Q4 2023 Mid-America Apartment Communities Inc Earnings Call

Thomson Reuters StreetEvents

Fri, Feb 9, 2024, 3:15 AM67 min read

In this article:

Participants

Adrian Bradley Hill; President & CIO; Mid-America Apartment Communities, Inc.

Andrew Schaeffer; Senior VP, Treasurer & Director of Capital Markets; Mid-America Apartment Communities, Inc.

Clay Holder

H. Eric Bolton; Chairman & CEO; Mid-America Apartment Communities, Inc.

Timothy P. Argo; Executive VP, Chief Strategy & Analysis Officer; Mid-America Apartment Communities, Inc.

Adam Kramer; Equity Analyst; Morgan Stanley, Research Division

Alexander David Goldfarb; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Austin Todd Wurschmidt; VP; KeyBanc Capital Markets Inc., Research Division

Bradley Barrett Heffern; Analyst; RBC Capital Markets, Research Division

Daniel Peter Tricarico; Associate; Scotiabank Global Banking and Markets, Research Division

Eric Wolfe

Haendel Emmanuel St. Juste; MD of Americas Research & Senior Equity Research Analyst; Mizuho Securities USA LLC, Research Division

James Colin Feldman; Equity Analyst; Wells Fargo Securities, LLC, Research Division

John P. Kim; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research

Joshua Dennerlein; VP; BofA Securities, Research Division

Michael Goldsmith; Associate Director and Associate Analyst; UBS Investment Bank, Research Division

Richard Anderson

Presentation

Andrew Schaeffer

Thank you, Carey, and good morning, everyone. This is Andrew Schaeffer, Treasury Director of Capital Markets for MAA. Members of the management team participating on the call this morning with prepared comments are Eric Bolton, Brad Hill, Tim Argo and Clay Holder, Al Campbell, Rob DelPriore and Joe Fracchia are also participating and available for questions as well.
Before we begin with prepared comments this morning, I want to point out that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our 34 Act filings with the SEC, which describe risk factors that may impact future results.
During this call, we will also discuss certain non-GAAP financial measures, a presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data.
Our earnings release and supplement are currently available on the For Investors page of our website at www.maac.com. A copy of our prepared comments and 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.

H. Eric Bolton

Thanks, Andrew, and good morning. Core FFO results for the fourth quarter were ahead of our expectations. Higher non-same-store NOI performance and lower interest expense drove the outperformance. As expected, during the fourth quarter, a combination of higher new supply and a seasonal slowdown in leasing traffic increasingly weighed on new resident lease pricing during the quarter. Encouragingly, we did see some of this pressure moderate in January with blended pricing improving 130 basis points from the fourth quarter performance led by improvement in new lease pricing, stable employment conditions, continued positive migration trends, a higher propensity of new households to rent apartments and continued low resident turnover are all combining to support steady demand for apartment housing.
We continue to believe that late this year, new lease pricing performance will improve, and we will begin to capture recovery in that component of our revenue performance. In addition, with the approach of surrounding higher new supply deliveries likely to moderate later this year, we continue to believe the conditions are coming together for overall pricing recovery to begin late this year and into 2025.
As you may have seen, last week, MAA crossed a significant milestone marking the 30-year anniversary since our IPO. Over the past 30 years, MAA has delivered an annual compounded investment return to shareholders of 12.6%, with about half of that return comprised of the cash dividends paid. Through numerous new supply cycles and various stresses associated with the broader economy, MAA has never suspended or reduced our quarterly dividend over the past 30 years, which of course, is a key component of delivering superior long-term investment returns to REIT shareholders.
Today, I'm more positive about our outlook than I was at this time last year. Today, as compared to a year ago, we have more clarity about the outlook for interest rates with downward movement likely later in the year. Worries associated with material economic slowdown or recession are dissipating, inflation pressures on operating expenses are declining. The demand for apartment housing and absorption remains steady and with clearly declining permits and new construction starts, we have increasing visibility that competing new supply is poised to moderate with a 30-year track record of focus on high-growth markets, successfully working through several economic cycles, an experienced team and proven operating platform, a strong balance sheet and long-term shareholder performance among the top tier of all REITs, we're confident about our ability to execute on the growing opportunities in the coming year and beyond.
Before turning the call over to Brad, I do want to take them on and just say a big thank you to Al Campbell, who will be officially retiring effective March 31. Al has been with our team for the past 26 years and has served as our Chief Financial Officer for the past 14 years. Al has been instrumental in the growth of our company, transitioning us to the investment-grade debt capital markets and has built a strong finance, accounting, tax and internal audit platform for MAA. Al leads our company and finance operation in strong hands with Clay and his team, and we're all grateful for Al's service and tremendous accomplishments. So thank you, Al, for all you've done for MAA. And with that, I'll now turn the call over to Brad.

