe we are well positioned to serve our residents and to deliver compounded earnings growth over the full cycle. As market conditions continue to strengthen, improving fundamentals, coupled with our strategic investments should provide meaningful opportunities to enhance performance and support a stronger revenue trajectory over the next few years. To all our associates across our properties and corporate offices, thank you for your continued commitment to customer service. With that, I'll turn the call over to Tim.

Tim Argo, CFO

Thank you, Brad, and good morning, everyone. For the fourth quarter, the key operating fundamentals of pricing and occupancy combined were in line with expectations. New lease growth continues to be muted due to the moderating, but still elevated supply picture combined with the normal seasonal slowdown in the fourth quarter. We did, however, continue to have strong retention and renewal lease rates and achieved sequentially improved average physical occupancy. As compared to the fourth quarter of 2024, blended rates improved 40 basis points, supported by a 50 basis point improvement in renewal rates and flat new lease rates. Average physical occupancy was 95.7%, which was a 10 basis point improvement from both the fourth quarter of 2024 and the third quarter of 2025. Additionally, we had another quarter of strong collections with net delinquency representing just 0.3% of billed rents, in line with the collection performance for the full year. While we broadly saw normal seasonality in pricing during the fourth quarter, many of our mid-tier markets, particularly in Virginia and South Carolina, continue to be outperformers relative to the portfolio. Charleston, Greenville, Richmond, and the D.C. area markets all demonstrated strong pricing power and strong occupancy in the quarter. Encouragingly, our two highest concentration markets, Atlanta and Dallas, continue to show improvement as compared to the prior year. Of our top 20 largest markets, these two, along with Denver, had the largest year-over-year improvement in blended pricing as compared to the fourth quarter of last year. Austin continues to be our weakest market in terms of pricing as it continues to work through the 25% of inventory that has been delivered cumulatively over the last 4 years. In our lease-up portfolio, MAA Vale in the Raleigh-Durham market reached stabilization in the fourth quarter. We now have three properties remaining in lease-up with a combined occupancy of 65.7% as of the end of the fourth quarter and an additional three development properties that are actively leasing units. Elevated concessions and longer lease-up periods continue to have a greater impact on the lease-up properties and have pushed the full earnings contribution from these out about a year. However, these projects are still expected to achieve our underwritten yields as markets continue to improve and retain the long-term value creation opportunity, despite the overall leasing velocity being behind original expectations. We continue to progress on our various targeted redevelopment and repositioning initiatives in the fourth quarter. As Brad mentioned, we expect to accelerate each of these programs in 2026 with improving fundamentals. During the fourth quarter of 2025, we completed 1,227 interior unit upgrades, bringing the total for the year to 5,995 units renovated with rent increases of $95 above non-upgraded units and a cash-on-cash return of 19%. Despite this more competitive supply environment, for the full year, these units leased on average 11 days faster than non-renovated units when adjusted for the additional turn time. For our common area and amenity repositioning program, we are on average over 70% repriced at 6 recent projects with an average NOI yield above 10% and rent growth far exceeding peer MAA properties. Five additional projects are well underway with anticipated repricing in mid-2026 during the prime leasing season. We have targeted an additional six properties to begin later this year that will reprice in 2027. While vendor challenges and equipment delivery delays have slowed progress on our community-wide WiFi retrofit projects, we arrived on 14 of the 23 projects started in 2025, with the remaining nine expected to go live in the first quarter. Similar to our redevelopment plans, we expect to expand this initiative in 2026 also. Looking forward to 2026, we are well positioned. While Winter Storm Fern did impact about 70% of our portfolio and slowed traffic for several days, we ended January with physical occupancy of 95.6% and 60-day exposure of 7.1%, both in line with this time last year. As Brad referenced, new supply pressures continue to moderate and demand remains strong with market level occupancies, including lease-ups in our markets well above where they were this time last year. Strong renewal performance continues in the first quarter with high retention rates and lease-over-lease growth rates on renewals accepted for January, February, and March, all above 5%. This compares to the 4.5% we achieved in the first quarter of 2025. We expect gradual seasonal improvement in new lease rates, along with consistent renewal growth will drive improved performance in 2026 and be particularly impactful to 2027, as pressure from supply subsides throughout the year.

