Mid-America Apartment Communities, Inc. (MAA) Q1 2023 Earnings Call Transcript

Mid-America Apartment Communities, Inc. (NYSE:MAA) Q1 2023 Earnings Conference Call April 27, 2023 10:00 AM ET

Company Participants

Andrew Schaeffer - Senior Vice President, Treasurer & Director, Capital Markets

Eric Bolton - Chairman & Chief Executive Officer

Tim Argo - Executive Vice President, Chief Strategy & Analysis Officer

Brad Hill - Executive Vice President & Chief Investment Officer

Al Campbell - Executive Vice President, Chief Financial Officer

Conference Call Participants

John Kim - BMO Capital Markets

Austin Wurschmidt - KeyBanc Capital

Chandni Luthra - Goldman Sachs

Michael Goldsmith - UBS

Nick Yulico - Scotiabank

Alan Peterson - Green Street

Rob Stevenson - Janney

Omotayo Okusanya - Credit Suisse

Barry Luo - Mizuho

Alexander Goldfarb - Piper Sandler

Wes Golladay - Baird

Eric Wolfe - Citi

Jamie Feldman - Wells Fargo

Linda Tsai - Jefferies

Operator

Good morning ladies and gentlemen and welcome to the MAA First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder this conference call is being recorded today April 27th, 2023.

I will now turn the call over to Andrew Schaeffer Senior Vice President Treasurer and Director of Capital Markets of MAA for opening comments. Please go ahead.

Andrew Schaeffer

Thank you, Phyllis and good morning everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team also participating on the call with me this morning are Eric Bolton, Tim Argo, Al Campbell, Rob DelPriore, Joe Fracchia, and Brad Hill.

Before we begin with our 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 1934 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.

Eric Bolton

Thanks Andrew and good morning. As detailed in our earnings release, first quarter results were ahead of expectations as solid demand for apartment housing continues across our portfolio. Consistent with the trends that we've seen for the past couple of years, solid employment conditions, positive net migration trends, and the high cost of single-family ownership are supporting continued demand for apartment housing across our portfolio.

And while new supply deliveries are expected to run higher over the next few quarters, we continue to see net positive absorption across our portfolio. We believe that MAA's more affordable price point coupled with the unique diversification strategy including both large and secondary markets further supported by an active redevelopment program will help mitigate some of the pressure from higher new supply in several of our markets.

As outlined in our earnings release our team is capturing steady progress and strong results from our various redevelopment and unit interior upgrade programs. We are on target to complete over 5,000 additional unit interior upgrades this year in addition to completing installation of new smart home technology for the entire portfolio.

We're also making great progress with our more extensive property repositioning projects with the projects completed to-date capturing NOI yields in the high teens on incremental capital investment. These projects, coupled with a number of new technology initiatives, should provide additional performance upside from our existing portfolio.

Our new development and lease-up pipeline is performing well and we remain on track to start four new development projects later this year. Our various lease-up projects have achieved rents that are close to 11% ahead of pro forma.

We did not close on any acquisitions or dispositions during the quarter, but continue to believe that transaction activity will pick up over the summer and have kept our assumptions for the year in place. The portfolio is well-positioned for the important summer leasing season.

Total occupancy exposure at the end of the quarter which is a combination of current vacancy plus notices to move out is consistent with where we stood at the same point last year. In addition leasing traffic remains solid with on-site visits in comparison to the number of exposed units that we have is actually running slightly ahead of prior year.

A number of new leasing tools that we implemented over the course of last year should continue to support stronger execution and our teams are well prepared for the upcoming summer leasing season.

I want to thank our associates for their hard work over the last few months to position us for continued solid performance over the balance of the year.

That's all I have in the way of prepared comments and I'll now turn the call over to Tim.

Tim Argo

Thanks, Eric and good morning, everyone. Same-store growth for the quarter was ahead of our expectations with stable occupancy, low resident turnover and rent performance slightly ahead of what we expected. Blended lease-over-lease pricing of 3.9% reflects the normal seasonality pattern that we expected. And while we did return to a more typical seasonal pattern in Q1, it is worth noting that the blended lease-over-lease pricing captured was higher than our typical Q1 performance.

As discussed last quarter, we expected new lease pricing to show typical seasonality and that the renewal pricing which lagged new lease pricing for much of 2022 would provide a catalyst to first quarter pricing performance. This played out as expected with new lease pricing down slightly at negative 0.5%, and renewal pricing increasing positive 8.6%.

Alongside the strong pricing performance average daily occupancy remained steady at 95.5% for the first quarter contributing to overall same-store revenue growth of 11%. The various demand factors we monitor were strong in the first quarter and continued that way into April. 60-day exposure which represents all current vacant units plus those units with notices to vacate over the next 60 days at the end of Q1 was largely consistent with prior year at 7.7% versus 7.9% in the first quarter of last year.

Furthermore in the first quarter, lead volume was higher than last year and quarterly resident turnover was down driving the 12-month rolling turnover rate down 30 basis points from 2022. April to-date trends remain consistent as exposure remains in line with the prior year and occupancy has remained steady at 95.5%.

Blended lease-over-lease pricing effective in April is 4.1% with new lease pricing beginning to accelerate up 110 basis points from March at plus 0.2% and renewal pricing remaining strong at 7.9%. We expect renewal pricing to moderate some against tougher comps as we move into the late spring and summer, but simultaneously expect some seasonal acceleration in new lease-over-lease rates.

We expect new supply in several of our markets to remain elevated in 2023 putting some pressure on rent growth. But as mentioned the various demand indicators remain strong and we expect our portfolio to continue to benefit from population growth, new household formations and steady job growth. In addition, we expect resident turnover to remain low as single-family affordability challenges support fewer move-outs.

