MAA - NYSE

Good morning, ladies and gentlemen, and welcome to the MAA Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded today, February 6, 2025. The I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MMA for opening comments.

Thank you, Ian, 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 Eric Bolton, 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. I will now turn the call over to Eric.

Thanks, Andrew, and good morning. As reported in our earnings release, MAA finished calendar year 2024 in line with our expectations and is in a great position for the recovery cycle for apartment leasing that should be increasingly evident over the course of this year. While we are still working through the impact of record high levels of new supply delivered over the past year, we are encouraged with some of the early recovery trends that we are capturing with lease-over-lease pricing performance. While it would take some time for the recovery momentum to build, it seems clear tide is starting to turn, and we look forward to a productive spring and summer leasing season when the improving trends will have a more obvious compounding impact on overall portfolio results late this year and into 2026. Before turning the call over to Brad, I did want to take just a few minutes this morning and tell you why I'm excited and confident about the prospects for MAA's earnings outlook over the emerging recovery cycle. It starts with my confidence that our leadership team. As we disclosed in December, effective April 1, we plan to execute on the next step in our CEO succession planning program. And Brad, will assume the role of President and CEO. I'll remain active in supporting Brad and our Board as Executive Chairman. Brad and his executive leadership team have an average tenure of 6 years with our company. I know this leadership team well, and I have a lot of confidence in them. Brad and his team have a deep understanding of our strategy and our approach to executing on that strategy, which has delivered sector-leading long-term results for shareholder capital. Beyond my confidence in our leadership team, while our markets have more recently been challenged with a 50-year high record of new supply deliveries, there is increasing evidence that the worst of the pressure from this new supply is poised to materially moderate especially as we get into the summer leasing season. As we have discussed, we historically have seen the actual delivery and leasing pressure from competing new development at roughly 2 years after the start of construction. Based on our analysis, the volume of new construction started in calendar year 2023 or 2 years ago, dropped 39% and from the peak of starts during the extraordinary low interest rate environment in calendar year 2022 and then start to sequentially drop another 50% in calendar year 2024. So this is expected to result in a significant decline in actual unit deliveries starting this year and into 2026 and 2027. Given where we are currently with interest rates and construction loss, we continue to see challenges in the market's ability to meaningfully restart and increase in new projects. Taken together, we believe these conditions will manifest in a sharp drop in new supply delivery starting this year and continuing for several years. In addition to the supply dynamic and the impact of leasing conditions, we believe that our portfolio is uniquely well positioned to capture the benefits from job growth, population growth and high single-family housing costs. This continues to drive a resulting growth in the demand for apartment housing across our markets that will outpace national trends over the long haul. This strong positioning for the demand side of the equation coupled with the material drop in new supply this year and beyond, we believe will have a significant impact on market rent growth across the portfolio for the next few years. Furthermore, I'm excited about the various new tech initiatives we have underway, aimed at driving enhanced services for our residents and more efficiencies within our operating platform. Several new initiatives that we have more recently implemented coupled with new projects that will launch over the coming year, we expect will further increase our margin and accelerate earnings over the next few years. And finally, our external growth pipeline is stronger and larger than any time in our company history. We have several new projects slated to deliver over the emerging recovery cycle with other new sites already lined up. And importantly, the balance sheet is strong and well positioned to continue to support this growth. So in summary, the experience and proven capabilities of our leadership team, our orientation towards the strongest growth in housing demand markets in the country, the strength of our operating platform with growing efficiencies and the more robust external growth pipeline we have in place that is supported by a sector leading a strong balance sheet, all combined to drive much enthusiasm and confidence in my outlook for MAA over the next few years. As this will serve as my last earnings call prior to the transition of the CEO role, I'd like to extend my appreciation and thanks to our shareholders and to the analyst community for your trust and our company and our team. It's truly been an honor to serve the public capital markets over the past thirty years here at Mid-America Apartment Communities, Inc. Our culture at Mid-America Apartment Communities, Inc. is grounded in a strong belief that our stewardship of Mid-America Apartment Communities, Inc. assets and shareholder capital is at all times focused on creating value for the benefit of our residents, our shareholders, our associates, and the communities where we operate. I am proud of our associates at Mid-America Apartment Communities, Inc. I appreciate their hard work and support, and I look forward to Mid-America Apartment Communities, Inc. delivering even higher value in the future for those that we serve. Turn it over to Brad now. You, Eric, and good morning, everyone. As expected, during the fourth quarter, our focus on occupancy combined with higher new supply and the typical seasonal slowdown in leasing traffic weighed on new resident lease pricing during the quarter. But the seasonal decline in lease over lease rates was less than we have seen in previous years. Encouragingly, this pressure has continued to moderate in January, with blended pricing improving more from the fourth quarter's performance than in previous years, predominantly due to improvement in our new lease pricing. I share Eric's optimism for our growth prospects and momentum toward delivering strong long-term earnings. As Tim will discuss in more detail, we are seeing encouraging signs that indicate leasing conditions are poised to support improvement in blended lease rates and have a compounding impact on revenue performance throughout the year. Continued strong absorption, occupancy and exposure, improved seasonal performance, and an expected more meaningful reduction in supply pressure all contribute to a favorable outlook for our existing portfolio. Additionally, we are continuing to invest in several key areas that will significantly impact future earnings, including various technology initiatives that will support our centralization efforts and enhance efficiencies. In 2025, we will begin to more aggressively roll out property-wide Wi-Fi across our portfolio, and we will ramp up the rollout over the next couple of years as a number of our properties transition off of our legacy bulk Wi-Fi program. We also plan to increase our investments in the interior renovation and repositioning programs, both of which benefit from the higher-priced new supply that has delivered into the market recently. On the external growth front, we are committed to maintaining an active development pipeline of around $1 billion. In 2024, we invested in a record five projects expected to deliver average NOI yields stabilization of 6.3%. Ending the year with seven projects under construction representing over 2,300 units at a cost of $850 million. We expect to start construction on another three to four projects in 2025. As the transaction market begins to open later this year, we will continue to opportunistically deploy capital into acquisitions that are in their initial lease-up. During the fourth quarter, we closed on a 386-unit property early in its lease-up in the Dallas market. This property was 44% occupied at the end of the fourth quarter and is expected to stabilize in early 2026. This brings our total acquisitions in 2024 to three properties, which were on average 65% occupied at closing and projected to deliver NOI yields of 5.9% upon reaching stabilization in 2025 and 2026. During the fourth quarter, we sold two properties with an average age of 29 years: a 216-unit property in Charlotte, North Carolina, and a 272-unit property in Richmond, Virginia, delivering a combined investment period IRR of approximately 19%. We have two additional properties in Columbia, South Carolina under contract and expect those to close in the first quarter of 2025. We will continue our focus on strengthening our overall earnings quality by recycling capital out of some of our older higher CapEx properties and redeploying that capital into newer with a higher earnings growth profile, particularly on an after CapEx basis. We expect to execute on the balance of our $325 million disposition plan late in the year. At the end of the fourth quarter, we had eight communities in lease-up, four acquisitions, and four developments, with an end-of-the-year occupancy of 69.7%. We expect the acquisitions to average NOI yields at stabilization of 5.9% and the developments to average NOI yields of around 6.4%. Due to the high level of competition in many of our markets, and our intent to hold firm on our rent pricing expectations, we pushed the expected stabilization dates back slightly on a few of our lease-up properties by one quarter. However, rents continue to exceed our pro forma expectations and are significantly above our original expectations. Our existing portfolio is well-positioned to benefit from the improving demand and supply trends with our various growth initiatives providing additional earnings over the recovery cycle. To all of our associates at the properties and our corporate and regional offices, thank you for your commitment, hard work, and dedication that you show every day to our prospects, residents, and fellow associates. Before turning the call over to Tim, I do want to take a moment to say a few words in recognition of Eric ahead of his transition to the executive chairman role. Over his thirty years of service to Mid-America Apartment Communities, Inc., with twenty-three years as our chief executive officer, Eric has been instrumental in so many ways to this company. His dedication to serving our various stakeholders is second to none. We are grateful for his vision, wisdom, courage, and discipline in leading this company to unmatched performance. His mentorship and counsel over the years to so many in the industry, and especially to Mid-America Apartment Communities, Inc.'s executive leadership team, and to me exemplify the tremendous leader that he is. Eric, for all you have given to our company and to the industry, we thank you. With that, I will turn the call over to Tim.