Clay Holder, COO

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.23 per diluted share, which was in line with the midpoint of our fourth quarter guidance and contributed to core FFO for the full year of $8.74 per share. Fourth quarter same-store NOI was in line with our guidance as same-store revenues were $0.01 unfavorable due to other revenues and pricing, offset by same-store expenses favorable by $0.01 due to office operations, repair and maintenance, and real estate taxes. Favorable interest expense was offset by overhead expenses and operating performance from our non-same-store portfolio. During the quarter, we funded approximately $81 million in development costs for our current $932 million pipeline, leaving an expected $306 million to be funded on the current pipeline over the next 3 years. As Brad noted, our balance sheet remains well positioned to support these and other future growth opportunities. At the end of the quarter, we had $880 million in combined cash and borrowing capacity under our revolving credit facility, and our net debt-to-EBITDA ratio was 4.3x. At quarter end, our outstanding debt was approximately 87% fixed with an average maturity of 6.4 years at an effective rate of 3.8%. During November, we issued $400 million of 7-year public bonds at an effective rate of just over 4.75%, using proceeds to repay borrowings under our commercial paper program, which were used to repay the November 2025 bond maturity. During the quarter, we repurchased 207,000 shares at a weighted average share price of $131.61, our first repurchase since 2001. Finally, we provided initial earnings guidance for 2026 in our release, which is detailed in the supplemental information package. Core FFO for 2026 is projected to be $8.35 to $8.71 or $8.53 per share at the midpoint. As was outlined in the prior comments, with the continuing improvement in supply impacting our markets, coupled with solid demand fundamentals, we expect rental pricing to grow during the year and to drive improving earnings performance as we progress throughout the year. Projected 2026 same-store revenue growth midpoint of 0.55% results from a rental pricing earn-in of negative 0.2%, an improvement compared to 2025's earn-in, combined with a blended rental pricing expectation in the range of 1% to 1.5% for the year. New lease pricing is expected to show improvement over last year. We expect supply levels to continue to impact new lease pricing, particularly in the first half of the year, but believe the impact will increasingly improve over the course of the year as the effect from new supply continues to decline. Renewal pricing is expected to remain strong and in the 5% to 5.25% range throughout the year. For the same-store portfolio, we expect effective rent growth to be approximately 0.35% at the midpoint of our range, occupancy to average 95.6% at the midpoint and other revenue items, primarily from reimbursement and fee income to grow just over 2%. Same-store operating expenses are projected to grow at a midpoint of 2.65% for the year. Personnel costs are expected to grow by less than 2%, while we expect some continued pressure from utilities, marketing costs, and office operations. These expense projections, combined with the revenue growth of 0.55%, results in a projected decline in same-store NOI of 0.75% at the midpoint. As outlined in our release, we expect our non-same-store portfolio to contribute $0.19 in NOI during 2026. With the related interest carry along with the slower leasing velocity and higher lease-up concessions that Tim mentioned, we anticipate the recently completed developments and acquisitions will be slightly accretive to 2026 core FFO and move closer to the expected yields in 2027 and beyond. We expect continued external growth in 2026, consisting of our current development pipeline and the projected new starts that Brad noted, with funding between $350 million to $450 million coming from debt financing and internal cash flow. We also expect to match fund $250 million in acquisition opportunities with dispositions. This external growth is expected to be slightly dilutive to core FFO in 2026 and then turn accretive to core FFO after stabilization. We project total overhead expenses, a combination of property management expenses and G&A expenses, to be $136 million, a 5% increase over 2025 results, bringing our 3-year average increase to 2.5%. We also expect to refinance $300 million in bonds maturing in September 2026, which had an effective rate of 1.2%. Further, we plan to redeem the outstanding preferred shares in the second half of the year. These anticipated transactions, coupled with our 2025 refinancing activities, will result in incremental interest expense of over $0.05. And combined with financing to support our 2025 development deliveries and the expected deliveries in 2026, we project interest expense to increase by over 15% for the year. We are still early in the assessment of the impact of Winter Storm Fern. But based on initial assessments, we anticipate excluding the impact from our core FFO results as we expect to receive insurance proceeds to cover a portion of the cost of the damages. That is all that we have in the way of prepared comments. So Julianne, we will now turn it back to you for questions.

Operator, Operator

Our first question comes from Jamie Feldman from Wells Fargo.