MAA's unique market diversification of portfolio strategy coupled with a more affordable price point as compared to the new product being delivered also helps lessen some of the pressures surrounding higher new supply deliveries. During the quarter, we continued our various product upgrade initiatives. This includes our interior unit redevelopment program, our installation of smart home technology and our broader amenity-based property repositioning program.

For the first quarter of 2023, we completed over 1,300 interior unit upgrades and installed over 18,000 smart home packages. We now have about 90,000 units with smart home technology and we expect to finish out the remainder of the portfolio in 2023. For our repositioning program leases have been fully or partially repriced at the first 13 properties in the program and the results have exceeded our expectations with yields on cost in the upper teens.

We have another seven projects that will begin repricing in the second and third quarters and are evaluating an additional group of properties to potentially begin construction later in 2023. Those are all of my prepared comments.

I'll now turn the call over to Brad.

Brad Hill

Thank you, Tim and good morning, everyone. While operating fundamentals across our platform have remained consistent as Tim just outlined transaction volume remains muted due to a lack of for-sale inventory on the market.

For high-quality well-located properties bidding is strong and available capital is aggressively competing in order to win the bid and put capital to work. This strong relative investor demand coupled with often favorable in-place financing continues to support stronger-than-expected cap rates on closed transactions.

Having said that, we believe the need to sell increases as the year progresses and it's likely that more compelling acquisition opportunities will materialize later in the year. Therefore, we have maintained our acquisition forecast for the year, but have pushed the timing back a couple of months.

Our acquisition team remains active in the market and Al and his team have our balance sheet in great shape and ready to support our transaction needs. The properties managed by our lease-up team continue to outperform our original expectations generating higher earnings and creating additional long-term value.

To-date our new lease-up properties' performance does not appear to be impacted by increased supply pressures. As Eric mentioned, these properties have achieved rents nearly 11% above our original expectations.

During the first quarter, we began pre-leasing at our Novel Daybreak community in Salt Lake City, and early leasing demand is extremely strong with the property currently 11.5% pre-leased at rents well ahead of our expectations.

Predevelopment work continues to progress on a number of projects, four of which should start construction in the back half of 2023: two in-house developments, one located in Orlando and one in Denver and two pre-purchased joint venture developments, one located in Charlotte and the other a Phase 2 to our West Midtown development in Atlanta.

During the first quarter we purchased a Phase 2 land site to our Packing District project in Orlando Florida, bringing our future development projects owned or under construction to 12, representing over 3,300 units. Over the past few months, we have seen an increase in inbound pre-purchase development opportunities due to a substantial decline in the availability of both debt and equity capital for new developments.

We remain disciplined and selective in our review process but we are hopeful these calls will lead to additional currently unidentified development opportunities. Any project we start over the next 12 to 18 months would likely deliver in 2026 or 2027 and should be well positioned to capitalize on what we believe is likely to be a much stronger leasing environment reflective of the significant slowdown in new starts that we expect to continue to see over the balance of 2023 and 2024.

Our construction management team remains focused on completing and delivering our six under construction projects and are doing a tremendous job managing these projects and working with our contractors to minimize inflationary and supply chain pressures on our development costs and our schedules.

We have two projects that we'll be delivering units during the second quarter Novel Daybreak in Salt Lake City, which delivered six units late in the first quarter and Novel West Midtown in Atlanta. That's all I have in the way of prepared comments.

And with that I'll turn it over to Al.

Al Campbell

Thank you, Brad and good morning, everyone. Reported core FFO per share of $2.28 for the quarter was $0.06 above the midpoint of our quarterly guidance. About half of this favorability was related to the timing of certain expenses, which are now expected to be incurred over the remainder of the year, primarily related to real estate taxes.

Operating fundamentals overall were slightly favorable to expectations for the quarter producing about $0.01 per share of favorability. And the remaining outperformance is related to overhead and net interest costs for the quarter.

Our balance sheet remains in great shape, providing both protection from market volatility and capacity for strong future growth. We received an upgrade from Moody's during the quarter bringing our investment-grade rating to the A3 or A- level with all three agencies. We expect the favorable ratings to have a growing positive impact on our cost of capital as we work through future debt maturities.

During the quarter, we also closed on the settlement of our forward equity agreement providing approximately $204 million net proceeds towards funding our development and other capital needs. We funded $38 million of redevelopment, repositioning and smart home installation costs during the quarter producing solid yields. We also funded just over $65 million of development costs during the quarter toward the projected $300 million for the full year.

As Brad mentioned, we expect to start several new deals later this year and early next year, likely expanding our development pipeline to over $1 billion, for which our balance sheet is – remains well positioned to support. We ended the quarter with record low leverage, our debt to EBITDA of 3.5 times with over $1.4 billion of combined cash and available capacity under our credit facility with 100% of our debt fixed against rising interest rates for an average of 7.7 years and with minimal near-term debt maturities.

And finally in order to reflect the first quarter earnings performance, we are increasing our core FFO guidance for the full year to a midpoint of $9.11 per share, which is a $0.03 per share increase. We're also slightly narrowing the full year range to $8.93 and $9.29 per share.

Given that the majority of the Q1 same-store outperformance was timing related and the bulk of the leasing season is ahead of us, we are maintaining our same-store guidance ranges as well as all of the key ranges for the year. So that's all we have in the way of prepared comments. So Phyllis, we will now turn the call back over to you for questions. Phyllis, we'll now turn the call back over to you for questions.

Question-and-Answer Session

Operator

Absolutely. We will now open the call for questions. [Operator Instructions] And we will take our first question from Kim John with BMO Capital Markets. Your line is open.

John Kim

Thank you. Eric and Tim both mentioned in your prepared remarks that the more affordable price point is one of the reasons why you have such strong demand. And I'm wondering if there's any notable difference between your A and B product as far as demand or performance?