Thanks, Brad, and good morning, everyone. As noted by Brad, in the fourth quarter, we prioritized achieving portfolio-level occupancy that positions us well for the improving supply-demand dynamic in 2025. We particularly focused on the higher exposure markets, which came at the expense of slightly weaker new lease pricing performance but achieved the occupancy goals for which we were striving. The moderation in new lease pricing showed less seasonal deceleration than we saw in 2023 and less than we typically see from the third to fourth quarter. As a result of this strategy, new lease pricing on a lease-over-lease basis for the fourth quarter was down 8%, a 260 basis point decline from the third quarter but favorably comparable to a 470 basis point decline over the same period in 2023. Renewal rates for the quarter stayed strong, growing 4.2% on a lease-over-lease basis, which was a 10 basis point increase sequentially over the third quarter. The resulting lease-over-lease pricing on a blended basis was down 2%, which represented a 140 basis point improvement in sequential moderation as compared to the same period in 2023. Average physical occupancy was 95.6%, up 10 basis points from the third quarter. And collections continued to outperform expectations with net delinquency representing just 0.3% of billed rents. All these factors drove the resulting same-store revenue down 0.2% for the quarter and up 0.5% for the full year of 2024. As was true for most of 2024, several of our mid-tier markets continued to hold up better than the broader portfolio in the fourth quarter from a blended lease and release pricing standpoint. Richmond, Norfolk, Charleston, Greenville, and our Frederick and other Northern Virginia properties all stood out. Tampa and Orlando are two larger markets that started to show some relative pricing recovery. Also, as was true for most of 2024, Austin, Atlanta, and Jacksonville are markets that continue to be more negatively impacted by the absolute level of supply being delivered into those markets, with Austin continuing to be the toughest challenge of all the markets. We continued our various redevelopment and repositioning initiatives in the fourth quarter. And as Brad mentioned earlier, we expect to accelerate these programs over the course of 2025 and into 2026. For the fourth quarter of 2024, we completed 1,130 interior unit upgrades, bringing our year-to-date total to 5,665 units, achieving rent increases of $106 above non-upgraded units. Despite this more competitive supply environment, these units lease about ten days quicker on average than a non-renovated unit when adjusted for the additional turn time. We expect to renovate closer to 6,000 units in 2025 with an even larger increase expected in 2026. For our repositioning program, we have two active projects that are most of the way through the repricing phase with NOI yields approaching 10%. We have an additional six projects underway with a plan to complete construction between April and June and begin repricing in what we believe will be a strengthening leasing environment. We are also now live on the four property-wide Wi-Fi retrofit projects we began in 2024 and expect to begin an additional 23 projects in 2025. January wrapped up, we are seeing encouraging trends that are aligned with our outlooks for 2025. New lease and blended pricing in January improved as compared to both December and the full fourth quarter with stable occupancy of 95.6%. Our 60-day exposure at the end of January was 7%, 70 basis points lower than this time last year. And should serve to keep occupancy stable through the remainder of the quarter that allows for more pricing power as seasonal demand starts to increase. The 95.6% January average daily physical occupancy was 25 basis points higher than January of 2024. As Brad noted, absorption remains strong in our markets with the fourth quarter representing the second consecutive quarter that units absorbed exceeded units delivered. The excess absorption as compared to new supply in the fourth quarter was the largest gap since the third quarter of 2021. With new lease pricing improving, the remaining challenge we are also encouraged by the lease-over-lease rates achieved non-acceptive renewals through April with the average increases in the 4.25% range. Improving new lease rates should help support continued strong renewal performance into the busier spring and summer leasing season. New supply deliveries continue to be a headwind in many of our markets, but the trends support expected improvement throughout 2025, laying the groundwork for an even stronger 2026. Following on Eric's comments with construction start peaking in mid to late 2022 in most of our markets, we believe we have passed the maximum pricing pressure period of ten to come two years or so after the peak of construction. The slowly moderating supply pressure, increasing spring and summer leasing traffic, and our current occupancy exposure portfolio position have us excited about the recovery to come. That is all the way I have in prepared comments. We will now turn the call over to Clay.

