Mid-America Apartment Communities Inc
NYSE:MAA
Earnings Call Analysis
Q3-2023 Analysis
Mid-America Apartment Communities Inc
The company witnessed a softening in new lease pricing starting in August and September, attributed to increased concessions from developers in various markets. Despite these challenges, the company's diversified portfolio strategy — encompassing a wide range of markets, asset types, and price points — proved beneficial, especially in mid-tier markets such as Savannah and Raleigh, which outperformed larger metros with more supply pressure like Austin and Phoenix.
Core Funds from Operations (FFO) for the quarter exceeded expectations, reaching $2.29 per share, driven by favorable interest and overhead costs. The company's same-store operations performed as anticipated, with revenue slightly surpassing forecasts due to higher occupancy, although this was countered by moderated rent growth on new move-ins. Investment in redevelopment, repositioning, and smart home installations continue to provide strong returns and enhance portfolio quality. The balance sheet remains robust with $1.4 billion in liquidity to support upcoming projects and maintain low leverage, with a debt-to-EBITDA ratio of 3.4 times.
The company has updated and narrowed its guidance, maintaining a core FFO midpoint projection of $9.14 per share, translating to a growth of 7.5% over the prior year. Total revenue growth expectations remain constant, while same-store operating expense growth guidance increased slightly due to labor costs. Real estate tax projections are unchanged, but there are timing pressures related to Texas legislation and valuation litigation.
Management expressed cautious optimism for the future, anticipating the current market pressure from new supply to persist but not worsen over the next few quarters, potentially easing by Q3 of the next year. Stable demand, driven by factors like low resident turnover and strong collections, provides a solid foundation. Diversification strategies may mitigate supply pressures, and by the latter half of next year, market rent growth is expected to turn positive, fostering a favorable environment for continued value creation.
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Good morning, ladies and gentlemen, and welcome to the MAA Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, October 26, 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.
Thank you, Brittany, 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, Brad Hill and Clay Holder. 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 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 supplements are currently available on the for Investors page of our website at www.maac.com. A copy of our prepared comments and 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. MAA's third quarter FFO performance was ahead of our expectations as the demand side of our business continues to capture good leasing traffic, low resident turnover, positive migration trends and strong collections performance. During the quarter, we did see a higher impact from new supply deliveries across several of our larger markets with the resulting impact showing up in pricing associated with new move-in residents while we continue to believe that MAA's unique market diversification, a more affordable rent structure and an experienced and capable operating platform will enable us to push back against some of the supply pressure. The high volume of new deliveries in several markets will continue to weigh on rent growth associated with new resident move-ins for the next few quarters.
Encouragingly, there is now clear evidence emerging that new supply deliveries are poised to meaningfully drop late next year into 2025. We have certainly worked through these supply cycles before and continue to believe that MAA's more extensive market and submarket diversification, new AI and technology tools and an experienced operating team has us in a position to outperform our markets. As we have discussed previously, one of the benefits that typically emerges from a heavy supply cycle, particularly one that is characterized by higher interest rates is an increasing volume of acquisition and external growth opportunities. We have seen a shift take place with seller and developer pricing expectations. The more challenging lease-up conditions, coupled with higher interest rates that are likely to be with us for a while, are generating more buying opportunities.
As Brad will recap in his comments, the property acquisition we completed after quarter end is a good example of where we expect more opportunities to emerge specifically, a recently completed new development that is still in initial lease-up with seller requirements to close within a short time frame. Before turning the call over to the team to provide details surrounding our performance and market conditions, let me summarize what I believe are the 4 key takeaways in our report.
First, demand across our markets remain solid and supportive of steady absorption of the new supply. Secondly, current high levels of new supply, coupled with developer pressures related to the higher interest rate environment will cause the leasing environment to remain competitive for the next few quarters with new supply pressures expected to then decline. We expect to see an increasing number of compelling external growth opportunities in 2024. And fourth, MAA's long track record of performance and experience in working with markets with higher demand and supply dynamics now further supported by a stronger technology platform and a strong balance sheet with significant capacity has the company very well positioned as we work through the current cycle. And with that, I'll now turn the call over to Brad.
Thank you, Eric, and good morning, everyone. As anticipated, we saw an increase in for-sale marketing activity emerge early in the third quarter. And while closed transactions are limited in number, we continue to see some upward pressure on cap rates on projects we track with cap rates up by roughly 15 basis points from 2Q. As indicated in our earnings release, we recently closed -- the Phoenix market that we began pursuing early in 3Q. MAA Central Avenue is a 323 unit mid-rise property that fits the profile of the type of opportunities we expected to emerge. The property is in its initial lease-up and the seller was under some pressure to close on the sale by a specific date. So counterparty risk considerations were paramount to the seller.
Our familiarity with the market, speed of execution and balance sheet strength that supports an ability to close all cash with no financing contingencies were all aspects of our offer that were very important to the sellers. Our pricing of approximately $317,000 per unit is substantially below current replacement costs and is expected to provide an initial stabilized NOI yield of 5.5%. With the property nearing stabilization, we expect over the following year or so to capture further margin and yield expansion opportunities as a result of adopting MAA's more sophisticated revenue management practices and technology platform, coupled with our future ability to achieve operational synergies with another MAA property that is only half a mile away.
Our transaction team is very active in evaluating other acquisition opportunities across our footprint. And Al and Clay have our balance sheet in great position to be able to take advantage of additional compelling opportunities as they continue to materialize later this year and into 2024. Despite pressure from elevated supply, our new properties in their initial lease-up continued to deliver strong performance, producing higher NOIs and earnings than forecasted, creating additional long-term value for the company. These properties on average have captured in-place rents 15% above our original expectations. For the 5 properties that are either leasing or will start leasing by the end of the year, this rent outperformance, which is partially offset by higher expenses, including taxes and insurance is estimated to produce an average stabilized NOI yield of 6.7%, significantly higher than our original expectations.
Leasing has progressed well at MAA Windmill Hill in Austin, and we expect this community to stabilize this quarter. We continue to advance predevelopment work on several projects, but due to some permitting and approval delays, 3 projects that we plan to start this year will likely instead start in early 2024. In a number of markets -- in a number of our markets, construction costs have been slower to adjust than we expected, but we continue to see signs that a broader reduction in cost is likely to come. Numerous consultants that we work with, including architects and engineers, have indicated their volume of work has significantly decreased in the last few months, providing further evidence of a decline in new construction activity.