Tim Argo

Yeah, John, this is Tim. I mean we are seeing a little bit of a diversion not significant I would say in Q1, our what you might call our more B assets were about 70 basis points or so higher on blended pricing versus the more A and some things -- part of it is some of the price point. And certainly to the extent we've seen some supply pressure more of it's coming in typically in the more urban or A style types of assets.

John Kim

Okay. My second question is on the premiums that you're getting on renewals versus the new leases signed. I think it was 900 basis points in the first quarter, a little bit lower than 800 basis points in the second quarter so far. It still seems like a record amount as far as that premium you're getting. And I'm wondering when you think it goes back to the norm. At what level do you think it's fair premium on renewals?

Tim Argo

Yeah. I mean, we talked about a little bit last quarter that we knew with the unusual circumstances of last year where new lease pricing was ahead of renewal pricing for the bulk of 2022 that set us up with some good comps and some opportunity on the renewal side particularly in the first call it fix, six months in 2023. And so that's definitely what we've seen. I think as we get a little further in you'll see it moderate to more normal. I think it'd probably get down to the 6% or so range over the next few months, but don't expect it to be too volatile. We still think renewals will outpace new leases but get into a little bit more normalized range.

John Kim

That’s great color. Thank you.

Operator

And we'll take our next question from Austin Wurschmidt with KeyBanc Capital. Your line is open.

Austin Wurschmidt

Hey, good morning everybody. Eric, you have highlighted that the price point does provide you some insulation as it relates to new supply. And certainly job growth has surprised to the upside earlier this year. If we start to see job growth slow, does that become more concerning as supply begins to ramp? And does pricing power just become more challenging for you later this year and maybe into early 2024?

Eric Bolton

Well, Austin, certainly if we see the employment markets pull back in any material way that will have an effect on demand at some level. I think that we've been through those periods before where the employment markets get much weaker. And there's no doubt that such a scenario does have an effect on demand.

Having said that, we're in I think a unique -- all these cycles have their own unique elements to them. And in this particular cycle the -- what we see happening in the single-family market and the lack of single-family affordability is clearly working in our favor right now.

And I would also suggest to you that in the event of a recession where there is weakness in the employment markets what really helps us at least on a relative basis I think is the fact that we are oriented in the Sunbelt. I think these Sunbelt markets have demonstrated historically an ability to weather downturn more so than some of the higher density coastal markets that tend to be more dominated by financial services insurance and banking.

The diversification that we have in our -- that's one of the slides in our presentation deck that you can look at the latest presentation deck that really gives some insight on the diversification we have not only in markets but also in the employment sectors that we cater to that our residents work in. And I think that diversification coupled with the Sunbelt some of the other things that are relating to single family and so forth, while I think a recession certainly creates concern for everybody in the apartment sector. I think that I'm confident as we have historically always done in downturns that we'll likely hold up better.

Austin Wurschmidt

No. That's all very helpful. And then just for my follow-up for projects that are in lease-up today have you kind of -- have you seen any slowdown in the pace of lease-up or absorption for those? And where are concessions today for yes assets in lease-up? Thank you.

Brad Hill

Yeah. Hey. Austin, this is Brad. We really haven't seen any impact negative impact associated with supply pressures on our new lease-ups. And generally that's where you'd think we would see it first. We've got six or so projects that are in lease-up right now.

Concessions on those we typically model about a month free. I'd say on three of those we're using some concession maybe up to 0.5 month free. We're not using the full concessions that we underwrote and we're not seeing the need to just generally, based on what we're seeing in the market.

And I'd say our traffic continues to be really good on all of our lease-ups. The leases we're signing the velocity is really, really good. So we're not seeing any early indications yet, but that new supply is having an impact there.

Austin Wurschmidt

Thanks everybody.

Operator

And we'll take our next question from Chandni Luthra with Goldman Sachs. Your line is open.

Chandni Luthra

Hi. Good morning. Thank you for taking my question. You guys talked about in your prepared remarks that cap rates are still going strong for good quality product. Could you remind us where they are tracking at the moment?

And then, as you think about your own opportunity set down the line as you think about distressed opportunities emanating from the current supply situation and lending markets. Where would cap rates need to be for you to be comfortable buying and getting in the market?

Brad Hill

Yeah, this is Brad. I'll certainly jump on that. We continue to see cap rates call it in the 4.7, 4.75 range for assets that fit that description well located strong markets. Interestingly in the first quarter, I mean, we only had seven data points.

So again, it's -- the volume is down call it 70% year-over-year. So we don't have a whole lot of data points. But interestingly the band of those seven trades is pretty close together so -- which we haven't seen that historically.

I would say for us cap rates definitely need to be over 5, 5.25, 5.5 something in that range. But I would say it's really going to depend on the asset what the rent trajectory looks like. And we're also looking at the after CapEx what it looks like in that nature as well. So that's pretty important to us.

And I would say where opportunities might come for us are going to be properties that are early in their lease-up. That's where some of these developers tend to get a little bit more stress in their underwriting and in their performance.

As some of the supply in our markets begins to come online some of these less experienced operators that are operating some of these new lease-ups could potentially struggle a bit to lease up those assets.

And so I do think that's going to be an opportunity for us. And in fact that's really what our acquisition forecast is built on is buying assets that are in their initial stage of lease-up.

Chandni Luthra

That's very helpful. Thank you. And for my follow-up, as we think about new supply from a geographic standpoint, what are the markets where you're seeing most pressure? And how are you thinking about balancing occupancy versus pricing in those markets?

Tim Argo

Hi Chandni, this is Tim. Right now I'd Austin is probably the number one market in terms of where we're seeing supply. And Phoenix to an extent we're seeing a little bit. Honestly, some of the higher supply markets we're seeing like, Raleigh and Charlotte, Charleston are three of the markets where we're seeing a fair amount of supply have also been some of our best pricing markets so far this year.