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.23 per share, was in line with our fourth quarter guidance and contributed to core FFO for the full year of $8.88 per share, in line with our original guidance for the year. Our same-store revenue results for the quarter were relatively in line with expectations. As Tim mentioned, same-store revenues benefited from strong. Our same-store expense performance was slightly unfavorable compared to our guidance due to personnel costs and other property expenses. Favorable interest expense and non-operating income offset the increase in same-store expenses. During the quarter, we funded approximately $64 million of development costs of the current $852 million pipeline leaving an expected $374 million to be funded on our current pipeline, over the next two to three years. We also invested approximately $18 billion of capital through our redevelopment and repositioning programs during the quarter, which we expect to continue to enhance the quality of our portfolio and produce solid returns upon completion. Our balance sheet remains in great shape. We ended the quarter with over $1 billion in combined cash and borrowing capacity, under our revolving credit facility. Providing significant opportunity to fund future investments. Our leverage remains low with net debt to EBITDA at four times, and at quarter end, our outstanding debt was approximately 95% fixed at an effective rate of 3.8%. During December, we issued $350 million of ten-year public bonds at an effective rate of just over 5% using proceeds to pay down our outstanding commercial paper. These proceeds provide an accretive use of capital given the expected stabilized NOI yield approaching 6% or greater on our recent acquisitions and current developments that Brad previously mentioned. Finally, we provided initial earnings guidance for 2025 with our release, which is detailed in the supplemental information package. FFO for 2025 is projected to be at $8.61 to $8.93, or $8.77 at the midpoint. As has been outlined in the prior comments, expect the momentum in rental pricing to grow over the course of the year and to drive improving year-over-year performance in core FFO over the back half of the year. The proposed 2025 same-store revenue growth midpoint of 0.4% results from a rental pricing earn-in of negative 0.4% combined with a blended rental pricing expectation of 1.7% for the year. We expect blended rental pricing to be comprised of new lease pricing, will continue to be impacted by elevated supply levels and renewal pricing in line with historical levels. We expect the impact of these elevated supply levels to improve over the course of the year. The same-store portfolio, we expect effective rent growth for the year to be approximately 0.2% at the midpoint of our range. Occupancy to average between 95.3% and 95.9% for the year or 95.6% at the midpoint and other revenue items primarily reimbursement and fee income to grow at 2.5%. Same-store operating expenses are projected to grow at a midpoint of 3.2% for the year, personnel and repair and maintenance costs are expected to grow just over 3% we will expect some continued pressure from marketing costs and insurance expense. These expense projections combined with the revenue growth of 0.4% results in a projected decline in same-store NOI of 1.15% at the midpoint. We currently have non-communities actively leasing and an additional community stabilized in late 2024. Given the interest carry and leasing velocity of these recently acquired and completed developments, we anticipate our lease-up pipeline being slightly diluted to core FFO in the first half of the year before turning accretive later in the year as more projects stabilize contributing about $0.03 to core FFO for the year, net of the interest carry. We expect continued external growth in 2025, both through acquisitions and development. We anticipate a range of $350 million to $450 million in acquisitions, all likely to be in lease-up and not yet stabilized. And a range of $250 million to $350 million in development investments for the year. This growth was partially funded by asset sales, we expect dispositions of approximately $325 million with the remainder to be funded by debt financing and internal cash flow. This external growth is expected to be slightly diluted to core FFO in 2025 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 $134.5 million at the midpoint, a 4.5% increase over 2024 results. We also expect to refinance $100 million on bonds maturing in November 2025. These bonds have an effective rate of 4.2% and we are forecasting to refinance at 5%. Anticipated refinancing coupled with our 2024 refinancing activities, will result in $0.03 dilution to core FFO as compared to the prior year. Combined with financing to support our expected growth for 2025, we project interest expense to increase by approximately 13% for the year. That is all that we have in the way of prepared comments. Eun, we will now turn the call back to you for any questions. Thank you. Once again, we will now open the call up for questions. If you would like to ask a question, please press star followed by the number one on your touch-tone phone. If you would like to withdraw your question, you may press the pound key. Our first question comes from the line of Jamie Feldman with Wells Fargo. Your line is open.

Great. Thanks for taking the question.

I was hoping you could put a finer point on the 1.7% blend outlook for 2025. Can you talk exactly about what you are thinking for new versus renewal? And then is there a point in the year where you think new spreads actually turn positive? Maybe talk a little bit more about the cadence throughout the year of that 1.7%.

Yeah. This is Tim. I will give a little bit of detail on the guidance, the pricing guidance. So for the year, we are expecting new lease pricing at a lease-over-lease basis somewhere in the negative 1.5% range with that obviously playing out seasonally with the lowest point where we are right now getting slightly positive as we get into Q3 and then start to trend back down seasonally a little bit as we get into Q4. And then renewals, pretty steady in that 4.25% to 4.5% range where we are right now. We do not expect much movement there. That tends to stay pretty consistent. So it is the new lease pricing that drives the variance throughout the quarters.

Okay. I am sorry. Did you do you think you will see any months or quarters with positive new lease?

Yeah. I would say as you get into you know, typically what we see if you think about normal seasonality is new lease pricing sort of accelerating January through to about July and then starting to moderate as we get into August. So I would expect as we get into late Q2, early Q3, we will we expect to have two or three months where we will be slightly positive on the new lease rate and then trend back down to negative as you get in the late Q3 and then the Q4.

Okay. And then what are you guys thinking on turnover? How does that trend throughout the year?

Expecting pretty consistent with where we were in 2024. You know, the major reasons people move out obviously buy a home job change, those are the buy home is down. Think, 20% in Q4 compared to where it was last year with interest rates and home prices where they are. We do not expect that to move a lot. And so we in generally, we are dialing into our forecast renewal or turnover consistent with where we were in 2024.

Okay. Great. Thanks for the color. And, Eric, congratulations again. Thank you.

Our next question comes from the line of Eric Wolfe with Citi. Your line is open.

Hey. I just wanted to follow-up there. I mean, I when I look at the contribution to your same-store revenue from the 1.7% blend, it looks like it is sort of on the lower end, which suggests that there is probably a good back half waiting to the blended spread. So I was just curious if that is the case. If you could just maybe provide, like, you know, you expect first half to be in, like, a half percent range, and then it is a step up to over 2.5%. Or if the difference is really just seasonally, like, you just think that seasonally the second quarter and third quarter will be sort of a very normal lift. I am just trying to understand if this is, like, a sort of back half type of prediction for this year.

Not necessarily a back half prediction. I mean, we expect the normal seasonality as I was talking about and certainly for new lease rates to moderate as you get late Q3 and into Q4. So it is really and, you know, other thing keep in mind, obviously, when you when you think about mid Q2, early Q3, we also have the bulk of our leases expiring during that time. So matching up some of the more positive new lease rates with the maximum number of lease is really what drives that waiting. But as I mentioned, you know, expect to get because slightly positive call to the one to one and a quarter range for a couple months. In the in the middle of the year and then start to trend back down. So it is the combination of the waiting of the lease expiration, then obviously the balance between new lease and renewals. We expect renewals will Yeah. Heavier weighting as they were this year with consistent turnover, so that is really what is driving the full year number. Eric, this is this is Brad. I will just I will I will add one one additional item to that. You know, certainly, if you look at the supply and the new deliveries as we get into this year, I mean, as we look back, the new supply that was started in 2023, clearly, there was a drop off in that new supply in the back half of 2023, which we think you know, really informs the supply pressure as we get into 2025. So, you know, as we mentioned in our comments, you know, we are in still an elevated level of supply. Today, we are off the peak of where we have been in in 2024. And that supply picture will continue to get better as we go throughout this year. So to Tim's point, as you as you start layering on top of diminishing supply pressure environment as we go through the year with, you know, the demand that continues to pick up as we get into spring and summer leasing season. That really, starts to inform the trajectory of what we think the lease rates will look like through the year.

Got it. That is helpful. I am not sure if you have this data, but one you look at your renewals, what percent of those renewals are also tenants that renewed the prior year? Guess I am trying to understand sort of what percentage of tenants are taking two years of this sort of 4% to 5% renewal increases and sort of a flattish market rate environment. And if you have any sort of limit on where renewal rate rents can be relative to market or new lease rents.

Well, another way to perhaps characterize that is our average stay is somewhere in the 21, 22-month range. That certainly has extended out a little bit over the last couple of years with the lower turnover. So, you know, typically, you have a resident moves in has called a 12-month lease, and then does one renewal, and then on average, they are moving out after that first renewal. So typically do not see renewal on top of renewal on top of renewal, which which tends to be a little bit of a gutter on on that gap getting too too wide. Even with lower turnover, we are still, you know, turning you know, a good chunk of the portfolio every year. And so it tends to balance itself out a little bit. And then to Brad's point about strengthening supply-demand dynamic, we expect new lease rates to accelerate throughout the year, which then should in turn help the renewal rates where it is starting to narrow that gap and it does not does not gap any wider than it has been through thick metal. Provide some stability and strength on the renewal side also.