James Feldman, Analyst

I apologize for the quick discussion on the new renewal and blend outlook. Could you go over those numbers again? Additionally, please share your level of confidence in each, your timing throughout the quarters, and where you feel most confident as well as where your concerns lie regarding meeting those numbers?

Tim Argo, CFO

Yes. Jamie, this is Tim. I can walk you through that, and then Clay may have some to add as well. As Clay mentioned, our blended guidance is about 1% to 1.5% for 2026. On the renewal side, I mentioned in my comments that we're seeing a little bit above 5% so far this year. So we would expect renewals to be in that 5.25% range and then start to slowly see momentum on the new lease side and you kind of do the math on the new lease side with those components. And I would say, generally, we expect a normal seasonal curve where we see strength into the summer and then start to moderate moving into the late summer and fall, but see less of that moderation in late Q3 and Q4 than we typically do, again, as we get further away from the peak of the supply and expect the demand to solidify as well. So normal seasonality, but less steep declines as we get late in the year. As far as markets, I mentioned a few of those on the prepared comments. We're continuing to see strength out of the markets that have been strong, some of the Carolinas and Virginia, encouraged with what we're seeing out of Atlanta and Dallas. Those are obviously our two largest markets. We continue to see steady progress there, both on the pricing front and the occupancy front. The year-over-year improvement in Q4 pricing for both of those was significant and two of our highest. I think we'll start to see a little bit of momentum in Tampa. That's one where occupancy has stabilized, and we expect to see a decent amount of demand there. But other than that, I think the ones that have been pretty solid for us this year, I expect those to continue to be solid for us in 2026.

Operator, Operator

Our next question comes from Jana Galan from Bank of America.

Jana Galan, Analyst

I was curious if you could comment a little more on the transaction market. We're hearing there's more variance on cap rates between core and value-add. And then maybe on your decision to add to the development pipeline rather than buying assets or buying back more stock?

Brad Hill, CEO

Yes, this is Brad. I'll start with that question. The transaction market remains quite active concerning core assets. In the fourth quarter, we observed cap rates around 4.6%. The spread between core and value-add assets appears to be between 50 to 75 basis points, depending on the specific markets and the potential upside of value-add properties. These can trade in the 5.25% to 5.5% range, but the spread hasn't changed significantly over the past couple of years. Regarding our capital allocation, development remains a key focus for us. As I mentioned earlier, in a solid demand environment combined with a muted supply pipeline over the next few years, we find that we can utilize our balance sheet to invest in new assets that will perform well in a stronger operating climate. The development yields we are currently achieving selectively are in the 6% to 6.5% range, which we believe is a smart use of our capital to foster long-term earnings growth. When it comes to share repurchases, we assess all our capital allocation opportunities, whether for external growth, internal growth, or investing in our current platform. We have several initiatives aimed at driving margin expansion that remain highly attractive. This focus slightly limits our capacity for share repurchases. We typically do not have a large portfolio of properties that we plan to sell; we are satisfied with our locations and do not feel the need to reallocate capital across markets. Our approach to dispositions will likely involve gradually selling older assets and reinvesting that capital into newer ones. Over the past five years, we have generated nearly a 20% IRR from dispositions and have reinvested that capital into new assets, achieving significantly improved NOI margins. We view this as the most favorable strategy for dispositions going forward.

Operator, Operator

Our next question comes from Nick Yulico from Scotiabank.

Nicholas Yulico, Analyst

Could you elaborate on your current focus on development, especially considering that there's a perception of value creation over time? You're developing at yields higher than the trading values of your assets, yet it seems to be impacting your FFO and accretion growth negatively at this moment. You've mentioned the challenges of a slower lease-up period and that capitalized interest benefits are lower than your borrowing costs. Can you explain how pursuing development makes sense in light of these near-term impacts on FFO?