Adrian Bradley Hill

Thank you, Eric, and good morning, everyone. As mentioned in our earnings release, we successfully closed on 2 compelling acquisitions during the fourth quarter at pricing 15% below current replacement costs. Both properties fit the profile of the type of properties we expect to continue to emerge throughout 2024. Properties in their initial lease-up with sellers focused on certainty of execution with the need to transact prior to a definitive deadline. Our relationships with the sellers and our ability to move quickly and execute on the transactions utilizing the available capacity on our line of credit without a financing contingency were key components of MAA being chosen as the buyer for these properties. In May, Central Avenue, a 323 unit mid-rise property in the Midtown area of Phoenix, and MAA Optimist Park, a 352 unit mid-rise property in the Optimist Park area of Charlotte are expected to deliver initial stabilized NOI yields of 5.5% and 5.9%, respectively.
We expect both properties to achieve further yield and margin expansion as a result of adopting MAA's more sophisticated revenue management, marketing and lead generation practices as well as our technology platform. Additionally, we expect to achieve operational synergies by combining certain functions with other area MAA properties as part of our new property podding initiative.
Due to continued interest rate volatility and tight credit conditions, transaction volume remains tepid, down 50% year-over-year and 16% from the third quarter's pace. We continue to believe that transaction volumes will pick up later in 2024, providing visibility into cap rates and market values. For deals we tracked in the fourth quarter, we saw cap rates move up by roughly 35 basis points from the third quarter. Our transaction team is very active in evaluating additional acquisition opportunities across our footprint with our balance sheet in great position to be able to take advantage of more compelling opportunities as they continue to materialize later this year.
Our forecast for the year includes $400 million of new acquisitions likely in lease-up and therefore, dilutive until stabilization is reached. Despite pressure from elevated new supply, our 2 stabilized new developments as well as our development projects, currently leasing continue to deliver good performance, producing higher NOIs and earnings than forecasted in our original pro formas, creating additional long-term value.
New lease rates are facing more pressure at the moment, but these properties have captured asking rents on average approximately 20% above our original expectations. Our forward developments that are currently leasing are estimated to produce an average stabilized NOI yield of 6.5%. We continue to advance predevelopment work on several projects, but due to permitting and approval delays as well as an expectation that construction costs are likely to come down, we have pushed the 3 projects that we plan to start in 2023 into 2024.
We now expect to start between 3 to 4 projects this year with 2 starts in the first half of the year and 2 starts late in the year. Encouragingly, we have seen some recent success in getting our construction costs down on new projects that we're currently repricing. As we have seen a meaningful decline in construction starts in our region, we're hopeful to see continued decline in construction costs as we progress through the year. 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 remain patient and disciplined. Any project we start this year, we'll deliver first units in 2026, aligning with the likely stronger leasing environment supported by significantly lower supply.
Our development team continues to evaluate land sites as well as additional prepurchase development opportunities. In this constrained liquidity environment, it's possible we could add additional development opportunities to our future pipeline. The team has our portfolio in good position. Our broad diversification provides support during times of higher supply with a number of our mid-tier markets outperforming.
As we ramp up activities in 2024, we're excited about the coming year. Beyond the new external growth opportunities just covered, and as Tim will outline further, we continue to see solid demand and steady absorption of the new supply delivering across our markets and remain convinced that pricing trends will begin to improve late this year and into 2025. In addition, we continue to make progress on several new initiatives aimed at further enhancing our leasing platform to further position us to outperform local market leasing metrics during the supply cycle.
Before I turn the call over to Tim, to all of our associates at the properties and our corporate and regional offices, I want to say thank you for coming to work every day, focused on improving our business, serving our residents and exceeding the expectations of those that depend on us.
With that, I'll turn the call over to Tim.

Timothy P. Argo

Thank you, Brad, and good morning, everyone. Same-store NOI growth for the quarter was right in line with our expectations with slightly lower operating expenses offsetting slightly lower blended lease-over-lease pricing growth. Expanding on Eric's earlier comment on new lease pricing, developers looking to gain occupancy ahead of the holiday season and the end of the year did put further pressure on new lease pricing, particularly in November and December. However, because traffic tends to decline in the fourth quarter, again, particularly in November and December, we intentionally repriced only 16% of our leases in the fourth quarter and only about 9% in November and December. This resulted in blended lease-over-lease pricing of minus 1.6% for the quarter, comprised of new lease rates declining 7% and renewal rates increasing 4.8%.
Average physical occupancy was 95.5% and collections remained strong, with delinquency representing less than 0.5% of bill grants. These key components drove the resulting revenue growth of 2.1%. From a market perspective, in the fourth quarter, many of our mid-tier metros performed well. Being invested in a broad number of markets, submarkets, asset types and price points is a key part of our strategy to capture growth throughout the cycle. Savannah, Richmond, Charleston and Greenville are examples of markets that led the portfolio and lease-over-lease pricing performance, the Washington, D.C. metro area, Houston and to a lesser extent, Dallas Fort Worth for larger metros that held up well. Austin and Jacksonville are 2 markets that continue to be more negatively impacted by the level of supply being delivered into those markets.
Touching on some other highlights during the quarter. We continued our various product upgrade and redevelopment initiatives in the fourth quarter. For the quarter, we completed nearly 1,400 interior unit upgrades, bringing our full year total to just under 6,900 units. We completed over 21,000 smart home upgrades in 2023 and now have over 93,000 units with this technology and we expect to complete the remaining few properties in 2024.
For our repositioning program, we have 5 active projects that are in the repricing phase with expected yields in the 8% range. We have targeted -- an additional 6 projects began in 2024 with a plan to complete construction and begin repricing in 2025.
Now looking forward to 2024, we're encouraged by the relative pricing trends we are seeing thus far. As noted by Eric, blended pricing in January, it was 130 basis points better than the fourth quarter. This is comprised of new lease pricing of negative 6.2%, an 80 basis point improvement for the fourth quarter and notably a 150 basis point improvement from December and renewal pricing of 5.1%, an improvement of 30 basis points from the fourth quarter, while maintaining stable occupancy of 95.4%.
Similarly, renewal increases achieved thus far in February and March average around 5%. As noted, new supply being delivered continues to be a headwind in many of our markets. While we do expect this new supply will continue to pressure pricing for much of 2024, we believe we have likely already seen the maximum impact to new lease pricing and that the outlook is better for late 2024 and into 2025. It varies by market, but on average, new construction starts in our portfolio footprint peaked in the second quarter of 2022.
Based on typical delivery timelines, this suggests peak deliveries likely in the middle of this year with some positive impact of pricing power soon thereafter. While increasing supply is impactful, strength of demand is more indicative of the pricing power in a particular market. Job growth is expected to moderate some in 2024 as compared to 2023, but growth is still expected to be strongest in the Sunbelt markets.
Job growth combined with continued in-migration accelerates the key demand factor of household formation. Separately, the cost gap between owning and renting gapped out considerably in the back half of 2023 even before considering the impact of higher mortgage rates.
Move-out-to-buy-a-home dropped 20% in the fourth quarter on a year-over-year basis, and we expect a continued low number of move-outs due to home buying to contribute to low turnover overall in 2024. That's all I have in the way of prepared comments.
Now I'll turn the call over to Clay.