Got it.

Thank you. Our next question comes from the line of Nick Yulico with Scotiabank. Your line is open. Good morning, everyone. It is Dan Tricarico. I am with Nick. Can you help us understand how concessions in your markets have impacted your new lease rate figures and, you know, if you see the dissipation of concessionary activity and these are comps maybe having a you know, choose your to use your word, compounding effect on the on the reported numbers.

Yeah. I mean, to to answer the last part of that, I mean, the lease-over-lease rates we quote are net of the impact of concessions, so that is considered in there. But I would say broadly, you know, for us, for our portfolio, concessions were down a little bit in Q4 as compared to Q3 in terms of cash concessions. I would say at a market-wide portfolio level, concessions were pretty consistent. Around a month free is pretty typical in most markets. Now you get into some of the tougher markets with with a lot of lease-up, and it is some of the same submarkets I have talked about before, anything about downtown Austin and then Round Rock, Georgetown area of Austin. You think about Midtown Atlanta. You think about Uptown Charlotte. That is where you can get more into the two, two and a half even up to three in a couple spots with a lot of lease-up. So still pressure there, some of the markets we have talked about, but the concession pressure overall is steady to perhaps slightly declining.

Great. Thanks for that. And then I guess as a follow-up, do you have a sense on, I guess, how much competitive supply that you guys track is how much that is declining year over year in 2026 and 2027 and you know, maybe how that compares on a, like, a completions as a percent of stock basis to know, maybe the prior years to 2020.

Yeah. I mean, for 2025, we think supply is probably down 15% to 20% in terms of just absolute units. Being delivered from from 2024 to 2025. It is we think it is down closer 30% to 40% as you look out into 2026. And then, you know, you start getting pretty far out at that point. But if you look at the starts and Eric hit on this as well, I mean, starts are down. Q4 of 2024 starts in our market were 0.3% of inventory, which is the lowest it has been, you know, for the last several years, well below where it was even during COVID. So it speaks to a pretty pretty long window where we think supply will be moderating.

But, like, on a on a completions as a percent of stock, like, in 2026, is that like, lower than a normal Yeah.

Yeah. I would say, you know, in our markets, 3.5% of inventory is probably about average. You know, if you if you about the long term, 3.5%, we have probably been above that. The last few years, but I think 2025 or 2026 is below that, and I expect 2027 is even further below that.

Right. Thanks, and congratulations, our

Our next question comes from the line of Brad Heffern with RBC Capital Markets. Your line is open. Yeah. Thanks. Morning, everyone. You have talked a few times about the start of the year being better than normal. I think you said in the prepared remarks blends are improving more than normal in January on a a sequential basis. Those are obviously very influenced by comp. So I am just curious if you are seeing, like, a real market level fundamental influx inflection, market rent trend being better than normal, occupancy rising, You kinda talked about concessions maybe getting a little bit better. Just trying to figure out how much of that is is sort of just comps and the abnormality of where leasing spreads are right now versus like, a a real fundamental change?

Well, I mean, it is a it is a combination of all of those. Certainly, the lessening supply, I think, is playing a part of that. You know, easier comps, if you will, is playing a part of that. But, you know, when we when we think about the sequential trends we are seeing in January both compared to December and Q4. And not just looking back to the last year or two, but looking back to you know, what we would call more normal periods probably is going back to 2017, 2018, 2019. The deceleration from Q3 and Q4 was sort of less than typical and then the acceleration from from Q4 to January was more so. And so much where, you know, January new lease pricing is better than the than the full Q4, which is pretty atypical. We usually see it. It is usually a little bit lower than Q4. Then we would expect February, March to accelerate even more. So feel like it is a good position to where we are and and showing some, I think, growth strength in the recovery. So I think that piece is probably tied to just an improving overall outlook, the higher than typical acceleration. Okay. Thanks for that.

And then can you talk through whether you think changes in immigration policy could have a significant impact on the portfolio either through you know, deportations or just through less immigration.

Yeah. Hey. This is Brad. You know, I would say, you know, from the same store, perspective, you know, we we do not see a whole lot of impact coming from from a change in the immigration policies. I mean, there is nothing that we tracked that would indicate that we are, you know, really overly sick fix exposed to to any type of of the immigration issues that that we see out there. So, you know, from a labor perspective in our same store portfolio, we we do not see that being a big impact in terms from a resident perspective again, you know, what no matter which metric we are looking at, we do not see that we are exposed to a large degree to that. Now having said that, where I think we could see some impact associated with the the immigration side would be on, you know, perhaps in the new development area, where, you know, a lot of the labor in that area there could be some labor impact associated with that. And you know, clearly, that would have a an impact on the ability of the market really to ramp up new construction, you know, for us. You know, obviously, that that would impact our desire to continue to hold our new developments you know, at the billion-dollar level that we are talking about. But but given the overall size of our existing portfolio, you know, anything that that slows down supply longer term would be a benefit to our existing portfolio. But you know, at this point, it is it is something that we will have to continue to monitor and see how it how it plays out, but we are not seeing a material impact. We do not see that on the horizon at the moment. Okay. Thanks for the thought.

Our next question comes from the line of Jeff Spector with Bank of America. Your line is open.

Great. Thank you. Just to follow-up to that, I I was gonna ask a similar question, but maybe even just pulling in demographics. When you think about your portfolio positioning, third a, third b plus, third b, and then split between urban, suburban. I guess from a high level, long-term standpoint, five-year view. Does any of this change your thinking on portfolio positioning?

This is Brad. Tim, you can add some points here too. But, you know, I do not I do not think so. I mean, you know, one of the one of the characteristics of our portfolio long term is is definitely to orient our portfolio toward the highest demand region of the country, you know, that that generally leads to lower volatility in both earnings and dividends performance. And so we think that that continues to be the right focus for us in terms of where we are located, the market we are located in, you know, and also allocating capital mix between, you know, larger markets and mid-tier markets. So you know, that also tends to support kind of a more affordable price point than, you know, other portfolios that are out there. And I think you know, if you look at our return over a long period of time, I think I think that speaks to, you know, us appealing to the broadest segment of the rental market. And I think, ultimately, that is really what we want to do versus skewing the portfolio to one end of the spectrum versus the other. And so I do not see a material change in terms of our strategy, in terms of how we are allocating capital or those other portfolio characteristics that we target.

Great. Thank you. And then I apologize if I missed this but can you talk a little bit more, disclose more on on cap rates? Between the acquisitions, dispositions and maybe what the requirement is today between you know, what you are looking for between development and acquisitions. Thank you.