Brad Hill, CEO

Yes. Thanks, Nick. This is Brad. I think that's a good question, fair question. I think it's important to keep in mind with our development pipeline that we are delivering currently at a time where those particular properties are under more pressure than they ever have been. I mean keep in mind that if you look at the amount of supply that's delivered in our markets from '23 to '25, we delivered 5 years' worth of supply over a 3-year period. So those properties are facing much more pressure, which we are seeing right now in terms of their ability to lease up, the velocity of their lease-up, and certainly the use of concessions right now. But that's temporary. If you look at the lease-over-lease return or rents we're getting on renewals on our new lease-up properties, we're getting low double-digit returns. So the concessions that we're offering are burning off. If you look at the recurring rents that are in place on those development projects right now, they're 2% above pro forma. So again, this is a temporary issue with our developments. If you look at what we've developed over the last 5 years, we have delivered developments on average that have exceeded our underwritten yields by 90 basis points. So you're right, we're under pressure right now on that development pipeline, and we do think that's temporary. And as the market firms and concessions burn off, we will, as Tim mentioned in his comments, capture the value proposition associated with those. And then in terms of starting new developments today, they'll be delivering in '28, '29. And as I mentioned in my comments, we've had 3 years now of below long-term average supply in our starts in our market, which will support a stronger operating environment when those new developments come online. So we very much believe in the merits of continuing to allocate capital to developments despite the pressure that we're under currently.

Operator, Operator

Our next question comes from Eric Wolfe from Citi.

Eric Wolfe, Analyst

You mentioned that renewals are being accepted above 5% so far this year. Could you just talk about what the dollar premium is on renewals versus new leases right now and how that premium compares versus history? And just any thoughts on how sustainable you think this 5% renewal rate is.

Tim Argo, CFO

Yes, Eric, this is Tim. In Q4, there was a gap of about $180 to $185 between new leases and renewals. This figure accounts for a renewal increase of approximately $80, which is higher than our long-term average but not significantly different from what we've observed in past years. The gap tends to widen in Q4 due to lower new lease rates and shifts in traffic patterns, and when I reflect on previous Q4s, this situation is quite similar. Although we have experienced 8 or 9 quarters of a gap wider than normal, we've still managed to sustain growth in renewals. There are several factors contributing to this; we've discussed them before. Moving incurs costs and inconveniences, especially as our residents age, which makes them less inclined to relocate. We carefully consider renewal increases based on our residents' positioning in relation to the market, adjusting accordingly. Customer service plays a significant role as well, supported by our top Google scores in the sector. When residents evaluate the value they receive from us, the overall costs and hassles of moving often don't justify a change. In the current environment, while some new leases offer 8 to 10 weeks free, these are temporary, and renewals will reflect higher increases. We're seeing consistent take rates and performance on renewals, giving us confidence in our renewal outlook as we look ahead to April.

Operator, Operator

Our next question comes from Michael Goldsmith from UBS.

Ami Probandt, Analyst

This is Ami on with Michael. What gives you the confidence that you can see an acceleration in new lease through and maybe a little bit past the typical lease season given the softer macro? I know you mentioned some tailwinds. But within your markets, what are you seeing in terms of job growth that really gives you confidence that the remaining supply can be absorbed, and rents can accelerate? And maybe if you could talk about the new lease growth from trough to peak and how that would compare to historical.

Brad Hill, CEO

Yes, Ami, this is Brad. I'll start off, and Tim can certainly share some details. The pace of our recovery and our expectation for it to accelerate this year is based on the notion that some of the challenges we faced last year are somewhat less severe this year. We're noticing positive momentum. Our fundamentals are improving, even though it takes time for this to reflect in our revenue and earnings as the rent roll changes. We've seen four consecutive quarters of year-over-year improvements, which indicates we're making progress and facing less uncertainty. Looking ahead, the number of new deliveries is set to decline this year, over 60% from the peak and down 35% year-over-year. Additionally, market-level occupancies continue to strengthen, and with fewer units being leased, the sustained demand across our portfolio should significantly impact our fundamentals. As we enter the spring and summer leasing season, we expect this trend to become even more apparent, particularly regarding new lease rates.

Tim Argo, CFO

Yes. I'll just add one point. I mean I think important to keep in mind on the new lease side is typically in Q4 and Q1, we historically see negative new lease rates. Even in a good environment, even in a more historically favorable supply-demand environment, you see negative new lease rates in those two quarters just from normal seasonality from traffic declining. So that's not unusual to see that. But we would expect some good acceleration, as I mentioned, into the summer and then start to moderate in the fall. But all the things Brad mentioned and think about it when we get to the back half of 2026, how far we are from the peak, continuing to see those units absorbed. We think the demand picture will continue to solidify. All the various factors in our region of the country, whether it's job growth, migration, household formation, population growth, the health of our renters in terms of income, rent to income are all extremely strong, particularly compared to other areas of the country. So all of those factors are combined to give us the confidence that we think 2026 looks better than 2025.

