Conference Transcript - MAA 2026-06-03

A. Bradley Hill, CEO

All right. Well, good morning, everyone. We'll go ahead and get started. First of all, I just want to thank everyone for joining us this morning. What I thought I would do is start out just giving you guys a summary of who MAA is, what we're focused on for those of you that aren't as familiar with the story. introduce the team here for sure. And then really walk you through some of the areas and reasons why we're pretty excited about where we sit today and what we think the next few years and the opportunity for growth looks like for us. So first, on my left, I have Clay Holder, who's our CFO. On my right, I have Tim Argo, Chief Strategy and Analysis Officer. And I'm Brad Hill, our President and CEO. And then we'll do questions at the end, too, or you guys can raise your hand at any point and ask a question. We're happy to answer whatever you guys have there. So for those of you that aren't as familiar with MAA, we're a multifamily-only focused REIT. We're in the S&P 500. We have a strategy of delivering really long-term TSR performance for shareholders through the full cycle and we we look to do that by delivering high quality earnings growth and dividend growth and our strategy is really focused on driving that that long-term tsr performance and and we do that in a what we think is a pretty differentiated way by focusing capital on the highest demand region of the country which for us generally aligns with the Sunbelt region of the US and we also have other markets that are aren't considered Sunbelt but they have a lot of the same high growth high demand characteristics pro-business environment as generally the Sunbelt markets do and then we look to broadly diversify within those markets and if you look at where we're located we're probably the most diversified realist multifamily real estate REIT. We are in more markets, more sub-markets across our regions. We also allocate capital both in large markets as well as mid-tier markets. And I think that's pretty important and aligns well with our strategy, which is providing the highest return possible at the lowest volatility. And that's really what our goal is. And if you look at slide six, if you don't have a presentation, we can certainly get you one. I'll walk through some of the slides here. But certainly if you look at slide six you'll see that we've performed quite well over the long term. If you look at the 10-15 year performance that we have there, if you look at the compounded dividend growth that we've been able to provide it's pretty significant and so I think we've really held true to what our strategy is in terms of long-term TSR performance. Certainly if you look at performance over the last few years it's been more of a challenge. In our region of the country in particular. We have seen high demand, but we've also seen high supply, record level of supply in our markets, the highest we've seen in over 50 years. And if you think about we had five years' worth of supply delivered in a three-year period, certainly our performance has been impacted and been challenged, particularly on the new lease rate side of the business. Occupancy has continued to be strong. Renewals have continued to be strong, but certainly the new lease rates which is the most competitive rate for us has been under more pressure for the last couple of years. However our focus and our team's focus has been to compete and they have competed very very well over this time and in fact if you look at our effective rent performance over the last few years in our markets and you compare that to our peers in those same markets you'll see that we consistently outperform which I think is a testament to our teams and the overall strength of our platform and so as we enter what we think is a multi-year recovery period certainly as we're entering the stronger leasing season may to august where we'll sign 50 of our leases during that time we're certainly excited about the trends we're seeing and the momentum that is currently building for the recovery over the next few years and there's really a few reasons why we're excited about that first we are capturing improving leasing trends and these trends that's what we expected this year when we laid out our forecast and our pricing and revenue are generally in line with our expectations to date and I think importantly we're seeing building momentum if you look at slide 31 I'll talk about that here in a minute we have are achieving the momentum that we expected coming into the this year and And there's really a few reasons for that building to slide 31. If you look at slide 18 first, what you'll see is the demand dynamics in our markets continue to remain pretty robust, whether you're looking at job growth, household formation, or you're looking at population growth. The trends in our markets continue to be quite strong, two times what you see in other regions of the country, which aligns very well with our strategy to be in the high demand region of the country. And, you know, one of the encouraging components of the demand side of our story is, in particular, we've seen a pickup in job relocations coming to our markets, particularly over the last three or four months, which we really didn't see for the past year. It really calmed down a bit, call it mid-last year to the end of last year. But that's