Clay Holder

Thank you, Tim, and good morning, everyone. Reported core FFO for the quarter of $2.32 per share was $0.03 per share above the midpoint of our quarterly guidance and contributed core FFO for the full year of $9.17 per share, representing an approximate 8% increase over the prior year. The outperformance for the quarter was primarily driven by favorable interest and the performance of our recent acquisitions and lease-up during the quarter. Overall, same-store operating performance for the quarter was essentially in line with expectations.
Same-store revenues were slightly below our expectations for the quarter as effective rent growth was impacted by lower new lease pricing that Tim mentioned. Same-store operating expenses were slightly favorable to our fourth quarter guidance primarily from lower-than-expected personnel costs and property taxes. During the quarter, we invested a total of $20.7 million of capital through our redevelopment, repositioning and smart brand installation programs, producing solid returns and adding to the quality of our portfolio.
We also funded $48 million of development costs during the quarter toward the completion of the current $647 million pipeline leaving nearly $256 million remaining to be funded on this pipeline over the next 2 years. As Brad mentioned, we also expect to start to 3 to 4 projects over the course of 2024, which would keep our development pipeline at a level consistent with where we ended 2023, in which our balance sheet remains well positioned to support.
We ended the year with nearly $792 million in combined cash and borrowing capacity under our revolving credit facility, providing significant opportunity to fund potential investment opportunities. Our leverage remains low with debt to EBITDA at 3.6x. And at year-end, our outstanding debt was approximately 90% fixed with an average of 6.8 years at an effective rate of 3.6%. Shortly after year-end, we issued $350 million of 10-year public bonds at an effective rate of 5.1%, using the proceeds to pay down our outstanding commercial paper. Finally, we did provide initial earnings guidance for 2024 with our release, which is detailed in the supplemental information package. Core FFO for the year is projected to be $8.68 to $9.08 or $8.88 at the midpoint.
The projected 2024 same-store revenue growth midpoint of 0.9% results from rental pricing earn-in of 0.5% combined with blended rental pricing expectation of 1% for the year. We expect blended rental pricing as to be comprised of lower new lease pricing impacted by elevated supply levels and renewal pricing in line with historical levels. Effective rent growth for the year is projected to be approximately 0.9% at the midpoint of our range.
We expect occupancy to average between 95.4% and 96% for the year and other revenue items, primarily reimbursement and fee income to grow in line with effective rent. Same-store operating expenses are projected to grow at a midpoint of 4.85% for the year with real estate taxes and insurance producing most of the growth pressure.
Combined, these 2 items are expected to grow almost 6% for 2024 with the remaining controllable operating items expected to grow just over 4%. These expense projections, combined with the revenue growth of 0.9% results in a projected decline in same-store NOI of 1.3% at the midpoint. We have a recently completed development community in lease-up, along with an additional 3 development communities actively leasing. As these 4 communities are not fully leased up and stabilized and given the interest carry associated with these projects, we anticipate our development pipeline being diluted to core FFO by about $0.05 in 2024 and turning accretive to core FFO on later stabilization.
We are expecting continued external growth in 2024 both through acquisitions and development opportunities. We anticipate a range of $350 million to $450 million in acquisitions, all likely to be in lease-up and not yet stabilized and a range of $250 million to $350 million in development investments for the year.
This growth will be partially funded by asset sales, which we expect dispositions of approximately $100 million, with the remainder to be funded by debt financing and internal cash flow. This external growth is expected to be slightly dilutive to core FFO in 2024 and then again, turning to accretive to core FFO after stabilizing.
We project total overhead expenses, a combination of property management expenses and G&A expenses to be $132.5 million at the midpoint, a 4.9% increase over 2023 results. We expect to refinance $400 million of bonds maturing in June 2024. These bonds currently have a rate of 4% and we forecast to refinance north of 5%. This expected refinance, coupled with the recently completed refinancing activities mentioned previously, results of $0.04 of dilution to core FFO as compared to prior year. That is all that we have in the way of prepared comments. So Carey, we will now turn the call back to you for questions.

Question and Answer Session

Operator

(Operator Instructions)
We will take our first question from the line of Josh Dennerlein with Bank of America.

Joshua Dennerlein

I appreciate all the color you provided on guidance. My first question would just be on the same-store revenue growth outlook. Can you provide us any more details on what would get you to the high and low end of guidance? And I guess, I'm really curious about what you would assume for the blended rate growth at the higher low end.

Timothy P. Argo

This is Tim. So I think as far as the high end of the low end, I think we feel pretty comfortable with the renewal rates and they've been steady for the last few months. What we're seeing, as I noted, the next few months as being in that 5% range. I think that the new lease rates are what could certainly determine whether we get more to the high and low end, which is going to be a function of the demand side. We expect to see steady job growth, steady demand and migration, all those factors.
So that's a little bit better. I think it obviously pushes new lease rates higher and then the opposite is true. But if you think about our full year guide, it's built on new lease rates for the year, and this will be seasonal, starting a little bit lower in Q1, accelerating to Q2 and Q3 and then declining a little bit in Q4, but somewhere in the negative 3%, 3.25% range on new lease for the year and expectations of the 4.5% to 5% range on renewals, which blends out to the 1% blended is what we're assuming for the full year.