Hey, Jeff. This is Brad again. Yeah. So the dispositions that we have sold in the fourth quarter, cap rates on those were call it, low sixes. And and those I will tell you on the two that we sold, we had one property in in Charlotte that did have a fire during the marketing process. So, you know, proceeds were certainly impacted a bit by that. So, you know but but all my I will tell you on an after CapEx basis, you know, the those properties that we are selling generally are thirty-year-old assets, so they have higher CapEx needs that we are recycling the capital out of. And then we are redeploying that capital, as I mentioned in my my call comments, into acquisitions, generally in lease-up. So there is some lease-up period associated with them. And then upon reaching stabilization, those yields are close to 6% in terms of what we are achieving. Now we are able to achieve those yields, you know, because we are focused on properties that are in lease-up that are harder for the market to finance. So we are able to get better pricing. Generally, we are 15% to 20% below current replacement costs on those. So we are able to get a a pretty good return on those. The market cap rates in the the fourth quarter that we tracked is not a lot of data points. We we only track six projects that ended up closing in the cap rate was around a 5.51. Our developments, the five that that we invested in and 2024, those were a six called a 6.4 NOI yield. So it is a it is a 140 basis point spread to current market cap rates. And we feel that that is a good place for us to continue to focus our capital, you know, in that six to six and a half range on development.

Thank you.

Our next question comes from the line of Austin Wurschmidt. KeyBanc Capital Markets. Line is opened.

Great. Thanks, and good morning, everybody. So going back to a question earlier about lease-over-lease pricing expectations and just kind of thinking back to when you started to see pricing pressure the back half of 2023 and and kind of this expectation that absorption of peak deliveries will will continue through the first half of this year. Is it fair to assume that you you do face easier comps in the back half of the year you could see concession pricing begin to abate more quickly, which could lead to kind of the the even better spread and blended rate growth versus the prior year, that will lead to, you know, the acceleration of net year-over-year net effective rent growth. Is that is that the right way to think about it?

Hey, Austin. This is Sam. And are you talking about as we get to the back part of 2025, primarily? Yes. Yes. Yeah. Yeah. I mean, I definitely think we could see, if you want to call it less season seasonality as you get into late 2025 because we as we talked about, we have got the moderating supply pressure that will continue to So Speak well on the demand side through the remainder of 2025 and into 2026. We did see kind of a peak of that supply pressure late 2024. So, yeah, I think there is a there is an easier comp component that comes with that. Square, I would expect, you know, we are talking about this less seasonal deceleration that we saw this year. I think we could definitely see that in the back part of 2025 as well.

And based on the fact that you did negative half a percent year-over-year net effective rent growth in the back half of 2024, and the guidance assumes a 20 basis point positive growth this year. I guess, when do you expect that net effect effective to turn positive on a year-over-year basis? Yeah. I will say it will you know, it will probably be by towards the the middle part of the year by in Q3 mid Q3, and then and then on into Q4 and beyond. That is helpful. And then just last one for me. If you broke out your blended rate growth between the larger markets and your smaller secondary markets, how do those stack up, you know, relative to, you know, this year versus 2024? Just curious where you are seeing the most improvement between those two buckets. And that is all for me. Thank you.

I mean, I would say we have seen it seeing seeing that gap narrow a little bit. I mean, the secondary markets or mid-tier, however you want to call it, have outperformed certainly the last couple of years with generally lower supply having in those markets. But we we have seen a start to an era, particularly in the last couple of quarters. There is still probably 50 basis points. I would call it a pricing difference, but it it has narrowed a bit.

Next question comes from the line of Michael Goldsmith. With UBS. Line is opened.

Good morning. Thanks a lot for taking my question. The question is on on the return of pricing power. Your your occupancy levels are elevated, but not do you see pricing power returning contingent on occupancy to improve in competing properties and does the slowdown in supplier growth that that you are expecting this year support that?

Well, certainly, the market level I can see plays into it a little bit. You know, you are somewhat at the mercy of what some of your other immediate comps are doing. But when we look at where our current occupancy is right now, which is 25 to 30 basis points better than it was this time last year and really looking at exposure, which looks out further and we are in a much better position there. You know, we are pretty confident that certainly over the next few months, in a good good spot with occupancy to where, you know, we can particularly get into the spring, you can start to push on that pricing. But given where we are right now with exposure compared to last year, that is a better spot to be. And then you you combine that with declining supply, gives us pretty good confidence that occupancy will stay in the steady range, which is which is about where we want it. We do not really desire to be at 96%. Somewhere in this 95.6% range is about right and where we can start to push on price as we get into the spring and summer.

Got it. And just as a as a follow-up, as you think about new lease rents and and how they will trend through this year, you are going from you know, down 8% today to positive in the third quarter. So what does that new lease rent look like from the start of the year to week and and how does that maybe compare to historical growth through the year? Thanks.

So our our January new lease rates were negative 7.1%. So that is kind of where we are starting. And, you know, as we talked about, every year that we have seen sort of normal seasonality, we see that accelerate pretty consistently through to about July. So as I mentioned, as we get to the July, we are thinking slightly positive somewhere in the one one and a half percent range. So you can kind of do the math on the acceleration that that we are assuming. But that is typical with kind of how the seasonality typically works.

How does that compare to, like, historically? Like, the historical year or the historical curve?

It is certainly historical. It is a historical curve, so the shape of the curve would look like normal. It is a little bit steeper as you get into the spring and summer based on seasonality combined with declining supply pressure.

Got it. Thank you very much.

Our next question comes from the line of Adam Kramer with Morgan Stanley. Your line is open. Great. Thanks for for taking the question. Congrats, Erica. All the best going forward. Wanted to ask about the kind of job growth and wage growth assumptions and maybe even just kind of higher higher level macro assumptions that you know, you have you have embedded, I guess, either formally or or informally kind of in in the guide here.

Yeah. I would say from a, you know, macroeconomic standpoint, pretty consistent with what we saw in 2024. So we are expecting, you know, call it 600,000 new jobs at our markets for 2025, which would be consistent with what we saw in 2024, pretty consistent in terms of you know, the in-migration that we continue to see, household formation, population growth, all the various factors that that you have seen, we would expect to stay pretty consistent and and certainly be above what we see at the national level with these markets being a little bit higher gross markets. And then combined with that, continued low turnover, continue to load move outs to to buy a home and and some of the other reasons. So, you know, macroeconomic pretty consistent with last year, but with a better supply dynamic. Great. That is really helpful. And I I think you just mentioned the January new lease number in in the prior question or answer, but do you mind just giving the the kind of renewal and blended number for January as well? Yeah. So January, new lease, negative 7.1%. Renewal was 4.6%. And blend was negative 0.9%.

Got it. Appreciate the time, guys. Thank you.

Our next question comes from the line of Alexander Goldfarb. With Piper Sandler. Your line is opened. Good morning morning morning down there. And Eric, as I say in in New York, and, Brad, you know that the buck now stops with you. So all the complaining all the complaining and griping now comes to your desk. Two questions. First, as you guys look at know, cap rates, you mentioned 5.51, I think, to Jeff Spector's question. You know, debt costs are certainly above that. How long do you think people because not everyone could be an all-cash buyer. So what is your sense for how long people are tolerating that negative leverage. And is that and do you think it is typical with what we you have seen historically when we have periods of negative leverage or do you think people are willing to wait longer?