Operator, Operator

Our next question comes from Haendel St. Juste from Mizuho.

Haendel St. Juste, Analyst

Just wanted to come back to the point on blends one more time. Just doing a quick math by our numbers, it looks like there's about a 200 basis point ramp implied into the back half of the year versus the first half, which is similar to what you saw or what we saw at this point last year, and you subsequently had to cut a few times. So first, I guess, is my math correct? And it sounds like secondly, that it's a little bit of lower supply. You have some optimism in the demand picture here. But what about turnover? I'm curious kind of what you're factoring as well for turnover into that math.

Tim Argo, CFO

No, I'll hit that last point. I might let Clay talk a little bit about the first part. As far as turnover, we're expecting pretty consistent turnover. There's nothing that suggests that we think it will pick up. So we've effectively dialed in consistent turnover of what we did last year. So certainly, the renewal performance and the impact of renewals versus new leases is helping in that blend as we expect turnover to stay low. We're not necessarily dialing it in to be lower, but not dialing it in to be any higher either.

Clay Holder, COO

Regarding the new lease activity, we are seeing an increase during the first half of the year, followed by a decrease in the second half, which aligns with the usual seasonal pattern. We anticipate continued improvement compared to what we experienced in 2024. As this trend develops throughout the year, we expect it to positively impact the blended rates we previously mentioned.

Operator, Operator

Our next question comes from Brad Heffern from RBC Capital Markets.

Brad Heffern, Analyst

Can you talk through what the path is back to positive new lease growth? Obviously, it was originally expected in mid-'25. It doesn't look like the guidance would suggest that we would see it in '26. And then if renewals are a little higher than normal, I don't think you've done anything in the significant supply side since '23. So it feels like that would put pressure on new lease in '27 as well. So I'm just wondering your best guess on when we would see positive new lease growth and then when new lease growth in general could kind of go back to normal.

Tim Argo, CFO

Well, I'm not going to put a target on going to positive new lease growth. I mean we don't necessarily have that dialed into our expectations. As you noted, in 2026, we do expect it to continue to accelerate from where we are now. And then as mentioned, seeing the steady renewals. But I think as we get into 2027, I mean, I think one thing to be clear about on what we dial in 2026 because of the acceleration of new lease rates, and I mentioned in my comments, less of the normal seasonality as we get into August, September and beyond, more of that impact in new lease rates is going to impact 2027 more so on the revenue side than 2026 because of it being a little more backloaded. And so part of that leads into where we expect 2027 to be. And again, we're even further from the supply peak consistently starts are continuing to go down. We think demand will be solidified. So as we get into 2027, I think that's when you see real sustained momentum and starting to see potentially where we get into some of those positive new lease rate ranges.

Operator, Operator

Our next question comes from John Kim from BMO.

John Kim, Analyst

I wanted to follow-up on your disposition guidance of $250 million, which is following a year in which you had sold just a couple of assets. But just given the strong demand from institutions for your products, I'm wondering what's holding you back from selling more into the strength.

Brad Hill, CEO

John, this is Brad. I mean I think what's holding us back from selling more is, one, what we've always talked about, we want to protect the earnings quality and capability of our portfolio without introducing a lot of volatility into our earnings performance. And I think for us to go out and sell a large part of our portfolio, I think, could potentially introduce some earnings volatility. Second, we like where we're located. We like the diversification of our portfolio in both large and mid-tier markets, and there's really not a portion of our portfolio that we are really targeting moving out of and reallocating that capital to another region of the country. So we don't really have the need to do that. And if you look, again, as I said earlier, what we've been selling over the last couple of years, it's 30-year-old properties. And I think that really fits nicely into our overall strategy of improving the earnings quality of the portfolio versus going out and selling a big portion of our portfolio and trying to determine what to do with that capital. I think you also have to remember that the fact that we are selling assets that are 30 years old, the taxable gains associated with that are sizable. And for us to really protect that from having to pay some type of tax on that, we want to be able to 1031 exchange that. And that's harder to do at a large scale in this market without paying cap rates that we think are very aggressive at the 4.5% range or so. And we think our opportunity is better to be measured and to deploy capital into other avenues.

Operator, Operator

Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets.