Joshua Dennerlein

I appreciate that. And then there's a drag that you're assuming on the $400 million of acquisitions, is there a way to quantify that?

Clay Holder

Yes, I think you can think -- Josh, you can think through what we're projecting new rates to come in, in this next year, and kind of the timing of those acquisitions from the standpoint of just the timing of it, we're assuming that those start in second quarter and then play out over the remainder over the year and we think about it maybe in the range, call it, 4 acquisitions at roughly $100 million each. And I think they'll look similar to what these other 2 acquisitions that we just completed in 2023 as far as how they will lease up and how they'll -- the drag that we'll see on earnings over 2024.

Adrian Bradley Hill

Josh, this is Brad. Just to add to that. Our assumption on the acquisitions is that obviously, as Clay mentioned, they're very similar to the ones we purchased last year. They're in lease-up. We're assuming about a 4.5% NOI yield contribution at the time of closing, given that those are in lease-up and given the comments that Clay made about where our current commercial paper is and where our cost of debt is, you can kind of do the math on what the dilution there is.

Operator

We'll take our next question from the line of Austin Wurschmidt with KeyBanc.

Austin Todd Wurschmidt

Eric, you remain confident that new lease pricing is going to improve through this year, but it really sounds like peak deliveries don't hit until around midyear. And we've really yet to see, I guess, leasing volume pick up, so with kind of that expectation of the improvement in new lease rates for the year, do you think that lease rates get better in the back half of this year versus last year on sort of a lease-weighted basis? I know things deteriorate late in the year, but more interested in sort of that period of July through October.

H. Eric Bolton

Well, I'll answer your question, and Tim, you can jump in here. But probably speaking, yes, we do think that as you get into the summer leasing season, we've always traditionally seen leasing traffic pick up. And as commented in our prepared comments, I mean, we just see no evidence of demand really deteriorating. And we do think that normal seasonal patterns will continue to play out. So as we think about supply delivery, and we see it pretty elevated at this point. And I mean does it go up another 10%? I don't think so. I think that kind of we're in the sort of the peak of the storm from a supply perspective I feel like right now and a weak-demand quarter. And we think that supply now stays high, certainly in Q1 and Q2 and probably even early Q3, it's hard to peg it by month, but we do think that there is a lot of reasons to believe that supply starts to peter out or starts to moderate a little bit as you get into -- particularly into Q4.
So we do think that the pressure surrounding supply that will persist will be met with even stronger leasing traffic and demand patterns as we get into the summer as a function of a normal seasonal patterns, and therefore, it does lead us to believe that new lease pricing performs better in Q2 and Q3.
And as Tim alluded to, we expect -- again, it's a function of normal seasonal patterns that begins to moderate a little bit in Q4. And the other thing that I would just point out, of course, is that we began to see early effects of supply pressure really in 2023 and particularly in the latter part of 2023, so in some ways, you could also suggest that the prior year comparisons in terms of new lease-over-lease performance starts to get a little bit easier, if you will, in the back half of 2024. So collectively, that sort of leads us to the consensus of where we think things are headed. I mean, Tim, what would you add to that?

Timothy P. Argo

Yes. I'll add on to what Eric was saying. If you go back to last year, I mean, our new lease pricing went slightly negative starting in July, and it got -- progressively got more so throughout the year. So there is a comp component that plays into this as well. So I do think to answer one of your questions, Austin, is that new lease pricing does look better at the end of 2024 as compared to the end of 2023 with those comps, with supply getting a little bit better.
Now I think the improvement won't be as clear to see because it is a lower demand time of the year when you get into November and December, but I think the trends will be positive and really start to play out in 2025.

Austin Todd Wurschmidt

When do you guys think the lease rate growth could turn positive? And then just my second question is, I'm just curious how -- what underlying assumptions in same-store revenue guidance changed the most relative to what you published in November of last year?

Timothy P. Argo

I think likely new lease pricing probably doesn't go positive until 2025. I think it will get close to flat, probably in the middle of this year and the highest demand part of the year. But even in a, I'll call normal year or a good year, we typically see new lease pricing is negative in the back part of the year. So I think likely, it's early 2025 as we see the flat pressure start to moderate more, so I think that's probably the most likely scenario for new lease pricing.
As far as what changed, I mean, it was really, really to earn in, which is based on what we saw in November and December, as I mentioned in my comments, it was pricing really moderated quite a bit, particularly in November and December, which the way we calculate our earn-in is just basically saying all right, all the leases that were in place at the end of December 31, if they all price this year for the rest of the year, what would our range growth be in that -- so the earnings more in the 0.5 range, a little bit lower than that range we talked about at NAREIT, but really driven by the new lease pricing in November and December and the pressure we saw from the developers and looking for occupancy and that sort of thing.

Operator

And we'll take our next question from the line of John Kim with BMO Capital.

John P. Kim

I wanted to follow up on that comment you just made on the earn-in that basically half of what you expected in November. I realize the blended rates probably came in lower than expected. But you also mentioned, Tim, in your prepared remarks that the leasing volume was very light in the fourth quarter, it's only 16% of leases overall. I'm just trying to understand that impact of the fourth quarter leases and why earn-in has come down so much in just the month.