I mean, this is Brad. I think, you know, historically, periods of negative leverage have been temporary. I would say this is probably been one of the longest periods of negative leverage that that has occurred. And so what we are seeing a couple of things. One is you know, buyers are are buying down their interest rates a bit, which helps the negative leverage sum. And then two, I think I think they are underwriting an assumption of a pretty aggressive recovery in 2026 and beyond. And I think that that certainly helps them get more comfortable with what their negative leverage looks like and how quickly they can grow out of that position. So I think it really depends on what your outlook is and how aggressive you are going to be on the on the underwriting. But those are two things that we are we are certainly seeing in the market right now.

And then as you guys underwrite project whether they are acquisitions or developments, how much of your how much of the math is coming from other income, meaning WiFi or cell service or waste or other services, meaning, like, years ago it was pure rent. But the industry has evolved. So I am just sort of curious. How much of your yield now comes from things other than rent?

You know, it is it is not much. I mean, we certainly, the the one piece that I think would be probably a bigger component will be with the WiFi piece, with which, you know, we are just now rolling out across the portfolio. You know, that that is one that that certainly has positive implications from a resident experience perspective. And you know, and from a demand perspective from our residents as well as supporting, you know, what we are doing on self-touring and things of that nature. But you know, we we have gotten away. You know, we have some properties with valet trash and things of that nature. But, generally, you know, those are not you know, major items that we are focusing efforts on. It is really in areas where, you know, we are adding value to our residents. Whether it is our bulk cable that we have or our WiFi. Certainly, those are are some of the larger components of the the fees that we do have.

Thank you.

Our next question comes from the line of Richard Anderson with Wedbush. Your line is open. Thanks. Good morning. And yeah. Eric, if this is an April fools joke, it will be the best one ever. But really really really an honor to to follow your career, to this point, and good luck to you. But I I am gonna ask you a question because, you know, I am not letting you get off the hook. As executive chairman, we have heard that, you know, title before, and and sometimes people have difficulty disengaging. I I and then you said you are gonna remain active, which is great, I think, for everybody involved. But how do you think the dynamic will play out? You know, is Brad, like, on day one his fingerprints are gonna be all over? Or is there gonna be sort of a a phase-in process? I am I am just wondering, you know, when you say remain active, is that like a a dimmer switch as time passes? Or a light switch? I am just I just want to know. How things will go from here.

Well, like your analogy, Rich, about the the switches. I would I would definitely definitely lean towards the dimmer switch concept. And that is the intent here. I as I have said earlier, I have got tremendous confidence in Brad and tremendous confidence in the team that he has with him. And I think just as a function of me pulling back a little bit that the the the influence that that Brad and the rest of the team have on performance and and how things are playing out is gonna grow. And my influence will diminish. But I think that the the the intent here is for me to continue to be actively available to to Brad to help him think about, you know, whatever may be coming up in terms of challenges or opportunities. And I certainly will remain tied into man you know, the the repairs for finger on the pulse so that I can I can be helpful in that regard as well? But but but it clearly is, you know, an intention here as I have seen it done successfully in other organizations. For my you know, sort of involvement to diminish over time, and that is and that is that is the plan. And and and, you know, certainly remain active at the board level for years to come. I have got you know, I have been here for thirty years, and everything I have personally is tied up in the company. I I I cannot think of a better investment for my net worth and plan to, you know, continue to do all our Kansas support, making it worth more in the future.

Awesome. Thanks for that, Eric, and good luck. My second question real quick is, you know, when we have seen extraordinary conditions play out, it is often followed by extraordinary snapbacks. Like, for example, the twenty plus percent type growth we were seeing in rents when people moved back to the old you know, office and so on in 2022, I guess it was. So we have had extraordinary supply in the Sunbelt. You are talking about a path of improvement as the year progresses. How excited are you really for 2026? And and is there a chance where like, significantly outsized growth starting in 2026 just because of the nature of the events that took place that seated at I am just curious if that is a possibility in your eyes.

I mean, I definitely think it is a possibility, Rich, because as you say, you and I both have been around a long time and and the severity of the cycle tends to define the the the extent of the recovery. And we are coming off a fifty-year high level of supply in our markets. I mean, this is this is unprecedented. We have not seen this level of supply since we have been a public company. And I what is what is so encouraging about that fact is the is the fact that, you know, you know, our our NOI and our overall performance moderated certainly from where we were during the COVID years, but it did not collapse by any means. And, it is held up actually pretty darn well. In in in in the grand scheme of things. And, and I think that speaks to just the appeal of this product, the appeal of our markets, the appeal of our portfolio. And all those factors that drive the appeal, that drive demand are still there and I think are growing. I think the the new incoming administration is more likely to have a positive impact ultimately on the economy than the negative. At least, I certainly hope that. So I am very enthused about what I continue to believe is gonna be, you know, great demand side dynamics. I against a backdrop of what we know is gonna be incredibly dramatic falloff in the level of supply coming into the market. And so that does set up a very interesting, you know, set of demand supply dynamics going into late this year into 2026 and 2027. That we think is going to have a hugely positive impact on on our performance.

Okay. Great. Thanks very much, and Thank you again, Eric.

Thank you, Rich. Appreciate it.

Our next question comes from the line of Steve Sakwa with Evercore ISI. Your line is opened.

Yeah. Thanks. Most of my questions have been asked. I just wanted to maybe ask Clay one on just the refinancing of of the bonds. You know, I think you threw out a 5% rate I guess I am really curious. Where do you think your spreads are today? I realized ten year is pretty volatile. So trying to peg it to an exact way today might be hard. But, you know, where do you think ten year issue would be for you today with tenure sitting around a little over four forty.

Yeah. Save, you know, back in in December, we actually issued some bonds and and actually got a a record record lows spread of of seventy-eight basis points with that transaction. Given where where the treasury has has trended since that point in time, you know, I suspect that spread has probably ticked up, you know, several base points, but I would still say it is somewhere between eighty and eighty-five bps.

Okay. Great. Thanks.

Our next question comes from the line of Michael Gorman with BTIG. Line is opened.

Yeah. Thanks. Just a couple of quick ones. Going back to the transaction side of things, just trying to understand how we should think about the potential timing of investments over the course of the year. If I kind of marry it up to your discussions of the fundamental strengths kind of improving in the markets, your focus on lease-up properties should we expect acquisition opportunities maybe to be front-end loaded before maybe some of that lease-up opportunity hits and maybe more competition comes into the space? Or or how should we think about that?

Yeah. I mean, you know, just based on, you know, what we are seeing in the market right now and, you know, what we heard last week at NME. You know, my sense is that the market is probably gonna be slower the first half of the year and will likely tick up, you know, maybe midyear and then into the third quarter. And, you know, obviously, you know, as those those properties come out, and hit the market, you know, it takes, you know, ninety to a hundred and twenty days, you know, for some of these to close. So you know, my sense is it is gonna be third quarter before we really start to see the volume pick up on the transaction side.

Okay. Great. That is helpful. And then maybe just one last one. I apologize if I missed it, but you mentioned outperforming on the collections front. What what do you have baked into the 2025 guidance in terms of delinquencies?

Yeah. We it is pretty consistent with what we have seen, this this past year. So I think we have got about thirty basis points, thirty-five basis points are showing for for delinquencies and and and the 2025 guide.

