Mid-America Apartment Communities, Inc. 2026 Q3 Earnings Call

Andrew, please go ahead. Thank you, Samantha, 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 an audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. When we get to Q&A, please be respectful of everyone's time. In an attempt to complete our call within one 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.

Thank you, Andrew, and good morning, everyone. As highlighted in our earnings release, our third quarter core FFO results met our expectations. While expense discipline supported third quarter results, the later recovery in new lease pricing is reflected in our revised full-year outlook that Clay will walk through. As we move further into the fourth quarter, we continue to see evidence of recovery across our markets. Based on current trends, we are optimistic we will see year-over-year improvement in new resident lease-over-lease rates for the full fourth quarter, slightly later than the previously expected third quarter. While the timing has shifted slightly, the underlying drivers of recovery remain intact. Robust demand continues to absorb the elevated supply delivered over the past few years, and we are encouraged by the early signs of firming market conditions.

Our renewal performance strengthened further, with year-over-year improvement accelerating 80 basis points in the third quarter from 50 basis points in the second quarter, supporting our blended lease-over-lease and revenue performance as new resident pricing continues to recover. With more stable occupancy, we are seeing a strong start to the fourth quarter, with preliminary October new resident lease-over-lease pricing improving sequentially from September. This improved new lease performance, combined with sustained strong renewals, results in preliminary October blended lease-over-lease rates improving by more than 100 basis points compared to October 2025. We are optimistic this leasing momentum will continue to build into the busier spring leasing season. Demand fundamentals across our footprint remain healthy and continue to outperform non-MAA markets. Job growth, household formation, inbound migration, and population growth, along with persistent single-family affordability challenges, continue to support demand for rental housing across our footprint.

The Sun Belt remains an attractive destination for employers and employees, supported by the high quality of life and relative affordability. These advantages reinforce our conviction in the long-term appeal of the Sun Belt, even as the near-term pace of recovery has been impacted by temporary supply pressure. Robust demand, coupled with lower supply levels, is beginning to translate to a more balanced operating environment. Performance varies depending on the stage of the local supply cycle, but year-to-date absorption across our markets has exceeded new supply deliveries, reducing the number of communities in lease-up and supporting a gradual reduction in concessions. As lease-up communities stabilize and new starts remain low, the impact of elevated supply eases, and the balance between supply and demand shifts more toward demand. That process is occurring and provides a foundation for improving leasing conditions and ultimately should lead to stronger pricing power.

Our focus during this transition is to best position MAA to capture the benefits of that improvement. Our priorities remain disciplined expense management, investments in technology to support a stronger platform with increased centralization and specialization, and enhancements to our communities through redevelopment, repositioning, and property-wide Wi-Fi. Together, these initiatives are aimed at strengthening the resident experience to support our sector-leading renewals, improving operating efficiency, and expanding our earnings growth opportunity as the operating environment further improves. In addition to these initiatives to strengthen our operating platform, we remain focused on creating long-term shareholder value through disciplined capital allocation. Our strategy balances investments in our existing portfolio with selective external growth opportunities while maintaining financial flexibility. During the quarter, we started construction on three projects, wrapping up our four plan starts for the year.

These projects include an 88-unit, wholly-owned phase 2 development in Kansas City, a 306-unit pre-purchase joint venture development in Northern Virginia, and a 312-unit pre-purchase joint venture development in Nashville, Tennessee. All three projects should reach stabilization in a much lower supplied environment and with stronger operating fundamentals in 2029, and are expected to deliver long-term shareholder returns above our current elevated cost of capital, even under conservative underwriting assumptions. Looking ahead to 2027, we are optimistic that the balance will continue to shift more broadly from supply-driven competition toward demand-led improvement, supporting an acceleration in operating fundamentals. The timing and pace will vary by market, but with healthy demand, absorption exceeding new deliveries, and markets gradually firming, we see a favorable foundation for the next phase of recovery.

As supply pressures ease, we believe the strength of our operating platform and the capabilities we've been building should become more evident to our performance. To all of our associates across our communities and corporate and regional offices, thank you for your continued service to our residents and to MAA. With that, I'll turn the call over to Tim.

Thanks, Brad, and good morning, everyone. For the third quarter, same-store NOI was in line with our expectations, with continued lower than projected property operating expenses offsetting lower than projected revenue, which was driven primarily by slightly weaker new lease pricing. As Brad mentioned, October and early fourth quarter trends for new lease pricing are encouraging, but while positive absorption is occurring, we continue to see consumers being selective in the third quarter, resulting in downward pressure on new lease rates. Despite these trends in new lease pricing, renewal retention rates and lease rates remain strong. Turnover remained at record lows, with 39.6% turnover on a rolling 12-month basis, and renewal lease-over-lease rates up 5.3% for the quarter. As a result, blended lease-over-lease rates were up 10 basis points from the blended rates of the third quarter of 2025.

Our sector-leading net delinquency performance continued with just 0.3% of billed rents outstanding, a level that has remained consistent for several quarters. Our average residents' financial health remains strong, with our rent-to-income ratio at 18%, matching the second quarter, continuing at the lowest level we have seen since pre-COVID. Individual market fundamentals broadly look similar to last quarter, with a lot of consistency in markets that are showing pricing strength and pricing improvement. Most of our markets in South Carolina and Virginia continue to outperform our broader portfolio from a pricing standpoint, with the Charleston and Norfolk, Virginia blended lease-over-lease pricing performance. Sorry, with the Charleston and Norfolk, Virginia markets gaining even more momentum and leading the portfolio in third quarter blended lease-over-lease pricing performance.

Dallas continues to outperform our portfolio, and Austin, though still an underperforming market on an absolute basis, continued its relative improvement with a 420 basis point year-over-year increase in blended pricing. Orlando is another improving market, with blended pricing up 100 basis points from the third quarter of 2025. Phoenix, Charlotte, and Savannah are relatively high concentration markets for us that are still working through heavy supply pressure and struggling to gain new lease momentum despite continued strong demand. During the quarter, MAA Val Vista in Phoenix and MAA Breakwater in Tampa stabilized, and MAA Milepost II in Denver completed construction and moved into our lease-up portfolio. Two additional lease-up properties, MAA Nixie in Raleigh and MAA Liberty Row in Charlotte, are expected to stabilize in the fourth quarter of this year.

As with some of our same store portfolio properties, working through the excess supply is still a challenge, particularly in a market like Charlotte, where 19% of inventory was delivered into the market over the last three years. Our two Charlotte lease-up properties have seen the heaviest concession usage, with up to 10 to 12 weeks offered on certain floor plans. But as with the overall lease-up portfolio, we feel good about the long-term NOI growth and value proposition as markets continue to improve. NOI contributions from this group will continue to build through the rest of this year and into 2027. We continue to execute on our various targeted redevelopment and repositioning initiatives in the third quarter with strong results.