Additionally, general contractors are indicating they have more capacity to start new projects and in many cases, with a larger pool of subcontractors available. In addition to the 3 projects mentioned that we expect to start over the next 6 months, we have 5 more projects representing approximately 1,320 units that could be ready for construction start by the end of 2024. Our team has done a tremendous job building out our future development pipeline. And today, we own or control 13 well-located sites, representing a growth opportunity of nearly 3,700 units. We have optionality on when we start these projects, allowing us to maintain our patience and discipline when making capital deployment decisions. Any project we start in 2024 will deliver units into a stronger leasing environment with lower competitive supply in late 2025 and 2026.
Our development team continues to evaluate land sites as well as additional prepurchase development opportunities. In this more constrained liquidity environment, we are hopeful that we may find additional development opportunities to add to our future pipeline. In addition to continuously monitoring the construction market and evaluating costs at our projects in predevelopment, our construction management team is focused on completing and delivering our remaining 5 under construction projects. During the third quarter, the team successfully wrapped up construction on Novel West Midtown in Atlanta completing the delivery of all 340 units. That's all I have in the way of prepared comments. So with that, I'll turn the call over to Tim.
Thanks, Brad, and good morning. Same-store revenue growth for the quarter was essentially in line with our expectations with sequentially higher occupancy offsetting sequentially declining new lease pricing. Increasing supply pressure did impact pricing in some of our markets, resulting in a blended lease-over-lease pricing of 1.6% comprised of new lease rates declining 2.2% and renewal rates increasing 5%. Average physical occupancy was 95.7%, resulting in revenue growth of 4.1%. The various metrics we measure related to demand remained strong. Employment markets remained stable with continued job growth across our Sunbelt markets. Net positive migration trends to our markets continue with move into our footprint well ahead of move-outs outside of our footprint and remain consistent with what we have seen in the last several quarters.
Resident turnover was down once again in the third quarter, a 4% decrease from prior year. Collections remained strong and consistent with prior quarters. Our new resident rent-to-income ratio remained low and in line with prior quarters and our lead volume is consistent with what we would expect and in line with pre-pandemic levels. But as mentioned, we did feel the impact of new supply in the third quarter, which manifested itself in lower new lease pricing, particularly beginning in August and September. This pressure was driven by higher concession uses by developers in many of our markets with the resulting reduction in net pricing in a number of our direct market comps. This peer pricing movement obviously does impact market pricing, it impacts our asking rents. We believe the lingering higher interest rate environment with the 10-year treasury moving up quickly in the third quarter is driving merchant developers to get more aggressive on pricing and is creating some pockets of pricing pressure.
Historically, with typical seasonality, pricing tends to moderate some in Q3 as compared to Q2 and then moderating quite a bit more from Q3 to Q4, typically in the 200 basis point range. While we did see a greater degree of moderation in the third quarter as compared to the second quarter, with the solid demand factors mentioned previously, we expect less moderation than normal from Q3 to Q4. October to date, blended lease-over-lease pricing is 0, which is within 10 basis points of what was achieved in September and a lower rate of decline than the more typical 60 basis points. Average physical occupancy for October month to date remains strong at 95.6% with exposure, which is a combination of current vacancy and units on notice to vacate, up 6.9% and in line with October of last year.
In addition to the demand factors mentioned, increased absorption through the third quarter in the Sunbelt markets provides further evidence of continued solid demand to help mitigate the impact of the continuing new deliveries. The amount of new supply that was absorbed in the third quarter in our markets was the highest it has been since the beginning of 2022. Despite the new supply pressure in some markets, our unique portfolio strategy to maintain a broad diversity of markets, submarkets, asset types and price points is serving us well with many of our mid-tier markets leading the portfolio and pricing performance both in the third quarter and into October. Savannah, Charleston, Richmond, Greenville and Raleigh are examples of markets outperforming larger metros with more new supply pressures such as Austin and Phoenix. We expect this market diversification, combined with the continued strong demand fundamentals noted earlier, will help continue to mitigate some of the impact of new supply as compared to a less diversified portfolio.
Regarding redevelopment, we continued our various product upgrade initiatives in the third quarter. For the third quarter of 2023, we completed nearly 2,300 interior unit upgrades and are nearing completion on the Smart Home initiative with over 92,000 units now with this technology. For our repositioning program, we have 5 active projects that have either begun repricing or will begin repricing in the fourth quarter with expected yields in the 8% range. Additionally, we are evaluating an additional group of properties to potentially begin construction later in 2023 or early in 2024 with the target to complete by early 2025. That's all I had in the way of prepared comments. I'll now turn the call over to Clay.
Thank you, Tim, and good morning. Reported core FFO for the quarter of $2.29 per share was $0.03 per share above the midpoint of our guidance. The outperformance was primarily driven by favorable interest and overhead costs during the quarter. Overall, same-store operating performance for the quarter was in line with our expectations. Same-store revenues were slightly ahead of expectations as average occupancy was better than forecasted. The increase in occupancy was offset by the moderation of effective rent growth on new move-in leases as Tim mentioned.
As expected, we began to see some moderation in same-store operating expense growth during the third quarter. However, this moderation was less than what we had forecasted. Personnel costs came in higher than expected, primarily due to higher contract labor costs and higher leasing commission, which helped drive the improvements in occupancy. The personnel costs were partially offset by real estate taxes that were favorable to our forecast for the quarter. We received more information related to the Texas state legislation that was passed in the quarter that reduced property tax rates in the state. Our projection for real estate taxes for the full year remains unchanged.
During the quarter, we invested a total of $19.7 million of capital through our redevelopment, repositioning and smart rent installation programs. Those investments continue to produce strong returns and add to the quality of our portfolio. We also funded just over $47 million of development costs during the quarter toward the completion of the current $643 million pipeline, leaving $296 million remaining to be funded on this pipeline over the next 2 years.