So as Eric kind of laid out earlier, we're not seeing a lot of pressure yet from supply. We're still getting the job growth and demand. There's, pockets here and there. But right now as we did in Q1, we're happy to keep pushing on price where we can. Our occupancy is at a stable point. And there's, a lot of things we monitor as kind of leading-edge demand indicators but still in a healthy balance right now.

Chandni Luthra

Great. Thanks for taking my question.

Operator

We will go next over to Michael Goldsmith with UBS. Your line is open.

Michael Goldsmith

Good morning. Thanks a lot for taking the question. Earlier you talked about the B product outperforming A product on a portfolio level. I was wondering if we can dive into a market or two to just kind of better understand some of the dynamics of what you're seeing in the A product versus the B product?

And then, also, within that, can we talk about kind of like the larger markets that you're in versus the smaller markets? And if A versus B is performing differently in the large ones versus the smaller ones? Thanks.

Tim Argo

Yes. It's fairly consistent, I would say. Atlanta is probably a good example where we have quite a bit of diversification there. We've got several assets kind of in town, Midtown, Buckhead and then a lot of assets outside the perimeter and we're pretty consistently seeing the suburban assets perform better than those more urban assets. And that's playing out relatively consistent across some of the markets.

We are seeing, what you might call, our secondary markets perform pretty well. I mentioned Charleston a moment ago. Savannah, Greenville some of these more secondary markets are holding up very well and doing really well in terms of pricing. And that's part of the strategy. I mean, typically those markets aren't going to get quite as much of the supply as some of these larger markets and that's playing out for us pretty well so far.

Michael Goldsmith

Got you. And then, my follow-up question, just on the -- we talked about the job market and how the portfolio may react to that. I guess, my question is more related to just the in-migration to the Sunbelt. And what's that looking like versus pre-COVID levels? And are there any markets that you're seeing, where it is stronger or weaker in-migrations?

Eric Bolton

Michael, this is Eric. I would tell you that the in-migration that we're -- we saw in the first quarter with about 11% of the leases that we are writing, a function of people moving into the Sunbelt, that's pretty consistent with where we were prior to COVID.

It began to move up a bit during 2020, late 2020 and throughout most of 2021, and then it started moderating a little bit in 2022. But right now, as we sit here today, roughly 11% or so of the move-ins that we are seeing are coming from people moving in from outside the Sunbelt. And that compares to 9% to 10% that we saw prior to COVID.

Move-outs from the Sunbelt, the turnover we have where people are leaving us and moving out of the Sunbelt is still only about 3% to 4% of the move-outs that we're having are a function of people leaving the region. So, on a net basis, we're pretty close to where we were prior to COVID and would expect that those trends will likely now continue at the current level going forward.

Michael Goldsmith

And when you say going forward, does that mean for the rest of 2023, or is that kind of for the intermediate term?

Eric Bolton

I would say the rest of 2023 into 2024. I think that, again, harking back to my earlier comments relating to the potential for moderation in the employment markets, we've seen these trends through these cycles that we've been through over the years, where migration trends are more positive, if you will, in the Sunbelt region.

And it's been that way for many, many years, through recessions and through expansions in the economy. That continues to be the case. And so, I just continue to think that these markets and the portfolio strategy we have will serve us well long term. And I think the net positive migration trends that we see today will likely persist for the foreseeable future.

Michael Goldsmith

Thank you, very much.

Operator

And we'll take our next question from Nick Yulico with Scotiabank. Your line is open.

Nick Yulico

Thank you. Good morning. I was hoping to get a little bit of a feel for how the new lease growth on signings is differing by market. Just sort of an order of magnitude between better versus weaker markets, if you can give a little color on that.

Tim Argo

Yeah. Nick it's Tim. So if we think about where April is, it's anywhere from call it negative 1%, negative 2% for some of the lower markets, up to 3%, 4%, 5% on some markets. And it moved positive in April. As we talked about we're at 0.2% and we saw a good acceleration from March to April. We kind of expect to see that typical seasonality and a little more acceleration as we move through the spring and summer, but that gives you a little bit of an order of magnitude.

Nick Yulico

That's helpful. Thanks. Do you mind also just maybe saying which markets are the better versus weaker in that range?

Tim Argo

Yeah. I mean, as I mentioned before, Austin is one of the weaker ones. Austin and Phoenix are two that I would point out as a little bit on the weaker side. Orlando continues to be one of our strongest markets. And then I mentioned a moment ago as well we're seeing some of our more secondary markets perform really well. Also Charleston, Savannah, Richmond Greenville all holding up really well also.

Nick Yulico

Thanks. That's helpful. Just last question is on Atlanta. If you look the occupancy there is a bit lower than the rest of the portfolio. Can you just talk about what's going on there? And I guess also on Packing, I think you were saying that that's a market where suburban is doing better than urban. And so I'm not sure if it's -- if there's any sort of supply impact there that you're dealing with on occupancy or what's driving that? Thanks.

Tim Argo

Sure. Yeah, Atlanta is a little bit of a unique situation. So back in February, we had some winter storms. It affected Texas and Georgia also, but we particularly saw some impact in Atlanta and Georgia. We had about 70 units in Atlanta that were down that we took out of service through the storm and then brought them back up kind of in late February. So you had a pretty good chunky units in Atlanta that we had to get leased up. So that was really the occupancy story there. We've seen it kind of bottomed out in March, but we have seen April occupancy pick up. So I think Atlanta will continue to improve and be a pretty solid market for us later in the year.

Nick Yulico

Appreciate it.

Operator

We will go next to Alan Peterson with Green Street. Your line is open.

Alan Peterson

Hi, everybody. Thanks for the time. Tim, I was just hoping you can shed some light on your planning for peak leasing. And if you're anticipating in some of your weaker markets whether or not you're going to have to use concessions to maintain occupancy call out the Austins or the Phoenixes of the world.