Austin Wurschmidt, Analyst

Recognize it's still pretty early in the year, but just wondering if the pace of improvement in new lease rate growth from the fourth quarter into January, February and any future visibility you have into future months, how does that compare versus last year? And do you expect just that gap or improvement to just gradually widen through the year? Is that what's in that new lease rate growth assumption?

Tim Argo, CFO

Yes, Austin, this is Tim. You summarized it well in your question. We anticipate that the difference compared to last year will continue to grow as the year progresses, due to the reasons we have discussed regarding moderating supply. Currently, especially on the blended side, we expect pricing in the first quarter to be better than it was at this time last year, with acceleration expected after that. Everything is aligning with our expectations. I believe your characterization is the appropriate way to view it.

Operator, Operator

Our next question comes from Rich Hightower from Barclays.

Richard Hightower, Analyst

To follow up on what Austin and Jamie mentioned earlier, can you confirm that you don’t plan to provide a figure for new lease growth in the first quarter? However, my main question is about share repurchases. It seems like this option was always available but possibly changed towards the end of the fourth quarter. I'm curious about how the calculation of sources and uses shifted in the fourth quarter that resulted in repurchases for the first time in quite a while.

Brad Hill, CEO

Brad mentioned that he would start off the discussion and others could join in if needed. He noted that there hasn't been a significant change in their outlook. They've always maintained that if their shares traded at a consistent and significant discount to their intrinsic value, they would consider investing in their own shares to enhance earnings growth and deliver value to shareholders. What is different now compared to the past is the persistent significant discount at which their shares are trading. Historically, this situation hasn't occurred for a long time, which is why they haven't repurchased shares since 2001. This is not a common scenario for them and feels particularly unique given the current supply pressures that are starting to ease. They believe this situation is temporary, especially when looking at private market pricing in relation to the public market. As he mentioned, their interest in share repurchase is limited, and they still have an authorization that remains active. If they find this situation continues and believe it represents the best use of their capital to drive long-term shareholder returns, they will keep monitoring the situation and take action accordingly.

Operator, Operator

Our next question comes from Steve Sakwa from Evercore ISI.

Steve Sakwa, Analyst

I just was curious if you had sort of an overarching kind of macro view that you're laying on top of your expectations. I mean you're talking very positively about renewal pricing. Obviously, job growth kind of slowed in the back half of last year. And I'm just curious if there's an underpinning or kind of broad assumption that you guys have about job growth kind of in either absolute terms or percentage growth because obviously, job growth slowed pretty meaningfully from '24 into '25.

Brad Hill, CEO

Steve, this is Brad. I'll kick off and Tim can add any details if he wants. I would say the broad view is that, as I mentioned in my comments, GDP continues to be relatively strong this year. I think from a job growth number perspective, what we're looking at, the numbers we're looking at for our markets showed absolute job growth going up slightly versus last year. The other demand metrics that we're looking at continue to remain positive. As Tim mentioned earlier, household formation, population growth in migration or migration trends continue to be positive in our region of the country. And then just wage growth. We continue to see very strong wage growth in our resident base, supporting declining rent-to-income ratio. So I think all of those things really support just the broad view that we have that things on the demand side are holding up quite well in our region of the country and should continue to hold up quite well this year, with the supply-demand dynamics improving as we progress through the year.

Tim Argo, CFO

Just one thing I'll add just to put some numbers on it. We're projecting somewhere in the 340,000, 350,000 jobs in our markets in 2026 and then about half of that in terms of number of completions. So you think about that job to completion ratio is certainly improving and in a lot better position than we've been in the last few years.

Operator, Operator

Our next question comes from Linda Tsai from Jefferies.

Linda Yu Tsai, Analyst

For the markets where you're seeing higher concessions, where would you expect to see the concessions burn off the soonest? And then alternatively, markets where the concessions might persist?

Tim Argo, CFO

Yes, this is Tim. At a broad level, concessions have remained quite stable. Approximately two-thirds of our direct competitors are offering concessions, averaging around five weeks. This observation aligns with previous trends. In some of the properties that are leasing up, the concession period is slightly longer, typically between eight to ten weeks. We've noticed a slight increase in concessions in downtown Nashville, as well as in Raleigh and Charlotte. Conversely, we’ve seen concessions decrease a bit in Tampa and some areas of Houston. Phoenix has shown good stability with occupancy rates holding steady, and we aren't experiencing any rise in concessions there. Overall, while concessions are generally consistent, there are variations with some markets experiencing increases and others seeing decreases.