Timothy P. Argo

Yes. I mean it's a basic idea on that. I mean I think the other component that played into is we did -- we saw turnover for the year down, but November and December, we had a little bit higher weighting on new lease pricing as compared to renewals. So more new leases in November and December than renewals which obviously, with the new lease pricing was a bigger impact on the blended.
Now we've seen that shift more so to what we think will happen throughout the course of 2024, which is we're waiting. We think turnover remained down and be weighted a little more towards renewals. So while we have seen new lease pricing improve in January, the blend had improved even more as we've seen more of what we think will be the lower turnover component.
So it's really just that. Like I said, we're -- that's comparing at the lowest part of it what was the main part of the year. We do expect blended to be positive in 2024. So I think that's calculating loss lease earn-in, whatever you want to call it, the end of December, certainly the most pessimistic time to look at it, but it was that pricing that drove it.

John P. Kim

But when you calculate earn-in, do you just take the blended lease change for your entire portfolio and just not weighted by number of transactions, such as the cap rate basically?

Timothy P. Argo

No. We just said when we talk about earn-in, we're just saying, okay, if our total rents were $2 billion at the end of December, and/or if we take just December, whatever that number was for rent and applied that all the way through 2024, what is the full year growth over 2023. And so where that ends up, can affect that number here now.

John P. Kim

Okay. My second question is on acquisition yields, which the last 2 were at 5.5% and 5.9%. How do you see that move towards this year when you see more acquisition activity occur? And your recent bond rate is done at 5.1%. How does that change your view on initial yields that are acceptable to you?

Adrian Bradley Hill

John, this is Brad. I'll start off with that. Well, certainly, we were fortunate with the 2 acquisitions that we executed in the fourth quarter. And we felt like we got really good pricing on those for the reasons I mentioned really in my comments, but we haven't seen a lot of activity in that area. And so even in the first quarter here in January, we've seen a little bit of an uptick in terms of the deals coming out. We were at NMHC last week and certainly think that, that volume picks up a little bit as we go through the year. But we haven't seen a lot of opportunities coming that way.
Now we do think as we continue to get further into the year, that pressure given where interest costs are for the developers, given the supply pressures that they're likely to feel that the urgency from some of these developers to execute on transactions will continue to increase, and we're certainly hopeful that, that yields additional opportunities.
The other thing that we are watching, frankly, is some of the larger equity sponsors and what their exposure is to other sectors, whether that's retail or office and some of them have big exposures to multifamily development, and some of them have liquidity needs, which necessitates that they execute transactions in some of the multifamily space. So we're having some discussions with folks like that. We're certainly hopeful that, that will yield some opportunities.
But I do think that the pricing expectations on the seller side is still a bit lower than where we think pricing needs to be. Pricing expectations are still low 5s. So we still need to see some movement up in cap rates from where those expectations are for the market to really pick up. So it's an area that we continue to work on. And we do think that there'll be more opportunities as we get through this year.

Operator

And we'll take our next question from the line of Jamie Feldman with Wells Fargo.

James Colin Feldman

I appreciate all the color on rents and how you think you can inflect more positive, but I guess, this is like a case study. If you think about your weakest market, your deepest supply-challenged market, and what do you think the pace of rents look like in that market or the kind of the quarterly improvement? Or is it still weak into '25? I think just looking for like the worst-case scenario so we can build on the better.

Timothy P. Argo

Well, I mean I will say when we talked about construction starts that peaked somewhere around the middle of 2022, that is pretty consistent across our markets. There are a few that were a little bit lighter than few or a little bit earlier than that. So it is a relatively consistent supply wave in terms of the timing. Obviously, some markets are getting a lot more supply than others, which drives under or overperformance. I mean, Austin is the market we talked about forever, that is our weakest one right now. I mean it's just getting a ton of supply, it's very widespread throughout the market, whereas some other markets are a little more targeted. So that's one that has probably been the worst new lease performance right now.
So I mean, I think a market like that will continue to struggle through most of 2024, probably be 2025 before it starts to see a little bit of improvement. But I would say that, again, sort of the cadence of supply is relatively consistent across most of our markets.

H. Eric Bolton

And just to add to what Tim is saying, while the cadence of supply is fairly consistent, where you do see a lot of differences on occasion is by market, some -- the percent of new supply coming to the market as a percent of the existing stock will vary a bit. And then also, you see, of course, market differences in terms of demand and demand drivers. And so in a market like Austin, where it's probably one of our -- if not the most oversupplied market that we have or supply high relative to percent of existing stock.
It also happens to be one of the strongest job growth markets that we have. And probably, as a consequence of that, we're seeing absorption rates, if you will, probably running higher in Austin than we would in a market like Dallas or some of the others that are also getting a lot of supply, but maybe not quite the level.
I think Dallas obviously is getting a lot of job growth. But a market like Jacksonville, where you're not getting quite the level of job growth that you get in a market like Austin, so I think you have to be careful in trying to extrapolate 1 market to the whole portfolio in terms of performance expectations because it will vary quite a bit, and that's obviously why we diversify the way we do.
As Tim and Brad alluded to in their comments, this is why we also have a mid-tier market component to our portfolio where we're seeing some of these mid-term markets holding up in a much more steady fashion than some of the others.
So I think that the question about how quickly any given market steps through the -- or steps back through the supply pipeline, if you will, is going to largely be a function of the demand factors that we see in those markets. And a market like Austin, we think has huge potential long term for us and it steps back pretty strong, probably late this year and more likely into early '25.

James Colin Feldman

Okay. That's helpful. Yes. I mean the question is coming from -- I think most of you and most of your peers are thinking that by the end of the year, a lot of these markets are much better. So that's what I'm trying to figure out like what -- so maybe if you guys pick the market, like what do you think is going to be the market that has the most pain for the longest period combining both job growth projections and supply just so we can at least keep our eyes on that to see like this is the worst case?

Adrian Bradley Hill

Yes. I would put Austin in that group, for sure.

Timothy P. Argo

Yes, I'll agree. Also, I mean it's just -- it's getting a lot of supply and frankly, without the level of job growth that would be worse off than it is. So getting a ton of jobs, but probably going to take some time to work through.