Great. Thanks so much.

Our next question comes from the line of Haendel St. Juste with Mizuho. Your line is open.

Yes. Good morning, and, Erica, GolfClap. It has been a pleasure I had a couple quick questions I wanted to first, a follow-up. I think it was Michael question earlier. I am curious how much actual rents would need to change over the course of this year for new lease rates to be positive. Not just how much new lease spreads we need to improve, but the actual dollar per unit change from now until third quarter and then maybe some context on what that would perhaps look like in a more normal year. Thanks.

Yeah. And that was Tim. If you think about if I look at January, for example, the all of the new lease absolute rents that we put in place compared to January of last year, it is about a negative one and a half percent spread. And that that gap has continued to narrow throughout 2024. So you will call it twenty-five dollar gap in that year-over-year look. So that can give you a little bit of little bit of perspective on on what that gap looks like. I mean, we we typically would see if you think about market rents as you know, whatever December was and then how it trends on new leases throughout the year. We would see you know, July probably four or five percent above what December rates are and then trend back down. So, you know, something less than that is really what we have dialed in, but that gives you a little bit of perspective.

Appreciate that. My second question is on the outlook for for turnover this year. I think you guys mentioned flat relative to last year. Last year, I think you had close to I think, almost sixty percent, risk pension, one of the highest levels. I can remember. But I am curious if demand and market great. Start to show some improvement as as we expect and start pushing a bit more for for pricing power. Would not that cause some upward pressure on turnover? So just on how you are thinking about your your expectations for turnover this year.

Yeah. I mean, certainly, that it does. But, you know, I I would argue right now with all of the options that are out there in the market and all the supply that is out there, I mean, people have more options certainly than they ever have. So, you know, that is there is more incentive, frankly, to to move right now given the concession environment. Environment and all the spot that is out there. And yet we we have not seen that turnover pickup. So I think it is more macro driven. It is, you know, biggest reason to move out is has always been to buy a house, and that is extremely difficult, not only with interest rates, but with where single-family home prices are. Continue to grow even as our our rents have moderated over the last year. So I think it is more of a macro picture in terms of of price style changes and and life events is driving it more so less so than you know, the the current pricing position.

Appreciate the task. Thanks, guys.

Next question comes from the line of Rich Hightower with Barclays. Your line is open.

Hey. Good morning, guys. And again, congrats to both Eric and and Brad. Just one from me. I guess if we are, you know, if you are keeping a steady development pipeline, it sounds like right around a billion, give or take. But if we see this air pocket of sorts in in in new supply going forward where maybe you could lean into development a little more. You know, as as as sort of current projects trail off. What is the appetite, the capacity? Obviously, you have got a great balance sheet. And I assume you could flex that up anytime you like. So just tell us about the thoughts around maybe increasing development from here. Thanks.

Yeah. I mean, I think, certainly, development is one of the best uses of capital that we have today, and especially given, you know, what we will be a diminished supply pipeline going forward. And you know, it it takes time to really build that pipeline. And and, you know, two years ago that we had that pipeline was at about $450 million and today, it is close to $900 million where we want to keep it. So the team has done a tremendous job of really building it to that point and and I I do think said in his comments and I have mentioned, you know, the starts that we had in 2024 is a record level for us. And so we have really good momentum in terms of building that and and would like to really keep it elevated. You know, today, you know, we expect another three to four projects to start this year, which will keep us at that level where where I think you could potentially see additional opportunities could be in our JV prepurchase platform where we partner with other developers because we are seeing continued instances where equity capital, you know, is backing out of deals and we are able to to step into potential deals that are pretty close to show already. We we have a couple of opportunities we are looking at like that for this year, which could allow us to to quickly add additional projects to that pipeline. So, you know, that is an area we will continue to focus on. You know, we would like to keep, our exposure there no more than about 5% of our enterprise value, which keeps us kind of in that well, we call it $1.2 billion range, something in that area. So we will be to the extent that we are able to lean into that a bit more, we we will.

Okay. Very helpful. Thanks.

Our next question comes from the line of Rob DelPriore with Janney. Your line is open.

Rob, you appear to be muted.

Okay. We are gonna go ahead and move on. Our next question comes from the line of Wes Golladay with Baird. Line is opened.

Hey. Good morning, everyone, and congratulations to both Eric and Brad. Quick question for you on migration to the Sunbelt. Has there been any change in volume or they are coming from?

Hey, Wes. It is Sam. Not really. I mean, it is it is it is sort of hovered in that ten to twelve to thirteen percent of our move-ins coming from outside of the Sunbelt into the Sunbelt, and that is that is continues to be in that range. And, generally, it is it is obviously the the larger states is where they tend to come from. It is California, New York, and Chicago, and some of those. So broadly, the the the trends are the same as they have been for the last year or so.

Okay. And then you are doing a lot of asset recycling this year. Is there any appetite to lever up a little early in the cycle?

Yeah. So we will you will spear price a little bit of that as as we as we, you know, look to acquire. You know, Brad mentioned some of those acquisitions will probably be in the the latter part of the year. What we are the way we are thinking about the case of that, though, is to your point, Wes, is that those dispositions will probably fall off in the in the back part of the year, and so you might see a little bit of lever up to to fund some of the the development pipeline that we talked about and as well as some of the acquisitions that that we have that we have got it towards as well. It would not be anything outside of what we stated as far as where our leverage would go, though.

Okay. Thank you.

Our next question comes from the line of Linda Tsai.

Hi. Thanks for taking my question. Eric, congratulations again. You are really paradigm for leadership. You are earning a fifteen negative fifteen to negative fifty. It is based on pricing through October, maybe some more color on that. And how does that compare to a year ago?

Yeah. So last year, our our earn-in was was a positive fifty basis points. And so as as I mentioned in my my comments, the the earnings we have going into 2025 is is negative forty basis points. If you are alluding to our our NAREIT presentation that we had provided back in November. You know, the difference the midpoint of that was obviously thirty-five basis points, negative thirty-five basis points. So we did see a little bit of pressure in November and December in in in pricing, that that bar from that midpoint down to to the negative forty basis points.

And then the steep drop in supply pressure in markets know, over down twenty percent like Houston, Atlanta, Orlando, is that supply coming down at the same time collectively? Or is it sort of bumpy?

It is it is relatively consistent when you think about it across markets. It is huge. If you go back to the starts that we talked about, the kind of peaks and second quarter, third quarter of 2022, there is a couple markets where that peak was a quarter earlier or a quarter later, but for the most part, it was riding that range. So I would expect a relatively steady decline. It is it is pretty consistent across most markets. I mean, certainly, there is a few that are still seeing increasing supply, but on on balance, it is pretty consistent trend.

Thank you.

Our next question comes from the line of Ann Chan with Green Street. Your line is open.

Hey. Good morning, everyone. Thanks for taking my questions. So first question, going to the topic of portfolio allocation, over the next few years, do you expect to exit any markets or enter any new markets? And if so, which markets are on your shortlist?