As Brad mentioned, we also expect to start several new projects over the next 12 to 18 months, which our balance sheet remains well positioned to support. We ended the quarter with $1.4 billion in combined cash and borrowing capacity under our revolving credit facility, providing significant opportunity to fund potential investment opportunities. Our leverage remains historically low, with the debt-to-EBITDA ratio at 3.4x and at quarter end, our debt was 100% fixed for an average of just over 7 years at a low average interest rate of 3.4%. In October, we refinanced $350 million of maturing debt utilizing cash on our balance sheet and our commercial paper program. Our current plan is to continue to be patient and allow interest rates and financing markets to stabilize before refinancing. That's all I have for my prepared comments, and I'll turn it over to Al to discuss Q4 guidance.
Thank you, Clay, and good morning, everyone. Given the third quarter performance outlined by Clay as well as expectations for the remainder of the year, we have updated and narrowed our guidance ranges for the year, which is detailed in the supplement to our release. Overall, the third quarter core FFO favorability primarily related to overhead and interest costs is expected to be essentially offset by higher-than-projected same-store operating expenses for the remainder of the year, which I'll discuss a bit more in just a moment. Thus, we're maintaining the midpoint of our core FFO projection for the full year of $9.14 per share, which reflects a 7.5% growth over the prior year. The midpoint of our total revenue growth projection for the year remains unchanged as the expected impact of pricing moderation, which is reflected in effective rent growth is largely offset by the increase in projected average occupancy for the year. . However, we have increased our guidance for same-store operating expense growth for the full year by 45 basis points to 6.5% at the midpoint, primarily reflecting the continued pressure in labor costs, partially related to building higher occupancy. Both personnel and repair and maintenance costs are expected to moderate more as we move into 2024. While we maintained our full year guidance range for real estate taxes, we are impacted by some timing-related pressure during the fourth quarter as some of the initial favorability related to the Texas rate reduction is essentially offset by delays in litigation related to high valuations, which is being pushed into next year. We do expect real estate taxes overall to continue moderating over the next couple of years as we work through the changing cap rate environment.
We also reduced our total overhead cost projection for the year by $2 million to $126.5 million at the midpoint, and we removed our disposition expectations for the current year to reflect the current market conditions. So that's all that we have in the way of prepared comments. Brittany, we'll now turn the call back to you for questions.
[Operator Instructions] We will take our first question from Michael Goldsmith with UBS.
My first question is just on the impact of the merchant builders delivering into a higher supply, higher rate environment? It seems like it's changed the lease-up strategy. So I guess is the largest impact here that rental rates have gone -- have moved lower and will remain lower longer. And so I guess, in initial expectations so will this -- does this create more pressure in the near term and also for longer? Or is it just kind of a lower dip before it gets better, kind of seems like back half of '24, early '25.
I mean I don't think it necessarily means longer. I think what did happen as we talked about, it happened a little bit quicker. And I think the comments I made about the treasury and developers get more aggressive, cause that moderation of new lease rates to occur a little bit earlier than we would have thought or a little bit quicker really. But we don't see much further deceleration. I think what we see is with renewal rates continuing to be strong, we're getting 5% on what we've sent out or what we've got acceptance on for November and December, the 5% range. The spread between new lease rates and renewal rates is pretty typical, honestly, for this time of the year and tends to gap out both in Q4 and Q1. I think as you get into -- later into 2024, there will be some normal seasonality that will narrow that gap, but we'll be in this supply environment for the next few quarters, but don't expect materially worsening from here.
Got it. And are you seeing any difference in the performance between your Class B properties which are priced at discounted supply versus the Class A, which should be competing more in line with where the new supply is coming in? Like where is the pressure hitting the herds?
At a portfolio level, we're not seeing a huge difference between the performance of As and Bs. I will say at a market level, some of our larger markets that are getting more of the supply, we're seeing a little more pressure on some of those B+, A- assets where that gap has narrowed. But I do think that creates some opportunity longer term. Those new developments are going to stabilize at some point at higher rents and that will create some opportunities there. But in some of our more mid-tier markets and smaller markets, we're not getting quite the supply pressure, we're not seeing that pressure.
And I think it's worth noting that even at the -- use of concessions is happening by some of the merchant developers in the third quarter. The price gap between what we're seeing of the new product delivering in the market with those concessions as compared to the average rent in our portfolio is still a spread of $300. That's down a little bit from $350 that we saw in Q2, but it's still a pretty healthy spread there.
We will take our next question from Austin Wurschmidt with KeyBanc.
Last quarter, Eric, you had mentioned that you really didn't expect new lease rate growth to drop off and kind of highlighted that demand remained strong. So I guess is it just been the cumulative impact of supply and concessions on lease-ups that's driven this softness? And really, how does that change your view around how 2024 market rent growth could shape up?
Well, Austin, I think that, as Tim alluded to, I mean, the thing that, frankly, was a little bit surprising in the third quarter was the more aggressive practices taking place by some of the merchant developers that was directly impacting some of our product in some of the larger markets. We do think that there's -- it's interesting we were looking at just sort of what happened during the third quarter in terms of the sort of rapid ramp-up of the junior treasuries. And I think as developers are facing, particularly merchant builders who are facing a more competitive leasing landscape with the reality of a prolonged high interest rate environment, there was a motivation, if you will, to get pretty darn aggressive and trying to get leased up before we got into the holiday season.
And so that affected market dynamics in some of our markets, and I think cause new lease pricing to moderate a little quicker than we would have otherwise thought just because these merchant builders are a little bit of an urgency to get stabilized sooner rather than later. And so I think that, that performance, we think likely probably continues at some level probably for the next couple of quarters or so. As Tim mentioned, we don't -- given the strong absorption that we see happening overall across our markets, it's hard to see it getting any worse than what we kind of saw in Q3. And then we're encouraged by the fact that October performance in the normal seasonal pattern that we see from Q3 to Q4, frankly, is better than what we have seen in the past.
So I mean there are reasons for us to feel that we think that the environment we find ourselves in right now is likely to sort of continue for a while, probably through -- I'm guessing, through Q2 of next year. By the time we get to Q3 of next year, comparing against this year, we think that the things start to feel a lot more comfortable. Now we'll have the compounding effect of Q3, Q4, Q1 that we have to carry and kind of work through revenue performance through most of next year. But we think that there's arguments to be made that the supply-demand dynamics that we see taking place right now are likely to sort of hang where they are for the next few quarters, but not get materially weaker.
Got it. And so I mean, I guess that kind of went to my second question was, it sounds like you think demand remains stable from here, which has actually been fairly strong. I think even accelerated the last couple of quarters and helped absorb some of the supply. I mean, is it fair to say that you think you get some level of market rent growth positive next year despite kind of this cumulative impact based on your thoughts on how demand shakes out?