Tim Argo

Yeah. I mean there will be pockets. We're not -- we certainly haven't seen -- don't expect to see it at any sort of portfolio-wide level. If we look at Q1 total concessions were about 25 basis points as a percent of rent. We are seeing a little more in Austin call it half a month up to a month and then there's areas where if there's lease-up properties you may see a little bit more markets like Orlando, we're seeing no concessions, but we'll see it a little bit but I don't think any more than half to a month more than what we're kind of seeing right now. I don't really see it getting much different than what we see today.

Alan Peterson

Understood. And that's on your assets or other competing assets nearby?

Tim Argo

More so on competing assets. I mean we have some. As I mentioned there's -- it's pretty minimal. And it kind of depends on the market. There are some markets where upfront concessions are more of staying in that market whereas others it's more of a net pricing scenario where you don't really see upfront concessions. So it kind of depends, but similar whether it's our properties or the market in general.

Alan Peterson

Appreciate that. And Brad just one follow-up on your prepared remarks about debt and equity capital starting to dry up. The cost of buckets of capital out there where are some of your private peers the most concerned about when sourcing new financing today? What are some of the -- whether it be the banks or life insurance companies what buckets of capital right now are the ones that are seeing the most impact there?

Brad Hill

Yeah. I mean most of our partners use bank financing for their developments. And so I'd say that's the biggest concern at this point. And given the last few weeks and just the restriction there in capital with banks, it's more acute than it has been. First quarter, it was difficult. Equity was difficult. Debt was difficult. And I'd say the debt piece has gotten even more difficult for them. But generally, they're going to regional banks for their banking needs. And they generally have strong relationships with these banks, so they can get a deal or two done with the banks but it's a lot more difficult. It takes a lot longer than what it has in the past. And so that's really restricting. One of the other areas that it's restricting new deals getting done and I don't see that changing for the foreseeable future.

Alan Peterson

Appreciate that. Thanks for your time today guys.

Operator

We'll go next to Rob Stevenson with Janney. Your line is open.

Rob Stevenson

Good morning, guys. Eric or Brad, you guys added Orlando land parcel this quarter. But overall how aggressively are you going to be in adding additional land parcels for development at this point? And are you seeing any relief in terms of the costs of land? Some of the peers have spoken about more office sites and vacant movie theaters and as such being sold for apartment development allowing for better deals. Curious as to what you're seeing in terms of that.

Brad Hill

Yes Rob, this is Brad. As I mentioned we have 12 sites now that we either own or control. So we feel like we're in a good spot in terms of building out our pipeline going forward. And as Al mentioned, we think we're on pace for that $1 billion $1.2 billion or so in terms of projects going and we like where we're located. The asset that we purchased in Orlando is a Phase two to a project that we'll start this year. So there was a strategic reason for that. It's really a covered land play. There's some leased buildings on it right now.

So, I'd say going forward, we'll be a bit more cautious on land. I would say, we'll continue to look for sites that have been dropped by other developers. We'll look to get time. A couple of the sites we have now, as I mentioned, are we control them we do not own them. So that's our preference to have time on the deals.

And I'd say we're on the early stages or it appears that we're in the early stages of land repricing a bit in some areas. We've seen a 10% price reduction on some of the projects that some of the -- our partners are coming to us with sites for. They've been able to negotiate some additional time and some cost reduction. So I think we're on the early stages of that at this point.

Rob Stevenson

Okay. That's helpful. And then, Tim or Al, where is bad debt or delinquency today? And how does that compare to the historical periods pre-COVID in recent comparable periods?

Tim Argo

Yes Rob, this is Tim. So if we look at Q1, for example, all the rents that we billed in Q1, we collected 99.4% of that, so 60 basis points of bad debt which is consistent right in line with where we were last year. If you factor in prior month collections and any collection agency, it goes down about 50 basis points. So really remains pretty minimal.

Rob Stevenson

And is there any markets in particular that you're seeing any material higher amounts in?

Tim Argo

Atlanta is probably the one I would point out, where it's just still kind of the court system and everything going on there. It's taken a little longer to move through the process. So it's our highest one right now, probably closer to around 1% or so. But that's really the only market where we're seeing that.

Rob Stevenson

Okay. Thanks guys. Appreciate the time.

Operator

And we will go next to Omotayo Okusanya with Credit Suisse.

Omotayo Okusanya

Hello, can you hear me?

Al Campbell

Yes.

Omotayo Okusanya

Yes. Hi, everyone. Hoping you can help me understand the increase in guidance a little bit better. Again you kind of talked about in 1Q you had some OpEx kind of tailwinds that could potentially become headwinds going forward. So you're not changing same-store NOI. But so trying to really understand what was that slide into is number one? And then number two, it sounds like based on spring leasing fees and you see the FFO guidance with them.

Al Campbell

Yes Tayo, that's a good question. As we talked about a little bit, we -- the first quarter obviously we outperformed $0.06 according to our midpoint. And about half of that was timing as I mentioned. It's really some expenses some favorability we had in the first quarter. The bulk of that was real estate taxes that, we still think our full year guidance number is correct, so we'll fill that over the year. So the first $0.03 increase in core FFO was the other items coming through. I would say a-third of that or $0.01 was really operating forms.

As Tim mentioned, we were favorable particularly in pricing. It was for the first quarter what we expect. I think we -- if you remember our guidance or our discussion in same guidance was that our pricing expectation for the full year was 3% and the quarter first quarter is 3.9%. So that's a little bit of favorability. But given that, we have the bulk of the leasing season ahead of us a lot of work to be done we just felt like our ranges in our guidance are still where they need to be there. And the other part of the favorability of FFO that flowed through were things below NOI overhead interest and those things. So really the same store was good that we were -- I would call it favorable slightly favorable to on point of what we expected. And we'll wait to see what happens over the next couple of quarters.