really picked up now. If you think about Starbucks announcing 2,000 new jobs that they're moving out of Washington to Nashville. If you think about Goldman Sachs relocating more jobs to Dallas, JP Morgan to Charlotte. So those are encouraging trends that we continue to see within our footprint that just indicates still strength on the demand side. As we indicate on that same slide, migration trends continue to be really positive. We have not seen that. Certainly it's down from the COVID peaks, but it's really in line with long-term averages where we generally are seeing more people coming into our markets. And then the other thing is supply continues to decline. If you look at slide 24, kind of long-term average supply in our markets is about 3% of inventory. We have seen that decline significantly. This year it's down about 40% from last year, and it's down 60% from two years ago. So the supply picture is materially changing in our markets as we speak. and and that that's pretty encouraging as well and sorry but we're going to go kind of back and forth a little bit here the other thing on on slide 20 shows that the new starts continues to be low so not only is supply declining but new starts is also low and it's been below long-term averages now for the past three years and in fact the trailing 12 month starts is about 2% of inventory so that That just indicates the runway that we have over the next few years is pretty compelling. And then getting to the actual results that we put out, we did put out in this package an update of performance. You look at slide 31, and I think that really shows the capturing momentum that we're talking We have seen an acceleration in our blended lease-over-lease rates, which are up about 140 basis points in May from the first quarter. As I mentioned a moment ago, our renewals have remained strong. And the improvement that we're seeing is coming on the new lease rate side, which is really encouraging given that's the most competitive. And that's up 240 basis points in May from the first quarter. So, you know, one of the things that we're also pointing out in the chart in the top left on page 31 is, you know, there are some nuances in lease-over-lease rates. You get differences in unit mix. You get difference in term timelines that can impact those numbers a bit. But if you look at just the actual dollar amount of the average blended lease pricing that we're getting, and you look at that for May, it's the highest that we've seen in almost two years. So we are making continual progress in terms of the rental rates that we are executing. And I think that's a positive as we continue to work through the summer leasing season here over June, July, and into August. We expect that to continue to build. And then the second reason why we're encouraged about the trajectory of where we're going is we have had a very intentional and disciplined approach to expenses, believing that as we control the expense line as the revenue line continues to improve will more of that benefit will make it to the bottom line to NOI and then ultimately to earnings growth and if you look at our expense performance versus peers over the last three years you'll see that we've done a tremendous job in controlling expenses and that's very intentional on the part of our teams and then the third point is that that we do have a we'll talk about these in more detail, but we do have a number of growth initiatives that will increasingly contribute to our NOI performance going forward. We've talked a lot about these over the years, and we're leaning into them even more now, our growing renovation and redevelopment pipeline, which is benefited by the stabilizing new supply that's coming into the market. We are also maintaining our focus on development. We have built that development pipeline from just a couple hundred million to close to billion dollars on a run rate basis and we'll continue that talk about that here in a moment and then we have our property-wide Wi-Fi initiative as well that will continue to deliver for us and then the fourth reason that we're excited about our ability to deliver compelling earnings growth going forward is on slide 12 and 13 and we've put a lot of focus in this area we this This is what we call our reimagine, and it's really a focus to continue to strengthen our operating capabilities. It's something the entire organization is excited about. We've worked on this now for about two years to get to the point where we can actually roll this out, and we're piloting this, which we'll talk about here in a minute, in three markets today. And we're really focused on driving customer service. We, through our renewals, we continue to believe that customer service is a differentiator on our platform and we're able to drive better results as a focus as we focus on customer service so it is a focus on customer service improving the alignment of our roles our workflows all geared toward increase you know using technology to support consistency and efficiency across the platform so we'll talk about that here in a moment but but some tremendous opportunities really building from that so we're really excited about where we're heading as an organization so with that i was going to turn it over to tim and let him talk about some of these some of these growth items thanks brad so you know brad alluded to the the improving supply