Yes, we do. I mean assuming that the economy continues to hold up as it is. We continue to capture the sort of tailwind that we're seeing with low resident turnover, lower levels of move-outs to buy homes. Collections continue to remain strong. I mean there's just -- as I've said for many, many years, to me, at the end of the day, what really drives performance over long haul is the demand side of the business. And that can -- in the -- that's why we've always focused our capital in the way we have across the Sunbelt markets, believing that the demand dynamic continues to provide a foundation for how we like to create value and drive performance over a long period of time. We have to deal with this periodic supply pressure that comes from time to time, and that's kind of what we're dealing with right now.
But because of the demand side being as strong as it is, the absorption continues to be where it is and because of the approach that we take with diversification across the region, we think there are things that we can do to help sort of mitigate some of the supply pressure that you otherwise might think would -- if you look at just overall market dynamics, we think that when you put the portfolio together, the way that we have, that we can push back against some of these supply pressures when they do occur from time to time.
So I think that -- we think that as we get into the back half of next year, that we probably do start to see supply levels start to moderate and some of the developer pressures start to moderate. We will probably do start to see market rent growth turn positive on the new lease pricing. And then as Tim mentioned, we continue to get pretty solid performance on our renewal practices. And if you go back over a number of years, you'll see that our renewal practices have always been fairly strong. And we take a certain approach to how we think about renewal pricing, and we continue to believe that, that will remain a tailwind for us over the coming year.
We will take our next question from Eric Wolfe with Citi.
I just wanted to follow up on the answer there. You said that you don't expect new lease rates to get much worse from here. So I don't want to put words in your mouth, but does that mean you're sort of expecting like negative 4% to negative 5% new lease for the foreseeable future? And should that continue through Q2 next year? Because it sounds like you're saying that what the dynamic you're seeing today should continue to 2Q and then probably get better as you get into the back half of the year?
Eric, this is Tim. I mean, I do think new lease rates probably hang in this range for a few months. Obviously, typically, Q4 and Q1 are kind of the weakest in terms of seasonality and the amount of traffic and all that. But I do think we will see some level of -- and Eric hit on this a little bit, some level of normal seasonality as we get into -- later into '24. So I think as we get into March and April in the spring and the higher traffic volumes that we'll see some acceleration in those new lease rates. And I don't expect much change in renewals. We've been pretty consistent with our renewal rates going back for several years. We think those will hold up, and we think the turnover rate remains low, which provides the renewal side with more of that blend when you think about blended lease-over-lease rates. So I think we're going to be in this range for a few months, but I don't think it sticks like that for the next 12...
And we typically see the gap between new lease pricing or renewal pricing sort of gap out the most in Q4 and Q1, and then it tends to narrow in Q2 and Q3. And we think that, that seasonal pattern is likely to repeat next year.
Got it. That's really helpful. And I guess that's my second question, which is that historically, I think you said there's been about 500 to 600 basis points of spread on renewals versus new leases. There's nothing that would sort of change that just based on the supply dynamic today. It's not going to get wider or necessarily thinner. It's just -- it's probably going to be about the same spread as typical.
Yes. And to clarify or put some color on that, that 500 spread for us typically is what it is in the summer and kind of Q2, Q3 range with renewals remaining pretty consistent. Historically, Q4, Q1, Q4 is usually the biggest. It's usually in the 900 basis point range kind of similar to what we're seeing right now and then squeeze down to, call it, 700, 800 basis points in Q1 and then get more on that 500 basis point range during the heart of the spring and summer. So I don't really see -- that's the normal seasonality and we'd expect that to recur at some level.
We will take our next question from Jamie Feldman with Wells Fargo.
So it sounds like you could see a ramp-up here in acquisition activity, investment activity. You had mentioned the Phoenix acquisition at $317,000 per unit. You also talked about a 5.5% yield. As you think about deals, I mean, what are the metrics that you care about? Is it price per unit? Is it AFFO accretion? Is it NAV accretion? And then how do you think about your cost of capital and the required spread to your cost of capital to put money to work?
Well, I mean, the thing that we really prioritize more than anything is sort of what sort of stabilized yield do we think we will get from making a new investment and how does that compare to our current cost of capital. And as you think about cost of capital today and look at sort of where we are able to put our balance sheet to work at, call it, 5.5%, you think about longer perspective on cost of capital being a function of dividend yield and sort of FFO yield -- core FFO yield, you blend that, you're still in that kind of 5.5% range.
And so as we think about this deal that we did in Phoenix, I mean the opportunity to put a brand-new asset on the balance sheet that is going to be, we think, a great performer for us long term to put that on the balance sheet initially, even though it's still in sort of an initial lease up to be able to bring it on the balance sheet at basically right at our cost of capital with full understanding that we've got some real operating upside opportunity that we can capture over the first year or so from our revenue management practices and some of the cost efficiencies that we'll bring to bear on an operation that doesn't have those advantages coupled with the fact, as Brad mentioned, this property is only -- it's less than half a mile from one of our other properties, and we will, over the next year or so, pod, what we refer to as pod this property with the other and drive down some of the operating costs.
We think over the next couple of years that we'll see that yield meaningfully go up from there. So we think at this point, that makes a lot of sense to us. And I think that we're going to continue to, we think, see more of that opportunity emerge over the coming year.
Okay. And can you quantify how much you think the yield goes up with the revenue management and putting the MAA touch on these assets?
I'd probably put it at, at least 100 basis point margin expansion to probably 200 basis points, somewhere in that range.
Okay. And then secondly, you may have answered it with Eric's question, but just thinking about October, I mean what can you tell us about rent, blended rent, new renewal rent so far in October?
Yes, this is Tim. So for October, as I mentioned, the blended is right around 0. We're at about negative 5.3% on new lease and 4.4% on renewals as we stand right now.
Okay. And then finally for me, Atlanta specifically, can you talk about -- I mean, you had kind of below average revenue growth there. Is that pressure on rents from supply? Or is that more about some of the issues you've mentioned in the past, fraud, some of the other kind of unique factors to that market?
