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Mid-America Apartment Communities, inc (MAA) Q3 2021 Earnings Call Transcript

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Mid-America Apartment Communities, inc (NYSE:MAA)
Q3 2021 Earnings Call
Oct 28, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the MAA Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

I will now turn the call over to Tim Argo, Senior Vice President of Finance of MAA, for opening comments.

Tim ArgoSenior Vice President, Director of Finance

Thank you, Mallory, and good morning, everyone. This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our Chief Executive Officer; Al Campbell, our Chief Financial Officer; Robert DelPriore, our General Counsel; Tom Grimes, our Chief Operating Officer; and Brad Hill, our Head of Transactions. Before we begin with our prepared comments this morning, I want to point out that as part of the 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. These reports, along with a copy of today’s prepared comments, and an audio copy of this morning’s call will be available on our website. 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, which are available on the For Investors page of our website at www.maac.com.

I’ll now turn the call over to Eric.

H. Eric Bolton Jr.Chairman and Chief Executive Officer

Thanks, Tim, and we appreciate everyone joining us this morning. Our third quarter results were well ahead of expectations. Growing demand across our Sunbelt markets continues to drive strong rent growth and high occupancy, steady job growth, favorable migration trends, wage growth and escalating pricing of single-family housing are all driving strong performance for apartment rents across our portfolio. We’re carrying significant pricing momentum into calendar year ’22. Resident turnover remains low.

Collections remain strong, occupancy Is high, and rent-to-income ratios remain very affordable. This all suggests to us that we have good capacity in the market for the pricing trends that we are currently capturing. As we think about next year, we believe leasing conditions across our markets will remain favorable. Our Sunbelt markets continue to capture good job growth, driving positive migration trends. New move-ins, year-to-date, from households relocating to our Sunbelt markets, constitute 14% of our new leases as compared to just over 10% in the same time frame of 2020.

High pricing trends associated with single-family housing, are further supporting strong demand for apartment housing. In the third quarter, move-outs among our resident base to buy a home, were down 12% as compared to prior year, and move-outs to rent a home, were down 38%. We continue to keep an eye on pressure surrounding supply chain challenges and inflation trends. Year-to-date, our biggest pressure on operating expenses is building repairs and maintenance costs, which are up just over six percent. Pressures associated with both materials and labor.

We expect year-over-year increases in repair and maintenance expenses will likely hold in the six percent range through the end of the year. Our current development pipeline remains on budget for both development costs and timing for unit deliveries. We’re working into our planning and pro formas more cost and unit delivery contingencies, as we expect the supply chain challenges to be with us through next year. But again, at this point, our current predevelopment pipeline remains fully on track and we expect to start several additional new projects in 2022.

In summary, our markets continue to capture strong demand, driving robust rent growth that will carry into 2022. And MAA’s uniquely diversified approach across the Sunbelt region, supported by a very strong balance sheet, has the company well positioned to take advantage of the outlook for continued strong leasing fundamentals in our markets. We continue to build strength in our technology platform and their operating capabilities. Our redevelopment program and several repositioning projects will drive higher earnings opportunity from our existing portfolio. We expect to capture meaningful expansion in our operating margins over the next couple of years.

In addition, our external growth pipeline continues to expand and will deliver meaningful value accretion over the coming years. MAA is well positioned, heading into 2022, and and we’re excited about the prospects for continued outperformance in the coming year. I’d like to thank the MAA team for the tremendous progress this year and the very positive results.

I’ll turn the call over to Tom. Tom?

Thomas L. Grimes Jr.Executive Vice President, Chief Operating Officer

Thank you, Eric, and good morning, everyone. We saw strong pricing performance across the portfolio during the third quarter. Blended lease-over-lease pricing achieved during the quarter was up 15%. As a result, all in-place rents or effective rent growth, on a year-over-year basis, grew 6.3%. This is nearly five times the 1.3% growth of the first quarter. Average effective rent growth is our primary revenue driver. And with the current blended pricing momentum, we expect it to continue to strengthen through the remainder of the year.

In addition, average daily occupancy for the quarter was a strong 96.4%. As outlined in the release, we saw steady progress from our product upgrade initiatives. This includes our interior unit redevelopment program as well as the installation of our Smart Home technology package that includes mobile control of lights, thermostat and security as well as leak detection. For the full year 2021, we expect to complete just over 6,000 interior unit upgrades and installed 22,000 Smart Home packages. This will bring our total number of smart units up to 47,000 units.

We’re in the final stages of completing the repositioning work on our first eight full-repositioned properties and have another eight that are underway this year. Leasing activity for October has been strong. new lease-over-lease pricing month to date for October is running close to 20% ahead of the rent on the prior lease. Renewal lease pricing in October is running 13% ahead of the prior lease.

As a result, blended pricing for the portfolio is up approximately 16%, so far, for October. Average daily occupancy for the month is currently 95.9%, which is 30 basis points better than October of last year. Exposure,…

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