Timothy P. Argo, CFO

demand environment that we're seeing that we think will drive some some pretty strong organic earnings growth over the next few years but we have several additional opportunities that we think could push that even higher and drive earnings growth beyond just the what the supply demand environment will give and brad alluded briefly to a couple of these and i'll touch on a little more detail the the main ones we're focused on right now so first and these are these are detailed uh in pages 12 to 15 in the presentation if you want to take a look at that but first is our unit redevelopment program and this is this is a program that we've had in place for years now but with the supply environment new developments coming in on average about four to $500 higher than what our average rents are and that's what really creates an opportunity to think to where we can expand this program even more so we have plans for about 7,000 units that we'll do this year it's it's varying scope so we do we do it on turns very disciplined to how we how we do this program we have multiple scopes we can you know there are lighter scopes we may spend three four or five thousand per unit there are heavier scopes we may spend ten to 12,000 per unit just kind of based on the market and the sub market and the property and what what we think the the market is is is needing or can you know get the returns we're looking for on average for this year we're planning to do about 7,000 units and spend about 7,000 per unit so call it 50 million or so of spend we think we can accelerate that over the next couple years as the as the supply picture continues to to to be reduced on average we're getting about a 20 cash on cash return there's about an eight eight to nine percent rent increase that comes with that so it's certainly one of our strongest and highest best uses of capital and and the way we do it as i mentioned we do it on terms so that we can test and make sure we're getting that really getting that return you know there's there's one approach where you can go in and do a heavy redevelopment take units down and re redo the whole building and raise rents but it's difficult to know are you getting those returns so we do it on on turn renovate a unit compare it to a non-retovated unit of a similar floor plan we can make sure are we getting that rent increase that we thought that we thought we could or should and if if we are great we can continue if we're not we can pause it we can we can adjust the scope up or down so it's a very flexible program and it's continue to have more units that we think can be a part of this program as as they age or as tastes change and as we go through so that's certainly an opportunity that that'll drive additional new lease growth as part of that program second would be our property repositioning program which is similar to the unit redevelopment but more focused on the property amenities so going into uh certainly the properties that are well located and maybe have dated amenities that we can upgrade redo pool areas redo fitness areas we're doing a lot of you know retrofits of open or common areas that we're doing pet spas which is certainly a huge amenity right now and again we go into properties we're spending there three to three and a half million on average and able to raise the rents once we complete that and reprice once we complete that program getting again about a 13 14 return on those so also a great use of our capital that's that's a program that we're doing five to six new properties per year and you'll see us continue to to move on that program as well and then the third one i'll mention is the reimagine that that brad touched on this is really a transform transformational program that we're doing to reimagine how we think about our our on-site operations which is really phase one i think there's additional phases where we can look at other areas of the business but the the first phase is focus on the on-site office teams and it's really all about creating specialist roles and centralized roles that we can that our associates could do their job better they're they're more engaged and and we can serve the residents better we can serve the prospects better we think ultimately serve the shareholders better as well you know the historical model has been more generalist type roles where you're having one person need to they got to be good at customer service resident service they got to be good at sales they got to be good administrative duties they got to be good at systems what we're trying to do is specialize those roles and we think as a result of that each each employee each associate can be better at what they're doing it's something they enjoy it's something they're more engaged we believe lower turnover can come of this and so what we've laid out in the deck is you know we think over the next two and a half three years 25 million or so of noi from this this phase of the program it's a combination of expense reduction and revenue growth and we're going at as brad mentioned this is all about a improving the the resident prospect customer associate experience there'll be some expensive cuts that come from that or expense reductions that come from that as we introduce new technology and and restructure but it's but it's really about improving the resident associate experience we think you know of that 25 probably 15 million or more of that is more on the on the revenue side and it's you know i mentioned the specialists it's a collection specialist we think we can improve collections it's a renewal specialist we think we can improve our renewal results it's specialists on on generating leads and driving leads and nurturing leads specialists on touring and leasing we think we can get better at all that and ultimately drive more tours drive more demand and that ultimately manifests itself in new lease growth so that's As Brad mentioned, we just started on that. We have three waves that we've rolled out over the last few months, testing and kind of making sure and tweaking where we need to, and then we'll continue to roll this program out over the next year, year and a half. So certainly excited about that, excited about all these opportunities. I think we can push earnings growth even well beyond our historical average.