Yes. I mean there's certainly a few unique factors in Atlanta and what you mentioned as part of that. I mean, pricing is a little bit weak. It's a little bit lower than I would say some of our portfolio average. They are getting some of the supply pressure that a lot of the other markets are getting as well. I think what we're seeing in Atlanta is a little more on the occupancy side. No, it has -- it is slowly improving. We saw a 40 basis point increase in occupancy from Q2 to Q3 in Atlanta. But there are a couple of unique circumstances that you mentioned, one, if you remember earlier in the year, we talked about between the winter storm and a fire we had in Atlanta. We had a lot of down units that came on sort of late first, early second. So we were kind of working through that from an occupancy standpoint and then has been well documented by a lot of people at some of the fraud concerns in Atlanta.
And I think that's starting to work itself through as well. The courts are becoming a little more aggressive on that. And we've seen the number of [indiscernible] that we had in that market is about double from where it was last year. So create some pressure in the short term on occupancy, but certainly a longer term in terms of revenue, quality and ability to pay is much better. And we've also been able -- through in-house training we've done and really focused on fraud income, we've seen the number of people coming into the door, we think is with that scenario is much less, and we've seen our number of age balances we have in terms of revenues is way down and just the amount of delinquency we have in Atlanta is way down. So some unique circumstances there for sure, but we think it's headed in the right direction.
Okay. And as you think about those factors, does it give you pause on it being your largest market? I mean, over the long term, is that a reason you'd want to shrink there or grow in other markets more?
Well, I mean, we continue to look at all the markets, and we probably, over the next number of years, we'll -- you'll probably see us continue to cycle some capital out of the Atlanta. It's going to be more driven by asset-specific decisions, property-specific decisions. I mean, we continue to like the Atlanta market long term. A lot of great job growth drivers and demand drivers in that market. It's like all the other markets, they will go through periods of supply pressure from time to time. But the demand dynamics there are pretty healthy. And I think some of the things that Tim is alluding to that were unique to Atlanta, really are attributable to some of the practices that were adopted during the COVID years and the court systems there got really sort of backlog, if you will, and it's just taking longer for that market to sort of work back to normal. We see it happening. But we like the Atlanta market long term for sure.
We will take our next question from Nick Yulico with Scotiabank.
I was hoping to get your loss to lease if you're able to quantify that.
Yes, Nick, this is Tim. So a couple of comments there. If you look at sort of where we are right now and what's going to earn in or be baked in for next year with pricing today plus the pricing that we're assuming for Q4, probably have 1% to 1.25% of baked in or earned in, if you will, that will flow into 2024. Think about loss to lease and just in terms of kind of where rents are right now, it's probably about a negative 1% loss to lease given what we've seen with new lease rates right now, that's where I would peg it sitting in October.
Okay. That's very helpful. Just one other question. Going back to the acquisition and the 5.5% initial stable yield. Is that number impacted by concessions reducing that yield? I don't know if there's any way you can quantify like whether that would be a higher yield absent as there's concessions.
Nick, this is Brad. Yes, I mean that's inclusive of concessions. The property is in lease-up, and it's offering about a month to 6 weeks generally on new leases. And so that includes the impact of that. So that would be your net effective rent. So assuming that we get to stabilization, we would see some strengthening there and the use of concessions would generally burn off on renewals. We're not using -- generally using concessions on these properties. We would also see some expansion in that yield at that point.
We will take our next question from John Kim with BMO.
I was wondering if you could talk about the impact of rising interest rates on leasing demand and landlord behavior. I know you commented that the demand has been strong. You had an occupancy pickup in the third quarter. So when you discuss new lease growth rates of minus 4% in September and minus 5.3% in October, it seems to coincide with the interest rate environment. I just wanted to get your comment on that.
I think what we think is at play here is that in this environment, with a lot of these merchant-built properties currently in lease-up, the lease-up environment and the financing environment that they are facing today is most assuredly not what they contemplated when they started construction 2 years ago. And as a consequence of that, I believe that what is happening is that some of the merchant-built product is in a rush to get stabilized as quickly as possible, preferably before we even get into the holiday season, which is why I think there was a lot of noticeable shift that took place in August and September because it's probably -- they're probably late in their time line in terms of what they forecast and what they underwrote. And certainly, they are going to face an exit or refinancing that is going to be different than what was contemplated. And while there may have been some early hope that we would start to see moderation in interest rates by this time, I think that hope is now gone. And we likely are in this rate environment we are in today for quite some time moving forward.
So I just think that all that is combined to create -- we knew in a highly -- high supply environment that lease-up pressure exist, but I think it's just been a little bit more intense because of what's going on with the interest rate environment. And therefore, it's manifesting itself in more competitive pricing practices in an effort to attract new residents and leasing traffic. And -- so I think that that's what's at play here. I think that once we sort of work through this scenario that as we've been talking about, the supply pressure starts to get a lot better, meaningfully better. And we think that we just got to put our head down and operate through this for the next -- in the next couple of quarters or so.
Can you comment on your turnover rate, which declined 40 basis points? And remains near historically low levels and how you are able to maintain this turnover rate with all the new supply that's coming online and if you're contemplating offering concessions, I don't know.
John, this is Tim. I mean as far as the turnover, I mean, we expected -- we certainly didn't really expect turnover to scale up with all the factors that we see at play. I mean between move-outs by house and move-outs for a job change, those are far away our 2 biggest reasons for move-outs. And as expected, the move-outs by house is way down. So we don't see that -- again, given the interest rate environment, we don't see that changing any time near term. Some of the other things that drove move-out or turnover up last year are down. So I would expect as we get into 2024, that there's not a lot of change in terms of turnover, certainly no significant increase in turnover and so I think that serves us well on the renewal side that certainly, we wouldn't need to look and do anything more than we're doing now on that renewal.
Encouragingly, I'll add, in the third quarter, the move-outs that we had that occurred due to rent increase were half of what they were in Q3 of last year. So what's really at play here on the turnover is just people are buying houses.
And Al, congratulations on your retirement.
Yes. Thank you, John. I'm excited about the prospects for the future, but also excited about what the company is going to do over the next few quarters and years as well.
We'll take our next question from Josh Dennerlein with Bank of America.
Just wanted to follow up on a comment you made. It sounds like you're a bit surprised just by the competition from the new supply. I guess what is most surprising to you?