Diane, this is Brad. I mean, we we definitely have some markets where we have one or two assets that over time will continue to cycle out of and drive efficiencies. I mean, broadly speaking, we we like our overall portfolio allocation where we are located in the split between, you know, kind of our larger markets and our mid-tier markets. So you know, certainly not looking to do any type of a large repositioning of the portfolio, but some of those markets where we have one or two assets will certainly look to to call out of overtime. And, you know, in terms of other markets, I mean, we do have newer markets for us that we need to continue to grow in. You know, Denver, we have got a a pretty big development pipeline there where we continue to add assets and grow to that market, which is a newer market for us, Salt Lake City. Is another one where we need to continue to grow and fill out in. And and we are looking at newer markets that, you know, that have some of the same characteristics of our our high growth markets and you know, Columbus, Ohio is is certainly a mark market that that we have studied and are looking at, and and so we will see. It has a lot of the similar characteristics as our other markets. In terms of job growth and things of that nature.

Thanks. And for second question, shifting over to developments and construction costs. Have you observed any changing trends in construction costs components, like, labor or material costs that are over the last few months? And, you know, to the extent that it drives the bottom decisions, where where would you need to see construction cost be at for development yields to be a more attractive pursuit than lease-up acquisitions.

Yeah. I mean, we have seen construction cost come down, I mean, really over the the better part of 2024. It it, you know, was not as broad-based in 2024. I mean, selectively, we saw, you know, four to five percent reduction in certain markets. I would say at this point, we were seeing it in additional markets probably in that, you know, five percent or so range. And, generally, that is more in the you know, we have seen some labor reduction. We have really seen reduction seen seen some improvement there. And I think for us to to continue to increase our development, you know, we we need to see cost a combination of cost and and rent improvement to the tune of, you know, call it five percent to seven percent additionally. And, you know, we have a a pipeline of sites that we own with with projects that are approved. And to the extent we continue to see some improvement in the in the underwriting of those with construction costs and rents. More of those will begin to pencil as we progress throughout this year.

Great. Thanks so much.

Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open.

Yes. Good morning. Again, let me add my my congratulations as well with, you know, with the transition. Eric, maybe this gives you a little bit more time to get that next PR in a marathon. Yes. My my question has to do with again, you guys have been very offensive-minded, in the past year or so. I am looking for opportunities for kind of distress opportunities to kind of take advantage of some of the oversupply and what did you do to developers. But it sounds like, again, cap rate tracking, this is a still pretty tight. It does not sound like a that much distress out there. So when we kind of think about again, this opportunity that you have described for the better part of the past one year, just you know, how real could it actually be and, you know, how do you kind of start thinking about maybe, again, opportunities to kind of buy things? Well, you know, replacement cost or, you know, those kind of opportunities that are really kind of value-added that creates shareholder value typically in environment of of distress.

Yes. Hi. It is Brad. You know, definitely, we we have not seen a lot of this frankly. And and we will continue to focus where where we have, and that is that is generally in, you know, these projects that are in lease-up. I mean, we do think that you know, those will continue to face a bit of pressure just given the amount of supply that is out there and given the strength of our operating platform, I mean, we we are tooled to to really take advantage of those. And there are some some sellers out there that are interested in some of those properties earlier before they are stabilized, and it still generates a very similar return for their capital but if they waited till it stabilized and they sold at a higher price. So based on our experience in our markets, our relationships, you know, we are still able to find opportunities like that. We were able to get, you know, some of these assets at some of these high yields close to 6%. Basis at replacement well below replacement cost. So we will continue to focus in that area. You know, you could see some distress perhaps in some of the older assets that that, you know, sold in 2020, 2021 with refinancing that has to come due. But for the most part, some of that you know, most of that would not be something that we are interested generally.

It is helpful. And if I could ask one other quick one. Again, thanks for the update about bad debt and delinquencies. Curious again about some of the fraud-related issues that were kind of going on in some of your market. What you are seeing in terms of that, whether it is kind of gotten worse or gotten better, both in terms of just overall activity, also in terms of some of your preventive measures as well against these issues.

Hi. This is Tim. I think you were asking about fraud and that. Is that correct? You kind of cut out there for a second. Yes. Correct. We have seen continued, you know, lowering pressure out with say, Atlanta has been the market that has been talked about a lot, then our delinquency there is is just about consistent with where we are at the broader portfolio level. Mean, we have a a lot of tools in place, both in terms of you know, sort of Yeah. Machine learning type of stuff plus, you know, training that we do both on-site and and some resources we have that at the corporate level as well to where if there is anything that looks a little bit off in terms of, you know, income documentation or ID or whatever, we have got people that are trained to really help spot that and and take a look at those. So get it being very preventative. It has been helpful. You know, it probably hurt occupancy for a while there in Atlanta, but it is it is gonna be better long term, and we started to see that play out with continued lower bad debt. So, honestly, not not much of an issue at all. Us.

Thank you.

Our next question comes from the line of John Kim with BMO Capital Markets. Your line is open.

Thank you. And, Eric, congratulations on transforming Mid-America Apartment Communities, Inc. from good to great. Brad, I had a question. I had a question on in the press release, you talked about some markets seeing positive lease-over-lease rates versus last year. And I am wondering what comp what markets are. Where you feel most bullish about which markets will be driving the improvement in blended lease growth this year?

Hey, John. This is Tim. I will I will answer some of the detail there. So we did see, you know, thirteen markets where we had positive blended in January. Which was encouraging. And it was it was pretty widespread among some some mid-tier and smaller and and some larger markets as well. I would point to Tampa as one that you know, we are we have really seen some good traction in the last two quarters or so and has has trended above portfolio. I think that is one where we could see some improving performance in 2025. You know, when you think about good markets, if you will, there is there is the ones that have been good or gonna drive good revenue now, then there is the ones where the pricing is improving and it is more tip of the the spirit. It will not show up in revenue till later. So the the first bucket is gonna be some of the ones we have talked about. It is DC. It is Houston. It is it is Charleston. Those are we expect to continue to be strong. Then there is markets like Tampa, and I would put Orlando in that bucket as well that are starting to show some some improvement. And we think you know, as you get in a minute later this year, those are a couple that we expect to see some some better performance from. And then we will you know, Austin is still one that we expect to continue to to be a a laggard with the continuing supply pressure there. But Tampa, Orlando would be two that I would point out as as trending markets for us.

And then to get to your negative one and a half percent new lease rate for the year, what kind of market rent growth are you assuming? And if you can comment on your current gain to lease and how much of a headwind that will be in order to get that the new lease growth rate.

Having gain only is about one percent right now. Which it it always tends to gap out this time of the year when when pricing is weakest. So, you know, I would expect we saw January market rents were a little bit higher, about half percent higher than what December were. So I think that will that will trend up through the summer and then trend back down. But, you know, probably the the best way to think about is just just we talked about our newly lease lease-over rates you know, for the full year, expect to be kind of in that negative one and a half percent range. So, you know, over the full year, it should that should correlate pretty well with with market rent growth.

Alright. Thank you.

We have no further questions. I will return the call to Mid-America Apartment Communities, Inc.

Mid-America Apartment Communities, Inc. for closing remarks. Okay. No further comments from the company. So we appreciate everyone joining us, and we will see many of you at the conference in February or March. See.