Operator, Operator

Our next question comes from Alexander Goldfarb from Piper Sandler.

Alexander Goldfarb, Analyst

Just thinking about concessions, is there a risk that all the supply delivered in the past two years had a lot of concessions, and those existing renters benefited from one, two, or three months free? As those leases roll and those renters confront market rents, are you expecting a significant amount of turnover, even though supply is decreasing? It seems there could be competitive supply, as those units will now seek full-rate renters instead of the concessionary ones currently in the lease-up phase. I'm trying to understand how the first-year anniversary of all that supply will impact you in the overall market.

Tim Argo, CFO

Yes, Alex, this is Tim. Compared to the last couple of years, I don't see this as a significant risk. It ultimately depends on how many units are available. We estimate that there are about 110,000 to 120,000 fewer units in lease-up in our markets than at the peak. Additionally, with lower turnover, there are fewer existing units available. So, what matters more is the supply-demand dynamic concerning units in lease-up. Honestly, this situation has been more beneficial for us in terms of retention, as people are aware that concessions will expire. This has positively impacted our renewal rates, and we don't view this as a major risk.

Operator, Operator

Our next question comes from Buck Horne from Raymond James.

Buck Horne, Analyst

I was wondering if you could help us stratify maybe the recent performance between your Class A units versus Class B. And however, you want to describe it, new lease rates, occupancy, any sort of metric between As and Bs. And I'm just wondering if we're starting to see any sort of incremental pressure from kind of the vacancy increases in the Class C units, if that's starting to filter upwards or not?

Tim Argo, CFO

Tim here. Regarding Class A and B, the way we categorize them hasn’t shown much difference in performance. However, in the last few quarters, we've noticed some differentiation between urban and suburban areas, particularly in central business districts. While we don't have a huge amount of data, we do have a reasonable presence in Dallas and Atlanta. We've observed that performance is starting to vary, with occupancy rates improved by around 10 basis points and blended pricing about 40 basis points better. This is promising, considering the supply dynamics in those markets, but there isn’t significant variation between Class A and B.

Operator, Operator

Our next question comes from Mason Guell from Baird.

Mason P. Guell, Analyst

On the acquisition side, are you seeing more opportunities to acquire lease-ups with the cycle taking longer to turn?

Brad Hill, CEO

Yes, this is Brad. I wouldn’t say we’re seeing more opportunities. There are certainly many lease-ups available right now, but honestly, I think there are fewer lease-ups being marketed compared to what we’ve seen historically. This may be due to the current valuation being more affected by the uncertainty surrounding the timing of the lease-up, the end of concessions, and related factors. From a buyer’s point of view, there's a bit more reluctance to pursue lease-ups compared to stabilized properties, which could affect valuations. As a result, sellers are holding onto those assets longer, trying to lease them up before they list them on the market. We have noticed lease-ups being marketed, but I believe there are fewer today than in previous years.

Operator, Operator

Our next question comes from Ann Chan from Green Street.

Ann Chan, Analyst

Could you share how renewal and new lease rates in Atlanta have trended late last year and into early this year?

Unknown Executive, Unknown

Yes. As far as Atlanta, and I touched on this a little bit earlier, we've continued to see pretty good performance, continually increasing performance, both in terms of really blended pricing and occupancy. If I look at 2025 full year blended pricing for Atlanta versus where it was in 2024, it is about 260 basis points higher blended pricing for the full year in 2025 and occupancy about 70 basis points higher for the full year. So continue to see steady improvement there when I isolate to just the fourth quarter, saw that improvement as well. So that's a market that I talked about that we're starting to see some stability from. We've seen delinquency go down to just about the portfolio average as well. So I don't see any concerns there. And on a relative basis, Atlanta has had less supply than some of our markets. So broadly, pretty encouraged with what we've seen from Atlanta.

Operator, Operator

Our next question comes from Alexander Kim from Zelman & Associates.

Alexander Kim, Analyst

I wanted to dive into the transaction market a bit more here. Pricing power overall has been relatively soft, particularly on the new move-in side. And at the same time, you cited market cap rates in the 4.6% range with investor demand still obvious. Can you talk about what you're seeing in the transaction market for stabilized product, I guess, and what you expect moving forward for transaction volumes with this particular dynamic in play?