Well, we're not surprised by the competition from new supply. What we're surprised by is how aggressive some of the merchant developers have gotten in an effort to expedite their lease-up sooner than getting stabilized as quick as possible. And as I've commented on, we think that, that is related to what is clearly now an indication relating to interest rate trends. And we saw the behavior with lease-ups and concessions begin to shift a bit in August and September as the 10-year treasury really started moving up to 5%, close to 5%. And I think it just triggered an urgency in developers that have lease-up projects on their books to get stabilized and get out of it or get it anyhow as soon as possible. And so I think that that's what's at play here. And that -- so the -- that was probably the only thing that it was. The only thing I can point to that was a bit of a surprise.
We expect the demand to remain solid, and it is, as Tim alluded to, our desorption numbers across our markets are really strong. We've not seen any moderation on the demand side of the curve. We knew the supply picture. I mean there is no secret about that. We've seen that coming for the past year or so. So no real surprises there. It's really just the behavior of some of these lease-up projects and the motivation that they have to get leased up sooner rather than later. And I think that, that goes right back to what I've just mentioned is that the recognition that the high rate environment we find ourselves in, interest rate environment is likely to be with us for a while. And I think it just prompted some actions on behalf of developers to get -- drop pricing, introduce more concessions, higher concessions, drive down net effective pricing quicker, which affected market dynamics to some degree.
Okay. I appreciate that color. And maybe just a follow-up on that. If I think through it, pretty sure peak deliveries are still in 2024. Is your assumption that this aggressive behavior kind of continues? Because I mean I would assume that there's more properties coming online and the interest rates keep going higher, they would want to kind of lease up as quick as possible. Do you think this competition gets, I guess, heavier in 2024? Maybe that's my -- yes, that's my question there.
It's hard to say for sure, but the short answer is no, I don't think so. [indiscernible] for that is I think that where there is an urgency that's come into equation and a higher level of urgency by developers. I think to some degree, a lot of it may be time to some calendar year-end pressures that they may be thinking about. I think that, that perhaps is at play here a bit. When you think about supply levels being where they are, we don't -- it's -- of course, it varies a lot by market. And we think that the supply levels and deliveries that are taking place are likely to be fairly consistent to where they are right now for the next couple of quarters or so, call it, through Q2 of next year. . And so it's hard to pinpoint it exactly, but I don't think that there is a material change in the supply dynamic that we're seeing today. I don't think there's a material change in the demand dynamic that we see taking place today. And I think that the only change was, if you will, just that lease-up pressure that I think some of the developers were feeling given what's going on with the interest rates. And I think perhaps that there is some -- at least some of them that are facing some calendar year-end obligations that they're trying to think through as well.
Josh, this is Brad. I'll add color in 2 ways to that. Number one is just remember that developers are incentivized to lease up and sell quickly. Their IRRs are impacted obviously, the sooner they sell an asset. And I think partly what's happened on these projects is according to our math, generally, they have to be about 90% occupied to cover their current debt service coverage through their cash flow without having to go back to their partner and ask for capital. So to Eric's point, I think once 10-year hit that psychological level of 4%. It was a realization that sales values are going to be impacted. So the sooner they could get to that point, the better for their IRR calculations and also for the waterfalls in those projects. So I think that's driving, to Eric's point, by the end of the year and a quicker process of leasing up to cover debt service coverage and get to the point where they could transact the asset in order to drive higher waterfall promotes to themselves.
We will take our next question from John Pawlowski with Green Street.
Clay, do you expect any notable acceleration or deceleration in the major expense categories throughout the next year?
We do expect that there will be some moderation in operating expenses going into next year. You saw in the report that personnel costs and repair and maintenance costs were higher than what we had expected or projected, but we still do expect those to continue to moderate as we move into next year.
Roughly 6% property tax growth rate, do you expect it to kind of bounce around this level for the foreseeable future?
Probably -- that will probably moderate a little bit as well as the current environment that we're seeing with high prices and valuations as those begin to kind of taper down that should work its way through the real estate taxes. And so we'd expect to see some moderation there as well. How fast that will play through, that remains to be seen.
Okay. Last one for me, Tim. Hoping you can give us a sense for what new lease declines in October look like in a few of the most heavily supplied markets. I'm just curious what the kind of the bottom tranche of the portfolio looks like.
New lease rates for October, is that what you're saying, John?
For the most heavily supplied markets.
Yes. I mean Austin continues to be the worst, and we've talked about that for a while. Austin is in the high negative single digits and is our worst market in terms of new lease pricing. We, like I said, same-store level, it's right around 3 -- right around 5% for October. Tampa is a little bit higher, but Austin is the one that kind of stands out above all.
We will take our next question from Brad Heffern with RBC Capital Market.
It seems like the message here is that there are a few weak quarters ahead, but the things are expected to get better in the back half of '24. I'm just curious if you can give more color around what gives you confidence in that timing? You do obviously have supply peaking in mid-'24, but it does still look elevated into '25 and then the lease-ups don't end when the deliveries fall off. So curious for any thoughts there.
Well, I think that what I would point to, Brad, is -- this is Eric, is just we continue to see a lot of support on the demand side and the absorption rates that we see taking place remain very healthy. And so I think that all the factors that are sort of supporting the demand side of the business, the employment markets, low turnover, solid collections performance, wage growth, all those factors -- continued net positive migration trends, all those factors continue to look solid and there's nothing that we can see suggesting that moderation is set to occur in that regard.
I think that as we sort of work through the current pipeline of deliveries that some of the behavior that is occurring right now likely starts to moderate a little bit as some of the more stressed lease-ups get sort of work through the system and some of the developers under the most pressure, if you will, sort of get work through the system. And then as we start to get into the back half of next year, we've been through a complete cycle, if you will, with this pressure and the comparisons to the prior leases and the comparisons to the prior year start to get a little bit more tolerable, if you will. So I just think that we feel like that we've got, call it, 2 or 3 quarters of this environment.
You've got seasonal patterns at play here, too. You recognize that the Q3 is the point of the year where moderation has typically always occurred anyway from a leasing perspective and then it sort of works through Q4 and then by Q1, particularly in February and particularly in March, things start to pick up and then you get into the spring and the summer and the absorption rate picks up even more. So I think that to have what we have now happening in one of the weaker quarters of the year from a seasonality perspective and early on in the delivery sort of pressure pipeline, I think that it gives us some reason in comfort that by the time we get to the back half of next year, the conditions start to change a bit.