Omotayo Okusanya

Got you. Okay. That's helpful. And then can you just talk a bit about kind of new lease spreads for the quarter? Again that was kind of -- it was negative. Just kind of see as the thoughts there whether it really is a supply issue whether there's a bit more of a demand issue and how we should kind of think about that kind of especially going into like your core spring leasing season?

Tim Argo

Yeah. Tayo this is Tim. I mean I think one thing to keep in mind the new lease rates that we saw in Q1 are really pretty typical, if we go back through history. If you look outside of last year the kind of the lease rates we were seeing were pretty much in line or better frankly than most of the years we've been tracking it. So it was pretty much as expected. I mean March new lease rates dropped a little bit and it was really more function of similar to what I was talking about with Atlanta earlier where we saw leasing activity drop for a couple of weeks there in February with some of the stores, particularly in Texas and Georgia that impacted occupancy a little bit in February.

And then we were able to regain that occupancy in March but it did come at the expense a little bit of some of the new lease pricing but as we talked about with April where we saw new lease spreads accelerate and move positive. So from where we sit right now all the demand metrics look strong exposures, where we want it leads traffic volume all that is where we would expect. So I think we'll move into the rest of the spring and the summer a strong leasing season and see some acceleration and see what we would typically expect out of a pretty strong supply-demand dynamic.

Omotayo Okusanya

Thank you.

Operator

And we will go next to Haendel St. Juste with Mizuho. Your line is open.

Barry Luo

This is Barry Luo on for Haendel St. Juste. My first question was on property taxes. I was just wondering how that was trending versus expectations since Cato's release in the back half?

Al Campbell

Yes, this is Al. I can give you some color on that. So right now, we expect that our estimates that we put out in our guidance for property taxes we left that the same. We think we still have a good range that we've got. We did have some favorability in the first quarter on property taxes, as I just mentioned a minute ago but really that's related to the timing of some of the activity. We had some -- the appeals from prior year they come in and the timing can be different year-to-year. We had some wins that we achieved in the first quarter on some of our prior year pills that were good.

We got them a little earlier than we thought. We still have a lot of fights both for prior year to go and a lot of the information for this year to come in. So on balance we have about 6.25% growth that we expected for this year. We still -- at the midpoint of our guidance we still think that is right. I would tell you that, we still in terms of current year don't have a lot of information yet. We feel like we have a good view on value but a lot of the information the stubs from the municipalities come out probably mostly in the second quarter.

So as we're talking next quarter I should have 60% to 70% knowledge on that. And then the millage rates will come more in the third and even some in the fourth quarter. So we feel like our range is good. I would say that, we've continued -- the pressures coming from Texas, Florida and Georgia that's continuing to be the case as it has been for several years. I would say that, as we move forward into 2024 as they're looking backwards toward this more normalized year hopefully we begin to see some moderation in that line.

Barry Luo

Got Okay. Thank you. And just we get Texas in particular so noticing a significant expense decline sequentially so 11% for Fort Worth and I think 6% for Austin. Is some of that being driven by property tax relief, or what's kind of driving that? Thanks.

Al Campbell

I think there's some property tax in that for sure, but I mean Tim can answer, as well. But I think overall, we expected the first quarter expenses for all categories together in the company has held to be pretty high in the first quarter. Really, for many of the groupings because of the comparisons for last year, as we saw inflation kind of come into our business more in the second third and fourth quarter last year, we expected our property -- our operating expenses to be high.

Actually, they were 8.3% so where we came out was favorable to our expectations, what we had said as Tim mentioned. So what we would expect to see is some key items, personnel, repair and maintenance begin to moderate as we move back into the second third and fourth quarter of the year, with really the outstanding points of continued pressure being taxes, insurance areas primarily. Does that answer the question?

Barry Luo

So – well, I was more looking at like the sequential decline from 4Q in Fort Worth versus 1Q in Fort Worth looks like somewhere [indiscernible]

Eric Bolton

Decline in…

Tim Argo

Yes. I think the sequential decline all those Texas markets, I think was pretty much real estate tax relief. Just the timing of accruals and settlements, and all that it can be pretty volatile from quarter-to-quarter, but normalizes over the course of the year.

Al Campbell

Yes. And that's where you're seeing, some of those items particularly in Texas, where we had the real estate tax prior appeals coming in, that's some of that occurring.

Barry Luo

Got it. Thank you.

Operator

And we will go next to Alexander Goldfarb with Piper Sandler. Your line is open.

Alexander Goldfarb

Thank you. And good morning, down there. So two questions. First, just going back to the supply just because it's a big topic that always comes up with the Sunbelt. You guys, articulated a lot of how your portfolio is doing. Would you say, it's more just your rent versus new supply, or would you say, it's more just proximity meaning that your properties are less of -- end up less likely to be near where the new supply is? Meaning that, the new supply is in other parts of the market and therefore, like where you cited some supply-heavy markets where you guys actually did well, it's because just proximity in general your portfolio doesn't line up where a lot of the new product is being built. I'm just trying to understand.

Eric Bolton

Hi, Alex, this is Eric. I would say, it's both of the points that you're making that are at play here. Where we do see supply coming into a market more often than not it is in some of the more urban-oriented submarkets. And when you look at our portfolio, and the footprint we have and the diversification we have, across a number of these markets particularly the big cities like Atlanta and Dallas, we have generally more exposure to the suburban markets versus the urban markets. So, I think there is a supply proximity point, that I would point to that you're mentioning that probably works in our favor to some degree. It's hard to -- and it will vary of course by market.

And then the other thing, that you pointed to which I think is also at play here, is the price point that broadly we have our portfolio. When you look at the average effective rent per unit of our portfolio and compare it to the average rent of the new product coming into the markets, we still are somewhere in the 25% plus or minus range below where new product is pricing. And again, it will vary a bit by market, but that certainly provides some level of protection against the supply pressure and offers the rental market, a great value play in renting from us versus something that may be down the street that's newer but considerably more expensive.

