Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mid-America Apartment Communities Inc (MAA, Financial) reported that performance trends in the first quarter were in line with expectations, indicating stable operational management.
- Renewal pricing remained strong, showcasing the company's ability to retain existing tenants despite market pressures.
- MAA highlighted a record low resident turnover, which contributes to stable occupancy rates and reliable revenue streams.
- The company is seeing more acquisition opportunities, particularly for new lease-up projects, which could contribute to growth and expansion.
- MAA's development pipeline is robust, with several projects underway expected to deliver strong stabilized NOI yields, enhancing long-term shareholder value.
Negative Points
- New lease pricing continues to be impacted by the high volume of new supply in several markets, which could pressure rental income growth.
- The transaction market remains slow, which may limit immediate growth opportunities through acquisitions.
- Construction costs have not seen a broad reduction, which could impact the financial feasibility of new development projects.
- Concessions on select units have increased, indicating some challenges in leasing activities amidst competitive market conditions.
- The company anticipates continued pressure from new supply deliveries throughout the year, which could affect leasing conditions and occupancy rates.
Q & A Highlights
Q: Can you provide some detail on the operating playbook for the next couple of months, especially how you're thinking about pushing on lease rate growth and occupancy? Has the breakdown between new and renewal lease rate growth embedded in guidance changed at all?
A: Timothy P. Argo, Executive VP, Chief Strategy & Analysis Officer, explained that the focus will be on pushing new lease rent growth where possible, balancing it property by property based on occupancy and exposure. The mix between new lease and renewal was about 51% to 49% in Q1, and it's expected to lean more towards renewals in the coming quarters. The strategy involves maintaining low turnover and a heavier weight on renewals in pricing trajectory.
Q: There seemed to be a pocket of softness in March compared to April. Was there a specific reason for pulling back in March to position the portfolio better for April and May?
A: Timothy P. Argo noted that there was a strategic push towards occupancy in late February and early March due to upcoming lease expirations and anticipated demand increases. This strategy led to improved acceleration in both pricing and occupancy from March to April.
Q: How has the leasing spread been, especially since typically there's an uptick in April? Has traffic increased significantly in April?
A: Timothy P. Argo confirmed an increase in traffic and lead volume, indicating strong demand. The focus remains on observing the quarter-to-quarter trajectory rather than individual monthly fluctuations, expecting the most significant impacts during the peak leasing months of May through August.
Q: Regarding the stronger leasing environment projected through at least 2028, what underpins this expectation? Is it related to a sustained low level of starts?
A: Adrian Bradley Hill, President & CIO, attributed the projection to a shift from the previously cheap financing environment to a more normalized supply environment. The expectation is that supply will be below long-term averages in the near term, with demand strength in the Sun Belt region supporting robust fundamentals.
Q: Can you comment on the current use of concessions across your markets? Where are the biggest concessions and any improvements seen?
A: Timothy P. Argo highlighted that concession usage has remained stable, with about 0.4% to 0.5% of rents. Specific markets like Charlotte and Austin have heavier concessions, but overall, there hasn't been significant change from the previous quarter.
Q: What are the underwriting yields for new development starts, and how are construction costs affecting these projects?
A: Adrian Bradley Hill mentioned that new starts are underwritten with yields in the mid-6% range, consistent with current developments. While broad reductions in construction costs haven't been observed, specific markets have shown cost reductions, supporting the feasibility of new projects.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.