We will take our next question from Connor Mitchell with Piper Sandler.
So can you just discuss the rising labor cost a little bit, and maybe that's especially with third-party vendors. So just thinking about that, it'd be fair to presume that your markets are strong economically, which would bode well for demand. So thinking about the big picture, would it be fair to say that demand and rent growth are healthy enough to offset the rising labor cost?
Well, I mean, the demand is strong, but in terms of revenue growth, I mean the problem we're facing is -- or the challenge we're facing is just a lot of supply in the pipeline right now. And that's what's really -- that sort of supply-demand dynamic is not as strong as it had been. And so that's what's really creating this spread, if you will, between sort of rent growth and what we see taking place with growth rate and labor cost. As Clay alludes to, we are seeing at least with our own sort of hiring practices that we are starting to see a little moderation begin to show up.
And we do think that as we get into -- and as Brad alluded to, we're seeing a lot of evidence out there with some of the people we talk to various vendors that -- and architecture and others would work with on the development side that the construction workforce is starting to have a little bit more availability and it's not quite as much in demand. And that, to some degree, affects our labor cost as it relates to our maintenance operations. So we do think -- as Clay alluded to, we do think that we likely are looking at some moderation in labor cost from the growth rate that we're seeing today. We expect some moderation on that as we get into next year.
Okay. That's helpful. And then maybe sticking with demand. You've referenced that demand is really the driving force align, supply comes and goes. Could you just maybe rank how -- like historically, how strong demand is and the pace of demand in this year and maybe heading into the year-end compared to previous years in cycles?
Well, I mean, this is -- Tim, you want to add anything?
Yes, I was just going to make one point that at a high level, we've done some research and with some of our third-party data as you go back the last 5 years or so, really, really last 5 or 10 years, the highest supplied markets, which tend to have been in the Sunbelt, have also been some of the best rent growth markets, and that's because of the demand side. So we have historically, over the long term, demand has more than offset the supply picture. Now we have an elevated supply picture right now that's put that out of the balance, at least for a temporary time. But as we get into late next year and over the long term, historically had shown and we believe continue to show and also demand fundamentals show that over the long term, that demand outpaces the supply.
I can't tell you, compared to sort of the migration numbers that we saw kind of throw the COVID years out, which were a bit unusual. But the level of net in migration that we see happening right now is still higher than it was historically, higher than it was before COVID. And so these Sunbelt markets continue to offer a lot of things that employers are looking for [indiscernible] that we're getting on demand as a consequence of that have never been this strong either. And so there are some unique variables out there right now that continue to support demand at a level that is stronger than what we've seen historically.
Okay. I appreciate the color. And maybe if I could just sneak one more in. Going back to Atlanta. Did you mention that you're recapturing some of the units due to the fraud issues? Or would you be able to provide a time line on when you would recapture those units?
Well, I mean it's an ongoing process. I think what we've seen is that for a period from COVID up until really early this year, the counties in Atlanta specifically have been really slow to act or take any action whatsoever. So we've seen that start to accelerate. Fulton County is still a little bit of an issue, but Cobb and DeKalb have increased their activities. So we see it starting to happen. But -- and I think we've gotten through a lot of it, but it will continue over the next few months. And I think as we get into later next year, we're back into more of a normal situation in terms of Atlanta. Like I said, we've done a lot of work to make sure we're not exacerbating the problem by letting any potential fraudulent people coming in the front door.
We will take our next question from Rich Anderson with Wedbush.
So getting back to the acquisition strategy, I think one of the problems faced over the years is they bought when they should be selling and they've sold when they should be buying. So what you're saying is interesting. I'm wondering the speed by which this strategy could unfold. You talked about the implied cost of your equity. If you were -- your balance sheet is obviously very attractive, but perhaps inefficiently so at 3.4x debt. That debt leaves $1.3 billion or so of more debt you could put on just to get to 4.5x. So maybe that's untouchable now in the rate environment. But I'm just curious, you've got some [indiscernible] to finance this. Could this be some sizable activity at this point? Or do you think it will be more like one-off asset by asset like non needle-moving type of stuff for the time being?
Well, we hope it will be needle moving. We're optimistic, Rich, that there will be certainly more buying opportunity emerging over the coming year. Now having said that, there are a lot of people with a lot of dry powder right now. And I think multifamily real estate is still viewed as an attractive commercial real estate asset class. And everybody understands the need for housing in the country. And I think there's more healthy appreciation for the Sunbelt markets perhaps than there has been in a number of years. And so we think that while the opportunity to buy and the transaction market gets better, we think that it will also potentially be pretty competitive. We would hope to -- going back to the last recession, 2008, 2009, the 2 years coming out of that downturn, we bought 7,000 apartments over a 2-year period of time.
I think -- I don't see that getting repeated, but we do think that the opportunity set will be more plentiful for us going over the coming year than it has been certainly for the last 4 or 5 years. In this higher rate environment, some of the private equity players are not going to be quite as -- be able to be quite as aggressive as they have been. There's more of a sort of an equilibrium in terms of cost of capital between us and the private guys given their higher use of debt. And you're right. I mean, we've got a lot of capacity on the balance sheet. We're anxious to put it to work, but we're going to remain disciplined about it. But we do think that the opportunities definitely start to pick up, and we're hopeful it will be significant.
Okay. Great. And then second question, maybe to Tim or others, but on the October spread between new and renewal, pendulum on these sort of growth numbers always swings too wide. I don't think anyone expected 20%-plus type of rent growth a year ago, and maybe this is surprising to the downside. When you think about the first half of 2024, should we be conditioning all of us, investors and analysts, for negative blended number, at least for the first half of the year when you think about that pendulum factor or is 0 your kind of number from this point forward, you're not giving guidance, but is there a range of sort of surprise factor that could bring that into negative territory at least for a period of time next year?
Zero is what we have dialed in for Q4 in terms of our forecast, which, as we said, is kind of where we sit right now for October and Q1, typically, compared to Q4, if I'm thinking about sort of normal environment or historical environment is usually pretty similar. I do think -- I think you could see those numbers move a little bit on the margins up or down in terms of blended going slightly negative or slightly positive. I do say as we get -- as I mentioned earlier, as we get into the spring, I think you start to see some normal seasonality in terms of new lease rates. We're not going to jump up to positive 3 or 4 all of a sudden, but I think you'll see some acceleration. So there'll be some bands, but I don't think it's widely different than what you talked about because we do think renewals remain pretty consistent. And where we see turnover going, that will blend in as a little bit bigger factor in terms of overall blended rate as compared to new leases.