James Colin Feldman

That's helpful. And then thinking about the acquisition opportunities, I mean, you currently have very low leverage versus your peers. How high would you be willing to take that leverage if you found the right opportunities? And then what do you view as your absolute buying power right now?

Clay Holder

Yes. I think just from a leverage standpoint, we would be comfortable moving it up to 4.5% to close to 5%. And of course, that would take a lot of time at this -- at the rate that we're looking at these coming through to get to that point. But we would be comfortable taking our leverage up to that point.

James Colin Feldman

Do you have a sense of total dollar amount?

Clay Holder

I think that gets to roughly $1.5 billion.

Operator

We will take our next question from the line of Nick Yulico with Scotiabank.

Daniel Peter Tricarico

It's Dan Tricarico for Nick. Brad, you talked about the improving absorption in the back half of the year. Can you comment on what you're seeing on the demand side, job growth, migration that gives you this confidence? Maybe the general economic outlook embedded in the guide? Maybe said another way, what household formation or job growth scenario gets you to the low end of guidance?

Adrian Bradley Hill

Yes. Well, I'll start out, Tim can certainly jump in here. But a couple of points I'll make here on the demand side is definitely the traditional demand drivers that we see, whether it's job growth, population growth, migration trends, all of those are still very, very positive and steady within our region of the country. And those will continue to be significant drivers over the long term for us. But we also see another dynamic that's kind of at play here. And a big part of that has to do with the single-family market and really has to do with the affordability and the availability that we see there.
As Tim mentioned in his opening comments, we've seen a significant decline in the move-outs to buy a home. That's down 20% year-over-year with us. And if you look at the cost of buying a home in our reach of the country, it's up significantly over the last couple of years, the monthly cost of homeownership is about 50% to 60% higher than the rents are within our region of the country. So that's a significant hurdle for most people. We've also seen the construction starts in the single-family sector continue to decline. So the inventory level of available single-family continues to decline. And so we think that's a pushing segment of demand into multifamily. And it's also pushing folks to stay longer in multifamily. We've seen the average tenure of our residents up to almost 2 years now. So that's got a demand component to it as well. And then we've also seen some preference shift within the demographics that are our rental demographics, honestly, and that is a preference to live alone.
And so that also is extending the household formation numbers that we're seeing. And so all of that really combines to point to a point that Eric made in his comments, which is that apartment rental continues to make a higher -- make up a higher percentage of the occupied housing. And so as we look out and see demand in our region of the country, those traditional drivers continue to be important, but there's also this other component that is really adding to the demand component that we see in our region of the country. Tim, what would you add?

Timothy P. Argo

Yes. I'll add a couple of points there. I mean I think the job growth component and how much there is will be probably more likely the factor that determines to your original question, kind of high and low end, that sort of thing. I mean, I think we expect be in migration and all things Brad just noted to be there and that component of demand to be pretty consistent with what we've seen in the last couple of years. We've dialed in about 400,000 new jobs into our expectations for our markets for 2024, that's down certainly from 2023, but still net positive and so expect job reprices in the Sunbelt markets.
And encouragingly, if you look at the national job growth numbers from January added, I think, about 350,000 new jobs in January. You compare that back to 2023, the average is about 250,000 a month. So while we do expect job growth to be down some to 2023, the early indications are that it's still holding up pretty well.

Daniel Peter Tricarico

That's great color. Follow-up on development. You have 3 or 4 development starts this year, development starts. What markets are those in? And what are underwritten stabilized yields on those? And I guess, along the same line, you talked about Austin being the weakest. You stabilized Windmill Hill in Austin in the fourth quarter. Can you give us a sense of how that asset leased up versus your expectations? And obviously, a little bit more suburban, but how do you expect that asset to perform within the Austin market this year, given it's expected to be one of the weaker markets?

Adrian Bradley Hill

This is Brad. A couple of comments. On the development side, yes, we do have 3 to 4 starts that we expect this year, 2 in the first half. One of those is in Charlotte. The other one is in the Phoenix Chandler submarket of Phoenix. We've got 2 other ones that we're working on. One is a Phase 2 in Denver, the other one is a Phase 2 in Atlanta. And in terms of the yields we're seeing there, we are pushing those at the moment to -- we're repricing all of those, trying to get the construction cost down to really get to a yield, call it, mid-6s. That's really what our goal is.
We have had some success on the project in Charlotte, we've been able to get between 5% and 6% reduction in the construction costs, which really helps support our ability to get that yield. So we feel really good about where we are with those developments. And then the two that are late in the year are Phase 2 projects. So we're hopeful that the yields there continue to increase as we get further construction costs out of those as well. And I'm sorry, the second part of your question, Nick?

Daniel Peter Tricarico

The Windmill Hill in Austin in 4Q, how is that -- go ahead.

Adrian Bradley Hill

Yes, that asset performed extremely well for us. The average rents that we achieved on that asset were almost 24% higher than what we expected. So from a yield perspective, significantly outperformed what we expected. And part of that was you mentioned it's a suburban asset in Austin, great execution on the property, had 2 adjacent lease-ups going on at the same time as it, but we were very patient in how we leased that asset up. We didn't have to offer concessions to meet the market and really perform extremely well there. So I think given the execution on the construction side as well as the leasing side, we did not have to compete quite as much head-to-head with some of the competition that was in that market, and we've got pretty good results there.

Operator

And we'll take our next question from Eric Wolfe with Citi.

Eric Wolfe

So I understand your point on comps getting easier through the year, especially in the fourth quarter. But if the largest amount of supply is delivering in the middle of this year, it takes like a year to lease up. I guess why would Brent start recovering sort of later this year before the developments are fully leased? Isn't there typically like a compounding effect of the supply?