Brad Hill, CEO

We continue to observe strong investor interest in assets within our region. The number of properties being listed has steadily increased throughout 2025, especially as interest rates have stabilized and become more appealing. I expect this trend to persist into 2026, with buyer interest remaining very high. There is significant capital available, and overall interest rates and spreads have decreased, lowering the cost of capital. Consequently, I believe the transaction market could be quite active with favorable cap rates moving forward. I don’t anticipate significant changes in this area at this time. However, there has been some uncertainty in underwriting due to the new lease rate dynamics, particularly since most lease-ups are under new lease rates in their initial year, which creates more pressure. The ability to eliminate concessions will be crucial. Despite this, the market remains optimistic about future conditions, which is reflected in the low cap rates. Therefore, I expect transaction activity to increase as we progress through 2026.

Operator, Operator

Our next question comes from Haendel St. Juste from Mizuho.

Haendel St. Juste, Analyst

I might have missed it, but can you tell us what the new lease rate was for January specifically? Also, could you comment on the pending settlement for the RealPage multidistrict lawsuit? Additionally, could you remind us what other litigation is still outstanding on that front?

Tim Argo, CFO

Yes, Haendel, it's Tim. I'll address the first part. We won't delve into monthly details regarding new leases since it’s quite specific and involves a small group. However, I can say that when you consider new lease pricing in comparison to last year, we anticipate the smallest difference between the two in Q1. This difference may increase for various reasons we've discussed, but overall, we expect to see improved pricing in Q1 compared to the same period last year.

Robert DelPriore, General Counsel

Haendel, it's Rob. On the RealPage settlement, I think I mean, first and foremost, I would say the settlement is no admission of wrongdoing or liability and remain confident that we've acted lawfully and responsibly. And secondly, it does not require any material changes to how we operate the business. The prospective commitments are all ones that we believe are consistent with how we conduct operations today. So we don't really expect any significant disruptions there. And then finally, it really is just about removing distraction and uncertainty in a complex and evolving legal environment where this is really an attack on the entire industry and not just MAA. The resolution did allow us to eliminate significant cost and complexity and distraction of the continued and prolonged litigation and keep the focus of leadership where we really want it, which is on residents, operations, and value creation. And then the two ongoing attorney general matters that are disclosed in our financial reports are still continuing, and we will continue to defend those.

Operator, Operator

And our last question will come from Julien Blouin from Goldman Sachs.

Julien Blouin, Analyst

I just wanted to check on maybe just the trend of absorption volumes in your markets. It seemed to maybe normalize somewhat in fourth quarter, certainly lower than it was in the fourth quarter of '24. Do you worry at all that maybe absorption is starting to slow amidst the job environment that Steve alluded to and maybe in this sort of slower migration environment. You're still dealing with elevated levels of vacant units in your markets, but just wondering how you feel about absorption?

Tim Argo, CFO

Yes, Julien, this is Tim. We did notice a slight slowdown in absorption towards the end of the year and into the fourth quarter, but that's not really surprising. There is a seasonal aspect to this that we expected. Additionally, as supply and new starts have continued to decline from their peak, it was anticipated that absorption would decrease since there are fewer units to absorb. Therefore, we didn't need to maintain the extremely high levels we experienced in previous quarters. Looking ahead, given that there are significantly fewer units in lease-up now compared to 12, 15, or 18 months ago, and with steady demand and no indication of supply increasing again, we expect absorption to remain consistent and demand to stay stable, so we are not concerned about that.

Brad Hill, CEO

Julien, this is Brad. I'll just add one thing to that. As Tim mentioned, as new deliveries continue to decline, the absorption numbers, the way they're calculated are going to, by nature, continue to decline. And so one of the things that we're also focused on is what our market level occupancies look like in our markets. And certainly, we look at that on a total basis as well as just the stabilized occupancy. And as Tim mentioned, I think, in his opening comments, I mean, we've seen significant improvement in those market level occupancies over the past year. And the numbers continue to show that the lease-ups that are in the market continue to be filled up, and therefore, the market level occupancies are firming, which is one of the components of our strengthening belief of the strengthening performance throughout this year. So occupancies appear to continue to improve.

Operator, Operator

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

Brad Hill, CEO

All right. Thanks for joining the call today. If you've got any follow-ups, don't hesitate to reach out. Thanks.

Operator, Operator

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