We will take our next question from Anthony Powell with Barclays.
Question on the transaction environment. I think you mentioned that you saw cap rates increase by 15 basis points in the third quarter. Given where interest rates have gone, given where public market [indiscernible], I would expect that to maybe expand a bit more. So where do you think cap rates go the next few quarters that you seek to deploy more capital here?
Anthony, this is Brad. I mean I think a couple of things. One, keep in mind that what we saw in the third quarter was very limited in terms of transactions. Certainly, we -- as I mentioned in my comments, we saw activity -- marketing activity pick up a bit early in the third quarter, but a lot of that has not closed at this point, really just a handful of projects closed, and we saw those cap rates come up a little bit. But to Eric's point earlier about the availability of capital for well-located properties in good markets, we continue to see strong bedsheets for those. And so -- and we're still seeing cap rates in the low 5% range for those well-located assets. I would expect to see pressure on cap rates.
But really, it's going to depend on how that liquidity shows up for those assets to bid on them. But certainly, given the severe movement that we've seen in the 10-year and agency debt today is in the 6.5%, 6.75% range, we would expect some upward movement in cap rates, but to what degree is going to depend on the liquidity picture, the fundamentals of the properties, locations, things of that nature. So it's really hard to say where that goes from here.
Got it. And maybe on turnover and renewal rent growth. How aware are tenants typically of a high supply growth environment like this? And are you seeing tenants come to you and ask for rent declines, seeing tenants move out to newer buildings? And is that a risk next year as more of these apartments are delivered in your market?
Well, I think certainly, they're aware. I mean the transparency now with what's on websites and social media and everything else and all the different marketing avenues and advertising platforms that certainly, they're aware, and you can see down to a unit level, a lot of times on websites. But probably that's [ not ] a new phenomenon. It's been that way now at least for the last couple of years. So there's a component on the renewal side of just you've hopefully provided them with good resident service. They're happy where they're living. They're happy with the manager and their owner. And there are some friction costs involved as well. Like it's a pain to move, it's expensive to move. There are some things from a customer service and friction cost standpoint that are meaningful. But overall, as we talked about, I'll see turnover changing much from where it is now. So I don't think that becomes any more of an outsized pressure than it has been.
We will take our next question from Wes Golladay with Baird.
I have a question on the capital allocation front. I mean, is there a point where you buyback to maybe become a top priority when you consider where development yields are penciling-in and acquisition yields. And then they seem pretty thin where the 10-year trading and typically acquisition cap rates have been north of 100, 200 basis points over the 10 years. So it seems that gives them the upward pressure in the private market.
Well, again, as we touched on a little earlier, I mean we think that the opportunity to put capital work as we did with the Phoenix acquisition, is the appropriate and best sort of value creation from a long-term perspective, particularly given where the initial yield is and the opportunity we have, we think, over the next couple of years to really improve that yield meaningfully. So we continue to believe that remaining patient with the balance sheet capacity we have and looking for what we are expecting to be even more compelling opportunities as we move forward with some of the distress in the market from some of these merchant builders that the longer-term value creation associated with some of these acquisitions is going to make a lot more sense.
As Brad mentioned, we do have [indiscernible] amount of opportunity teeing up on the development front, but we control the timing on that. And we do think that we're going to see some moderation begin to take place with the construction cost, and we think the yields there are going to get better. So we -- and as I say, we've got the luxury of making -- controlling the timing of when we elect to pull the trigger on those projects. And of course, these projects, if we were to start anything next year, I mean it's going to deliver in '26 and '27 and it's going to be, we think, a much healthier leasing environment at that point. So we're going to be patient, but we think that some of the external growth opportunities that we have in front of us over the coming couple of years is the best sort of value creation opportunity that we have in terms of how to put this balance sheet capacity to work.
And a follow-up to that, are you seeing any portfolios or maybe somewhat aggregated assets and maybe debt was underwritten at a very low cap rate environment or maybe a lot of floating rate debt. Is there anything kind of penciled in to fit your quality criteria?
Well, we pay attention to those opportunities when they come out. More often than not, what we have found is the asset quality is not really what we want to do and not of interest to us. And a lot of the aggressive buying and high leverage buying that took place over the last few years. A lot of it was associated with sort of a lower price point product to our current portfolio and just we haven't found it to be particularly compelling to add to our balance sheet.
We'll take our next question from Linda Tsai with Jefferies.
Just one really quick one. Can you remind us of what's causing higher fraud in certain markets? Is it demographic shift, technology? And then what are mitigation strategies?
I mean it's difficult to say. I think what we have seen is certainly since COVID and post-COVID that the actions taken by the courts and the judges and that sort of thing has become a little bit more lax so that, frankly, creates a little bit more opportunity for bad actors. What we've done in turn is we've familiarized ourselves and have some experts, so to speak, within our team that are good at identifying that sort of thing. And frankly, what happens is if you get -- you start to get a reputation, if you will, that these guys are good at catching it and the people trying to come in the front door that way, tend to stay away. So it starts to solve itself from some standpoint if you can be good at detecting it and then good at preventing it.
And Linda, I'd add a couple of things to that. I do think that new technology that's available to people today has probably fostered some opportunity and techniques and certain capabilities in this area that are different certainly than where they were years ago and probably a little bit harder to detect. And we've made some modifications in our approval processes and how we screen that is now much more effective at that. And the other thing I would just comment on that you alluded to is it's important to recognize that where we have seen this has really been pretty isolated. We've called out Atlanta and, frankly, just a few properties in the Atlanta market, where we saw this pickup in a noticeable way. I wouldn't suggest that this is a pervasive practice that we see happening across the portfolio in a lot of different markets. It was really more of an isolated scenario. It happens to be Atlanta where we have a lot. But -- and as Tim mentioned, we see the trends changing there as a consequence and improving as a consequence of some of the changes that we've made in our approval processes.
We have no further questions. I will turn the call over to MAA for closing remarks.
We appreciate everyone joining us this morning, and I'm sure we'll see most of you at NAREIT in a couple of weeks. So thank you.
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