Timothy P. Argo

Well, I think one is the -- while we're talking about complete or starts peaked in the middle of 2022, it has been pretty steady. So I think we've seen a relatively steady level of supply being delivered over the last several quarters. And then we have the steady level of demand as well. I mean we have seen absorption keep up pretty well, even though supply compounded, as you said, certainly certain markets are a little bit different.
But the other thing is middle of the year obviously is the strongest demand component. And so I think the timing of that with the timing of most of our traffic and most of the demand coming in is what we believe keep it from -- we talked about we think new lease pricing has kind of bottomed helps keep it from getting worse than where it is now, just sort of that normal seasonality and all the different demand factors that we've talked about. And then you'll have a few months after the middle after its peak where there's still pressure, but we typically see it start to drop a few months after the final deliveries, which what gives us some confidence in the back half of the year that we start to see some improvement.

H. Eric Bolton

And as Tim mentioned, I mean, we also -- I mean, we assume that new lease pricing moderates in the fourth quarter, and that's also what's important to remember, that's also why we stagger our lease expirations the way we do such that we're repricing a smaller percent of leases of the portfolio in that holiday period of November and December. So I understand the point that you're making, but we feel like that we've accounted for that both in terms of our new lease-over-lease pricing performance expectations, seasonal patterns, if you will, but also just the way we manage lease expirations over the course of the year. So we think that we've got it dialed in appropriately.
And we do think that as we get into -- again, it varies by market so much. So it's hard to make any real conclusive broad observations as it relates to the point that you're making. But we do think that there are certain markets, for sure, that we begin to see the supply pressures meaningfully moderate in terms of new coming in late in the year, and that begins to establish some early signs of recovery in that new lease pricing performance as we head into 2025.

Timothy P. Argo

I think one more point I'll add just back to the kind of the middle of the year. I mean, we're still dialing in somewhere in the negative 2.5% range during that strongest period of 2024 for new lease pricing. So we certainly don't see getting positives yet. But I think with the demand components that it will be a little bit better than what we're seeing right now.

Eric Wolfe

And then just maybe a quick clarification on the earn-in. Does that include your sort of loss or gain to lease a real-time changes in market rents? Or is it based purely off the leases signed up at one point in time? Just trying to understand if like real-time move-to-market rents ends up impacting that earn-ins such that it's always going to end up being low end at the year-end.

Timothy P. Argo

Yes. Well, for the earn-in like I said, it's basically just saying all the leases that were in place at the end of 2023, so call it, all the December leases just held steady for all '24 that's earned in. I mean, loss to lease, how we think about that, if you look at all of the leases that went effective in January compared to our in place, it's about a negative 1% loss lease looking at it that way. But we are dialing it in, as we said, positive 1% blended for the course of 2024.

Operator

And we'll take our next question from the line of Rich Anderson with Wedbush.

Richard Anderson

So what do you make of this January effect that's happening? Like you guys have seen this sort of recovery in January. Some of your peers -- many of your peers have seen the same thing. It's still freaking cold outside. Why do you think January is recovering the way it is for you and others at this point?

H. Eric Bolton

Two reasons. One, you don't have the holidays in January. I think nobody likes to move during Christmas and -- or Thanksgiving. I think holiday effect is real. And I think it weighs on people's interest in moving. Secondly, I think that there are -- and we have seen some evidence to suggest that some developers were facing kind of a calendar year-end pressure point. And I think that we -- as we started to see in the early part of the fourth quarter as we were approaching year-end, developer lease-up practices were getting increasingly aggressive as we're headed towards the holidays.
And I think a calendar year-end and so I just think that developer practices got a little bit more aggressive in the holidays and approaching the year-end. And I think that to some degree, there was some moderation on that and certainly, absent the holidays, even though it is cold and so forth, I think people's capacity to deal with the hassle of moving just improves a little bit better once you get past the holidays and therefore, traffic picked up.

Richard Anderson

Do you think this holiday factor moderates in February, when it's still sort of a seasonally slow period of time through the January pickup and then you kind of get back to normal course sequential business? Is that fair?

Timothy P. Argo

Yes, I think that's a good reason.

Richard Anderson

And then second question is someone asked about how much you'd lever up and I appreciate that color. And I know you're sort of waiting for transaction market to be sort of more attractive to you to execute with still low cap rates. But you have sort of development opportunity sitting, I don't remember what the number was, but you got a lot that you can do right now. Why wouldn't you -- if you're going to deliver into 2026, which is likely to be a very good year to deliver, why not really accelerate development right now and have that be a part of the -- a bigger part of the external growth story? You seem to be slowing it down more than speeding it up at this point. So just curious on that.

Adrian Bradley Hill

Rich, this is Brad. Well, you're right, we do have a pretty big pipeline of projects that are ready that we could execute on. And really, it's just a matter of working the costs on those projects right now. I mean, as I mentioned, we are seeing early signs of costs coming down on the project in Charlotte, call it, 5% to 6%. We do think we'll continue to see costs come down as we get later into this year. So while we do expect to start 3 or 4 projects this year, we have another 4 to 5 that are approved, our plans are nearly ready. And if costs came in, we could certainly pull the trigger on those.
So we have the optionality to be able to do that. But we think it's prudent to be sure that the costs are in line. We do also agree with you that these line up very, very well from a delivery perspective into 2026. The other area where we are seeing opportunity that I think could yield itself more immediately, is in our prepurchase area. So we are talking with developers on a number of opportunities where the projects are approved, entitled, plans are complete and in some instances, GMPs are already in place. But given some of the other liquidity constraints out there that I was talking about earlier, and pressures in other sectors, the equity or even the debt has pulled out of the project.
So we are evaluating projects in that way. And so if we can find well-located opportunities with good partners that meet our return requirements, we'll definitely lean into that area a little bit more.