A. Bradley Hill, CEO

Yeah, well, thanks, Tim. You know, one of the other areas we talked about from a growth perspective was development that I'll hit on real quick. you know this has been a very intentional focus of ours over the last few years we've built our development pipeline from you know four years ago call it just a couple hundred million dollars in size and and we've now grown that to close to a billion dollars it'll ebb and flow a little bit as projects deliver and come off of the construction line and while we're you know in the midst of starting new projects i think we're around 700 million today as is indicated on slide 10 we started a new project in the second quarter in Kansas City we have another project we'll start shortly in Nashville with a couple more coming by the end of this year but we've really built that pipeline to be about a billion dollars which is about 350 to 400 million dollars worth of spend a year and now that we've built it at that level we want to maintain it at that level you know it's a very accretive use of capital for us where we're able to achieve yields on our developments that are between six and six and a half percent. So very accretive there. And I think importantly, the development capability for us continues to deliver higher NOI growth rates than what we're able to get out of our existing portfolio in the 50 to 100 basis points range. So for us, what that basically entails is delivering an incremental 20 to 25 million dollars of NOI every single year that's at a higher growth rate than our existing portfolio. So from a value proposition perspective, you know, that continues to be a great use of And if you go back and look at our performance over development, on development over the last 10 years, you know, we have been able to deliver developments that on average have delivered rents 2 to 3 percent higher than what our expectations are. So we're not stretching in terms of our underwriting on deals to make deals work. we've been able to deliver them on time and we've also been able to deliver them about 2% below our expected cost so the result of all of that on average we've been able to exceed the yields on development versus our expectations by between 50 and 70 basis points so significant value creation opportunity for us and we'll try to keep that pipeline as I mentioned in the call it billion billion two range which is 350 to 400 million dollars of spend a year and that's about four to five percent of enterprise value given the size of the company the size of the balance sheet we feel like that's a really good place for

A. Clay Holder, CFO

us to continue to to hold that so you know that continues to be you know a really good use of capital for us and something that will will continue to maintain so with that what I thought I'd do is turn it over to clay to just maybe hit on some some other items that he has yeah just a couple quick comments I would make uh particularly around our resident health um touch a little bit on the expense control that Brad and Tim both mentioned and then talk a little bit about our balance sheet you know today as we sit here our residents remain very healthy with rent to income levels at about 20 percent which is roughly 200 basis points lower than what it was two uh two years ago our collections performance remains very strong with what with us collecting well over 99 percent of rents and our delinquency at the end of the first quarter was was just under 30 basis points so a really healthy resident profile as we as we sit here today these guys touched a little bit on expense control and and how we've been very focused and disciplined in our approach to to that uh brian mentioned that we've we've shown some very good performance versus our peers over the past number of years over the past five years we've outperformed by 290 basis points on both property same store and overhead expenses we'll continue to focus on that as we go through this next year in 2026 and you're already seeing that a bit as we've we've continued to push on one of our initiatives to pod our properties and that shows itself in personnel cost where we're taking two properties that were previously under two managers and combining those to be under one manager so you get some savings there and then lastly I'll touch on our balance sheet with our a minus credit rating our balance sheet remains very well positioned to support the development the redevelopment and the other initiatives that that these guys just spoke about at the end of the first quarter our net debt to EBITDA was four and a half times and our debt maturities are well laddered with an effective interest rate at just about three eight three point eight percent looking ahead over the remainder of this year we have a three hundred million dollar maturity coming to you in September of this year and then we also plan to redeem some preferred shares in the third quarter as well at around forty three million dollars so it's a

A. Bradley Hill, CEO

little bit of an outlook of what we see for our financing needs over the remainder of the year with that I think we're ready to turn it over for questions yeah yeah well I think in terms of our tenants you know certainly I think we're all to some degree impacted you know in terms of the gas prices but I think to to Clay's point a moment ago if you look at the average income for our residents and the rent-to-income ratios that that they're paying you know it's very very low at 20 percent so the discretionary income that our residents generally have you know is still significant and so we're not seeing any impact at the moment on as clay mentioned in terms of our residents ability to pay associated with that you know i think where we also keep an eye on that is how does that impact our r m expenses how does that impact potentially our construction costs on on new developments as tim mentioned we we also have a big component of our businesses on redevelopment and repositioning our property so we have significant spend there and to date we really haven't seen any impact associated with that and I think you know if the oil price increase drags on for six plus months I think it's something that it eventually starts to make it into whether it's the the cost of paint the cost of plumbing materials where oil is a component of all of that could start impacting those costs but but at the moment we really haven't seen any of that impact yeah I mean as we talked about you know I think you know oil as a percent of spend for our residents and the population in general is less than what it has been historically so I do think that it's less impactful than it has been in the past it's still impactful but I do think you know if you look at our rent-to-income ratios three years ago we were at 23% and so today we're at 20%. So I do think we still have significant room even if there is some headwinds associated with oil prices.

