MAA is seeing a broad recovery take hold in the Sun Belt, but it’s not happening as fast as originally anticipated, company leaders said on the firm’s July 30 earnings call.
Brad Hill, MAA’s president and CEO, attributed the delay to cautious consumer sentiment and lingering competition in high-supply markets.
“While recovery in new resident lease rates is showing improvement, the pace is slower than we would like,” Hill said on the earnings call.
The Memphis, Tennessee-based REIT reported second-quarter core funds from operations above its guidance, aided by tight control of property expenses and contributions from newer communities. Same-store revenue came in slightly below expectations, prompting MAA to lower its full-year revenue, effective rent and occupancy forecasts.
Still, stronger expense trends allowed the company to maintain its core FFO outlook.
Recovery moves later into summer
MAA executives noted on the call that demand remains healthy, supported by employment, household formation and migration into MAA’s markets. Apartment absorption across the company’s footprint substantially exceeded new deliveries during the quarter, while the uptick in residents moving into its properties was the strongest quarterly increase MAA has recorded since it began tracking the metric.
The problem, they said, has been converting that demand into stronger new lease pricing. Prospects in markets with many available options have been shopping longer and making decisions closer to their move-in dates, Hill said. Still, stronger preleasing for August and September, higher lead and property-visit volume as well as strong renewal retention have made management optimistic about the third quarter.
“We do think all these factors lead to what potentially could be a little bit of an extended prime leasing season,” said Tim Argo, executive vice president and chief strategy and analysis officer.
For that reason, MAA expects Q3 blended lease pricing to improve from the second quarter, breaking the seasonal pattern seen in each of the past four years. Argo said new lease pricing for August and September also looks stronger than it did at the same point last year.
Regional results uneven
Virginia and South Carolina continue to lead MAA’s portfolio, with Norfolk, Richmond, Charleston and Greenville outperforming on pricing. Washington, D.C.-area communities also remained strong, while Atlanta and Dallas, the REIT’s two largest markets, again surpassed the portfolio average for blended lease pricing.
Austin, Texas, and Orlando, Florida, are showing improvement. In Austin, Argo said momentum has spread from near-south submarkets to Round Rock and some northern communities as concessions burn off.
Phoenix, Charlotte and Raleigh in North Carolina and Savannah, Georgia, remain under pressure, while Nashville is also among the markets with more ground to recover. Hill said the weakest group generally consists of markets still digesting the most supply, even though demand is solid.
“We have a bigger hole that we have to dig out of for those, but we are showing progress,” Hill said, noting that nearly 80% of MAA’s markets produced positive blended lease rates during the quarter.
Concessions remain broadly in the four- to five-week range across MAA’s footprint, with the widest use in Charlotte and Austin. Argo said concessions have declined in Orlando and Charleston. Charlotte’s two lease-up properties remain MAA’s most challenged, with some floor plans offering eight to 10 weeks free.
Expenses and development
Lower repair, maintenance and personnel costs drove much of the quarter’s expense outperformance. CFO Clay Holder said high staffing levels and record-low resident turnover are helping reduce unit-turn costs, while favorable insurance and property-tax trends should provide additional support.
MAA is also continuing to put capital into development, renovations, property repositioning and community-wide Wi-Fi. Development remains its top allocation priority, Hill said, because projects now underway are expected to deliver into a market with fewer new apartments and stronger operating fundamentals.
BY THE NUMBERS
| Category | Q2 | YOY Change |
| Revenue | $517.4 million | -0.3% |
| Net operating income | $316.2 million | -1% |
| Operating expenses | $201.2 million | 0.8% |
| Core FFO | $2.10 | -4.1% |
| Average rent | $1,688 | -0.2% |
| Occupancy rate | 95.3% | -10 bps |
SOURCE: MAA
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