Operator

And we'll take our next question from the line of Alexander Goldfarb with Piper Sandler.

Alexander David Goldfarb

So two questions, and apologies about the clock in the background. The first one is, can you just talk a little bit about renewals? I think you said you expect them to be sort of 5%, but new rents down 3%, so an 8% spread. Can you just walk us through why that -- that seems a rather widespread, but in your comments, you said that's sort of consistent with historic. So maybe you could just talk about that and why existing residents would accept an 8% spread versus new residents?

Timothy P. Argo

Yes. This is Tim, Alex. I mean, the gap is a little bit wider than historical, if we look at January, for example, it's about 1,100 basis point gap for the month. But if you look at last year at this time, it's about 900. And even if you look at over the last several years, really as long as we've been tracking it, Q1 runs about an 800 basis point gap. And even as you get into the spring and summer, there's typically always a gap where we see renewal pricing outperforming new lease pricing. But I mean, I think there's a few reasons for that, frankly, one, there is a real cost, but a hassle cost and a financial cost to moving. There is the customer service component. When we have someone that's lived with us and knows kind of what to expect and knows what kind of service you're going to get. If you look at our Google star ratings, we averaged 4.4 Google star rating in 2023, which is highest in the sector. 80% of our ratings were 5 star, and that is a component that plays out, it manifests itself in this way with our renewal pricing.
And then we just -- we do dedicate a lot of time and resources to this renewal process. But in our corporate office and on the on-site teams, there's a lot of thought, there's a lot of factors considered, a lot of -- there's a level of buying that we get from our teams that get them comfortable with the rates we're sending out at. And again, that manifests itself well. So it will narrow and as we see new lease pricing, we expect to accelerate as we get into the spring and summer, that gap will narrow. But as I made -- in the prepared comments, if you look at February, March and even April, we're averaging right around that 5%. So I think that can hang in there, particularly as new lease rates start to accelerate around that same time frame.

Alexander David Goldfarb

Okay. And then the second question is on the supply front, it only seems like a handful of your markets have supply issues, but pressure on new rent seems to be broad-brushed. And yet, Sunbelt still as good economy, good jobs, good in migration. So how do you -- like we understand weakness in new rents in markets that have a lot of supply. But how do we interpret rent softness sort of portfolio-wise, especially in the market that aren't beset by supply? And clearly, your price point seems to be affordable for the community. So I just want to understand the non-supply markets, why there's been pressure there as well.

Timothy P. Argo

Well, we are seeing pretty good strength. And as I've commented on some of the mid-tier markets, if you think about Greenville, Savannah and Richmond and Charleston in those markets, we are seeing pretty good relative performance. I mean the supply is -- it obviously varies by market, we're seeing it a lot more in some of the larger markets. And I think, frankly, we're seeing it in some of our higher concentration markets. If you think about Austin and Charlotte and Dallas, some of our higher concentration markets is where there's more supply, which is not surprising, those are good markets to be in the sort of good long-term demand markets, and that's not really a surprise.
So I think there's some of that market-concentration factor that's weighing into it, where those obviously have an outsized impact on what you see at the portfolio level overall. But if you look at 2023, for example, across all of our markets, deliveries were about 4 -- between 4% and 4.5% of inventory across the portfolio. So while it varies pretty widely by market, we did see pretty good -- the store leverage is probably 3% to 3.5%. So even for some of the ones that weren't getting ton of supply, they were still higher than average.

Operator

(Operator Instructions)
We'll take our next question from the line of Michael Goldsmith with UBS.

Michael Goldsmith

My first question is on the expense -- on expenses. Can you walk through where -- which line items you're seeing particular pressure? And how you envision expense trending through the year?

Clay Holder

Yes. Just a couple of things around expenses that I'd point to is, one, our uncontrollable expenses are really what's driving some of that expense growth whenever you kind of break that down. Real estate taxes are projected to grow at roughly 4.8% for the year. I think you saw that in our guidance. And then you have insurance that's growing at roughly 16% -- 15%, 16% for the year. So that continues to be a bit of a headwind for us as we go into 2024 and for all the same reasons that we've seen in previous years just as the market is trying to catch up there. Then when you get into some of our controllable expenses, really the biggest driver there is probably repair and maintenance while the other items around expenses are pretty much right there at that overall growth rate of 4.1% or actually even slightly lower than that.

Timothy P. Argo

And I'll add just a couple of points there on the controllable. I mean we do expect that if you look back to 2023 that all of those controllable line items will moderate in 2024 as compared to 2023 pretty significantly, and you can see that in the guide that we have. I think marketing is the one that's a little bit variable, may not -- we had pretty reasonable marketing costs in 2023. And certainly in the environment we're in, that's something we want to make sure we're careful about to make sure we're properly spending there. So that may be the one where you don't see a significant decrease, but I think the others will see some pretty good moderation.

Michael Goldsmith

And my follow-up is on concessions. How have concessions and competing properties trended? And are you offering any concessions that your stabilized property?

Timothy P. Argo

I mean the concessions for us, it stabilized. It's pretty minimal, I think, across the portfolio, we're about 0.5% or so of rents and concessions. And with the way we price, there's a lot of net pricing, we don't do a ton of concessions. We do see it more in some of the lease-ups that we're competing against.
I would say in general, concessions in the market and what we're competing against with went up a little bit in Q4, probably where we saw the biggest change, some of our Carolina markets, Charlotte and Raleigh were ones and we saw concessions pick up a little bit, but still in terms of lease-up and areas of lot of development, the concession practices is still pretty strong kind of that 1 month to 2-months range.

Operator

And we'll take our next question from Haendel St. Juste with Mizuho Securities.