And with some of the renovation work that we're doing, frankly that's what creates the opportunity for us to do some of this renovation work and effectively offer the resident in the market, what it feels like a brand-new apartment on the interior but still at a meaningful discount to what they would have to pay in rent for something brand new. So, there are a multitude of factors that play and it varies by market. But certainly, we cannot absolutely eliminate new supply pressure but there after being in this region for 30 years, we've learned how to do some things to help at least mitigate the pressure, a little bit here and there.

Alexander Goldfarb

Okay. Second question is, on insurance certainly a hot topic especially in Florida and Texas with big premium jumps. Are you guys seeing opportunities where some of your smaller players or maybe some of the merchant recent new developments may have -- they may not have underwritten 50% type premium increases and therefore that could gin up some buying opportunities? Do you think that you would see that potentially people having to sell because of insurance pressure?

Brad Hill

This is Brad. I definitely think that that is something to keep an eye on. I do think the market down there right now is extremely tough. And depending on where you are in Tampa or South Florida, those insurance premiums are increasing substantially for new product. So I would say, for newly developed properties in those areas Tampa, Orlando not as much, but Jacksonville, it's something for us to keep an eye on, because I do think that the insurance premiums are going to be a lot higher than the developer underwrote than they expected. And I do think there's going to be some impact to the sales proceeds as a part of that.

And so I think as you get some of the supply pressures coupled with that and some of the leasing pressures those are areas that we'll keep an eye on. And then obviously, we have the benefit with our broader portfolio and insurance pricing that that definitely is a platform benefit for us.

Alexander Goldfarb

Okay. Thank you.

Operator

We will go next to Wes Golladay with Baird. Your line is open.

Wes Golladay

Hey, good morning everyone. Just had a quick question on capital allocation. I know your stock's yielding low six to maybe mid-6 implied cap. So how do you view a potential buyback versus starting new developments at this part of the cycle?

Eric Bolton

Well, Wes, this is Eric. I would tell you right now, we believe that what really is important to have is a lot of strength in capacity on the balance sheet. Obviously, we're in a very turbulent environment at the moment. Capital markets are very turbulent. There's still obviously some level of risk in the broader economy. And so we really believe that the thing to do right now is to protect capacity and keep the balance sheet in a strong position not only for defensive reasons. But as Brad has alluded to, we do think as we get later in the year that we may see some improving opportunities on the acquisition front.

We have four -- as Brad alluded to we have four projects that we may start. We're scheduled to start later this year. These are projects that would deliver in 2026 into 2027. So I think that that level of development is something that we feel very comfortable with. These would be -- of course, it's -- we're still fine-tuning a lot of the numbers and pricing is not yet locked in. But we are seeing some early indication of some relief on some of the pricing metrics. And of course by the time we get to 2026 and 2027 we think the leasing environment is likely to be pretty strong given the supply pullback that we expect to start to see happening late in 2024 and 2025.

So we would anticipate that these will be some very attractive investments that we could potentially start later this year and would reconcile very nicely to even where our current cost of capital is. So we certainly understand the metrics and the math on all this and pay close attention to it. We don't think we're going to ramp up a lot more than that at this point in the cycle, but we feel pretty good about the four opportunities that we're looking at the moment.

Wes Golladay

Okay. And then maybe if we can go to that topic of distress. I mean, a lot of the private owners right now do you feel that they may be upside down and the banks are just extending the opportunity right now, or do they have significant equity just need maybe a capital infusion?

Brad Hill

Yes. I mean, I don't think that we are seeing any distress in the market right now. I mean the projects just like our portfolio the operating fundamentals are very strong. So even on some of these lease-ups when they underwrote them in 2021 or so the leasing fundamentals are going to be a lot stronger than what they expected. And even the joint venture projects that we started in 2021 cap rates were in the 5%, 5.5% range on the valuation. I mean, that's kind of where we are. So, I would say that the developers have been somewhat disciplined in their underwriting in the last couple of years and the operating fundamentals are outperforming. So, they won't get the pricing that they could have gotten 1.5 years ago, but there's still profit in a lot of these projects, so we're not seeing that yet.

Where I think the distress could come are projects that closed a year, 1.5 years ago and they did some type of financing cap or something that's coming due and it's going to require a reset of -- or a pay down in order to get that loan rightsized and the debt service coverage rightsized. Those are going to be the ones I think that are going to have a little bit of trouble.

Wes Golladay

Great. Thanks, everyone.

Operator

And we will go next to Eric Wolfe with Citi. Your line is open.

Eric Wolfe

Just to follow up to your answer there a moment ago. You mentioned your balance sheet is just in incredible shape. I don't think I've -- can remember seeing an apartment company at sort of mid-three times leverage down to probably low three times later this year. So my question is really sort of what would it take what type of opportunity would you need to see, before you'd be willing to take your leverage back up to a more normal sort of five times amount? And I guess, if a portfolio came across that was like in say the 5.5% to 6% range, would that be interesting enough to allow you to take your leverage back up?

Eric Bolton

Well, Eric this is -- I'll start and Al you can jump in. But we do anticipate that over the course of the next year or two that we will see leverage probably edge back up just a little bit, believing that we will -- if nothing else, we've got some development funding that we'll do. And of course the funding that we're doing on our redevelopment work and repositioning work is super -- very, very accretive. And so, we will begin to see leverage move a little bit back up.

But having said that, we just think right now, given the uncertainty in the broader capital markets landscape and what we imagine to be likely an opportunity for more distressed asset buying that capacity right now is a good thing to have. And so we're going to hold on to that. And I do think that obviously, if we did see some larger opportunity come across that we felt made sense for us strategically and felt like, we could do something closer to 5.5% to 6% range from a cap rate perspective that probably would certainly get our attention. And obviously, it depends on a lot of different other variables. But we like where the balance sheet is right now, given the broader landscape that we have with the capital markets and the transaction market.