Timothy P. Argo, CFO

I mean we we haven't seen anything yet. I mean a couple things that we look to track with with our resident base is one you know it's it's been talked about the the unemployment rate for 25 and under being being higher and those being the most impacted potentially by what's happening with AI. So we've been tracking you know what percent of our residents moving in are 25 or under it's about 20 percent and that's consistent with what it's been over the last few years our our average age is about 34 or 37 38 our median age i think it's around 34 35 so we have a little bit older demographic as well and then the other thing we look at is you know of of our applicants are they needing to get a guarantor get somebody to to help help pay for the rent and we've seen that actually go down so at least in terms of what we're seeing on the impact I don't I don't think we haven't seen it as of yet there'll likely be some dislocation disruption but you know as Brian mentioned earlier the amount of of jobs coming into our markets that are high quality high paying jobs continues to increase so you know there'll be some ebbs and flows to that but but nothing we've seen impactful so far now honestly for us delinquency has been a a key part of our out performance for years so to put the the 0.3 percent in context is is right in line with what we were pre-covid um you know in the in the heart of covid we got up to 0.6 0.7 there were a few markets that that were a bit higher than that but we've long had a process of of trying to make sure we're we're doing what we can on the front in to to to screen out those those applicants that that may have payment issues but yeah for us you know this 0.3 and we've been at that now for for the last two or three years we've been back to our pre-covered level so it's really a non-issue for us um i mean i'm you know going back to then we were probably 0.6.7 something like that any other questions uh one last point i'll make and then we'll we can uh wrap it up see if if

A. Bradley Hill, CEO

there any last questions but I wanted to just quickly comment on slide 21 you know as we as we go through the recovery that that we're certainly in right now I think slide 21 shows a little bit about where we've been and really what this slide indicates I think is you know there's a progression that we go through as a market heals from where we've been and recovers and it generally what that progression is market level occupancies are impacted by the amount of supply coming into the market you see concessions pick up and then as you which is what we saw by the way last year we as we got into April and May after Liberation Day we saw folks focusing on occupancy we also saw the increased usage of concessions you know as we sit here today it's a it's a very different picture as we look out where we are and where we're going generally what you see is market level occupancy start to stabilize and what this chart is really showing this includes lease ups in our markets we see occupancies are in line with where they were kind of pre the supply impact so they're kind of in line with historical averages and generally what you see from that point is you start to see concession usage start to decline which starts to give you more pricing power so we're in the midst of that kind of recovery process at the moment we're seeing certainly some of our markets we're seeing less concession usage which can lead to pretty rapid improvement in in lease performance and effective rent growth we need to see that increase more for for the trajectory of that and pace of that recovery to continue to increase more robustly I see a question there I'll try to get to here in just a second but for context you know certainly we're not building that into our forecast of rapid acceleration there but there are some markets some properties that we have for example in South Austin where you see concession usage fundamentals improving where we've seen a 10 percentage increase in terms of the new lease rates that we have at our properties so as we work through that progression of improvement market level occupancies concessions coming down we should see new lease rate continue to improve so sorry good yeah yeah definitely more so given I mean if you look at just the supply levels that we're seeing in our markets you know this year it's 40 percent less than what it was last year last year was coming down we were at five and a half percent inventory of deliveries in 2024 last year we were three and a half this year were two percent so the the trajectory of supply yeah we're still very optimistic about that recovery and the thing that we're seeing right now and my clocks blinking at me I'll wrap this question up is you know last year we were pushing on rents into May and what we saw is the market started focusing on occupancy so we started getting less traction as we were pushing on rents we're not seeing that today we're pushing on rents and we continue to see traction in getting those improving rents as we showed on slide 31 so thank you for that all right well thank you for your time If you guys have any questions, feel free to reach out.