And so, we're going to be very cautious in how we put that capacity to work. We've got some known needs that I've just mentioned that are very attractive investments and we'll continue to move forward with those. We don't have any certainly need to go attract additional capital right now. And as Al alluded to the debt portfolio is in terrific position, a lot of duration and it's all 100% fixed. So, we're going to sit tight with what we have at the moment largely.

Al Campbell

I'll just add just quickly that Eric that's a very good point you make that really our target -- long-term target is closer to 4.5 times to 5 times on the EBITDA coverage. I mean, we're providing opportunity right now as Eric mentioned and hopefully they will find those expect to be able to find those. And long term our target is in line with what you mentioned.

Eric Wolfe

Thanks for that. And then, just on a related guidance question. You did 3.9% in terms of blended spread first quarter. It sounds like you expect to accelerate through the balance of the peak leasing season. So my question is really, just how did it get down to that 3% blend that's in your guidance? Is it just a steep dropoff later this year or just some conservative baked in there?

Al Campbell

I'm going to start with it and Tim can give some more details. What I would say primarily is, one, we need to see the bulk of leasing season happen as it comes. So we're providing opportunity to see that and get more information. We're encouraged certainly by what we saw in the first quarter. And I think secondly, the biggest point would be, we do expect to see that seasonality in the most acute if you would in the fourth quarter. That's typically what it is in a normal year. That's sort of what we're expecting. So we could see that new lease pricing be a little more negative in that fourth quarter because the holiday season and demand just really shuts down in that period. So that's what we provided for in our forecast I think at this point.

Tim Argo

Yes, Eric, this is Tim. I mean, I think, it will kind of boil down to new lease pricing that we see over the late spring and summer will be the ball game in terms of whether it ends up a little better than we thought or a little worse. You have obviously the bulk of the leases happening during that period. And they carry for several months throughout the year. So they have certainly an outsized impact. So if those new lease rates accelerate more then it probably is a little better than we thought, if they accelerate not quite as much probably a little less because renewals are going to be relatively consistent through the rest of the year.

Eric Wolfe

Got it. Thanks for your time.

Operator

We will go next to Jamie Feldman with Wells Fargo. Your line is open.

Jamie Feldman

Right. Thank you and good morning. I want to go back to your comments about 11% of leases written in the first quarter were new people moving into Sunbelt. Can you provide more color on that data point across the different markets? And I guess I'm thinking more about maybe some of the larger MSAs versus the smaller MSAs.

Tim Argo

Yes, this is Tim. So 11% overall and probably markets you would expect. In terms of in-migration Phoenix is our top market. You have about 18% of move-ins out of the market going into Phoenix. Tampa was another big one at 15%. Charlotte was 13%. Charleston and Savannah were pretty high in there as well. And so those are the biggest drivers. And that's been pretty consistent throughout the last several quarters as the ones that are benefiting the most.

Jamie Feldman

Interesting. And then I guess similarly if you think about the lay-up activity I guess those are also the markets where you've seen the most growth in tech jobs or jobs that might be most at risk. Can you talk at all about how lay-up activity might be impacting the different types of MSAs and even at statistics specifically? Just trying to kind of think through the next 12 months or so.

Tim Argo

Yes. I mean we haven't seen a ton of impact yet. I mean I think certainly the technology sector is getting a lot of publicity and a lot of -- there's layoffs out there but I do think a lot of the other sectors are still in the net hiring position. Austin's one particularly in North Austin where we've seen a little bit of impact from that some of the tech jobs up in North Austin, but at the same time you've got Tesla still planning to expand over the next couple of years there. You've got Oracle moving their headquarters there. So certainly long term in Austin it's a job machine and we feel really good about that.

Outside of that we haven't seen a lot. Phoenix been tight a little bit. But again we've got properties there with it's a huge semiconductor plant coming in right there in one of our properties. So there's a little bit of short-term pressure over the next few quarters, but long term feel really good about all of those markets.

Jamie Feldman

Okay. Thank you. And then I know you talked about insurance and taxes on the expense side. Just as we think about your guidance for the year any other variables or line items on the expense side that maybe you don't feel quite as confident or maybe there could be some changes there? I know you got your insurance coming up in July your renewal.

Al Campbell

Those are the two big items. I mean I think that expense -- the key components of expenses for the year are personnel, repair and maintenance taxes and insurance. I think we -- the first two we expect to moderate as the year progresses as we talked about and taxes and insurance remaining the biggest items that have the most unknown at this point. So that's ones we're keeping our eye on at this point.

Jamie Feldman

Okay. All right. Great. Thank you.

Operator

And we will take our next question from Linda Tsai with Jefferies.

Linda Tsai

Hi. Maybe just as a short follow-up to that last question. In terms of rationale for move-out job transfers and buying a new home has the balance of these reasons shifted since 4Q and any regional trends you'd highlight?

Tim Argo

I mean it's pretty consistent. One we've seen move-outs to buy a house has dropped dramatically. As you would expect with what interest rates have done we've seen our move-outs due to rent increase drop quite a bit as well. The biggest reason for move-outs which is always consistently our largest read to put move-out is just a change in the job and job transfers and that's up a little bit. But it's -- as we've talked to people out on site it's more just people moving for another job as opposed to any significant job losses. So turnover -- it's overall is down a little bit but it's the -- some of the key reasons that we've talked about before and pretty, pretty consistent across markets no matter if larger markets or secondary markets.

Linda Tsai

Okay. Thank you.

Operator

And we have no further questions. I will return the call to MAA for closing remarks.

Eric Bolton

Well no additional comments to add. So we appreciate everyone joining us and I look forward to seeing everyone at NAREIT. Thank you.

Operator

This concludes today's program. Thank you for your participation. You may disconnect at any time.