Executive Summary / Key Takeaways

• Mid-America Apartment Communities is strategically positioned in high-growth Sunbelt markets, leveraging a diversified portfolio and affordable price points to capture robust demand and maintain stable occupancy and low turnover despite elevated new supply.
• The company believes the peak of new supply deliveries occurred in Q3 2024 and anticipates a significant decline in deliveries through 2025 and into 2026/2027, setting the stage for improving market fundamentals and pricing power.
• MAA is actively investing in its portfolio through accretive development and acquisition pipelines, focusing on lease-up properties and new construction at compelling yields relative to market cap rates and replacement costs, supported by a strong balance sheet and low leverage.
• Operational efficiencies, including investments in technology like AI-driven pricing and property-wide Wi-Fi, enhance revenue management and cost control, contributing to a competitive edge and future margin expansion.
• While facing near-term pressure on new lease pricing from supply and elevated borrowing costs, management's 2025 guidance reflects confidence in sequential improvement in blended pricing, stable occupancy, and expense management, positioning the company for accelerating NOI and FFO growth as market conditions normalize.

A Foundation Built on Sunbelt Growth and Diversification

Mid-America Apartment Communities, Inc. (MAA) stands as a prominent multifamily-focused REIT, distinguished by its deep roots and extensive presence across the high-growth markets of the U.S. Southeast, Southwest, and Mid-Atlantic regions. With a history spanning 30 years, MAA has cultivated a strategy centered on capturing full-cycle demand through a uniquely diversified portfolio. This approach spans large and mid-tier markets, incorporates a mix of urban and suburban locations, and offers a broad range of price points, appealing to a wide segment of the rental market. This strategic diversification, coupled with a focus on providing a more affordable alternative to both higher-priced new construction and single-family homeownership, has been foundational to MAA's ability to drive demand, maintain high occupancy, and exhibit resilience across various economic cycles.

The company operates primarily through an umbrella partnership REIT (UPREIT) structure, with MAA serving as the sole general partner of its Operating Partnership, MAALP. This structure allows MAA to hold substantially all of its assets and conduct business efficiently, leveraging its scale and experienced leadership team, which boasts an average executive tenure of 16 years. This long-standing presence and operational expertise are critical assets in navigating the dynamic multifamily landscape.

The Technological Edge: Enhancing Efficiency and Resident Experience

Central to MAA's operational strategy is its commitment to leveraging technology to drive efficiency and improve the resident experience. The company has invested in various new technology initiatives aimed at enhancing efficiencies and supporting centralization and specialization efforts. A key area of focus is the implementation of AI-driven pricing and revenue management systems. Management highlights that this technology enables 10-15% better revenue yield per unit compared to industry averages, providing a quantifiable competitive advantage in optimizing rental income across the portfolio.

Furthermore, MAA is actively rolling out property-wide Wi-Fi across its communities. This initiative, with 23 additional projects targeted for 2025, is expected to contribute $1 million to $1.5 million in revenue in 2025 and approximately $6 million annually once fully implemented across the initial 27 projects. While specific quantitative metrics on the impact of other tech initiatives are not detailed, management states these investments are aimed at driving enhanced services for residents and more efficiencies within the operating platform. For investors, these technological advancements represent a critical component of MAA's competitive moat, contributing to operational effectiveness, potential margin expansion, and a stronger value proposition for residents, which in turn supports retention and pricing power.

Navigating Supply Headwinds and Capturing Demand

The multifamily market across MAA's footprint has recently faced an unprecedented challenge: a "50-year record high level of supply" delivered over the past year, which management believes peaked in the third quarter of 2024. This surge in new units has pressured new lease pricing in certain markets, particularly in Austin, Atlanta, and Jacksonville, which have been more negatively impacted.

Despite this significant headwind, MAA's diversified portfolio and strong operational execution have enabled it to maintain solid performance. The company's Same Store portfolio achieved stable average physical occupancy of 95.6% in Q1 2025, slightly up from 95.3% in Q1 2024. Resident turnover reached a record low of 41.5% as of March 31, 2025, down from 44.4% a year prior, partly driven by the ongoing challenges in single-family home availability and affordability, which make buying a home a less viable option for many residents. Collections remained strong, with net delinquency at a low 0.3% of billed rents in Q1 2025.

Management notes encouraging signs that the worst of the pricing pressure may be behind them. New lease pricing showed less seasonal deceleration in late 2024 than in previous years and sequential acceleration into early 2025. Renewal rates have remained strong, contributing significantly to blended lease pricing. Absorption rates in MAA's markets have been robust, with Q1 2025 marking the third straight quarter that absorbed units exceeded delivered units, indicating the market's capacity to digest the new supply.

Financial Performance and Operational Execution

Net income available for common shareholders saw a significant increase to $181.7 million, up from $143.7 million in Q1 2024. This increase was primarily driven by a substantial $72 million gain on the sale of depreciable real estate assets during the quarter.

Total property revenues increased by 1.0% year-over-year to $549.3 million. This growth was fueled by a strong 21.4% increase in the Non-Same Store and Other segment, reflecting contributions from recently completed development communities and acquired properties. The Same Store segment saw a modest 0.1% increase in revenue, supported by higher occupancy and improved collections, although partially offset by a slight decrease in average effective rent per unit (-0.6% year-over-year to $1690).

Property operating expenses (excluding depreciation and amortization) increased by 1.8% to $201.4 million, with increases in both the Same Store (1.2%) and Non-Same Store (10.1%) segments. Key drivers of expense growth included personnel, utilities, office operations, and building repair and maintenance costs, partially offset by a decrease in property taxes in the Same Store portfolio. Depreciation and amortization expense rose due to the growing asset base from completed developments and capital investments. Interest expense also increased, reflecting a higher average outstanding debt balance and a higher effective interest rate (3.8% weighted average on total debt as of March 31, 2025), although partially mitigated by increased capitalized interest.

Core FFO attributable to common shareholders and unitholders saw a slight decrease in Q1 2025 compared to Q1 2024, primarily influenced by the increase in interest expense and property operating expenses, partially offset by the increase in property revenues and a decrease in general and administrative expenses. On a trailing twelve-month basis, MAA reported a Gross Profit Margin of 32.12%, an Operating Profit Margin of 29.61%, a Net Profit Margin of 25.74%, and an EBITDA Margin of 61.54%, demonstrating solid profitability metrics.

Operational initiatives continue to enhance portfolio quality and performance. In Q1 2025, MAA completed 1,102 interior unit upgrades, achieving an average rent increase of $90 over non-upgraded units and leasing approximately nine days quicker when adjusted for turn time. Repositioning projects are also yielding results, with projects in the repricing phase approaching 10% NOI yields.

Capital Allocation and the Growth Pipeline

MAA is actively deploying capital to drive future earnings growth through a balanced approach to development and acquisitions, complemented by strategic dispositions. As of March 31, 2025, the company had seven development communities under construction, totaling 2,312 units with expected total costs of $851.5 million, of which $546.5 million had been incurred. These projects are strategically phased, with two expected to complete in 2025, four in 2026, and one in 2027. Management anticipates starting three to four new developments in 2025, maintaining its target development pipeline in the $1 billion to $1.2 billion range, a level deemed comfortable given the company's scale and balance sheet strength. Development is viewed as a strong source of future earnings growth, particularly as new construction starts decline industry-wide.

The acquisition strategy focuses on identifying compelling opportunities, often off-market, involving properties in their initial lease-up phase. These acquisitions are typically priced below replacement cost, allowing MAA to leverage its operating platform to drive attractive long-term returns. While the transaction market was slow in early 2025, management expects opportunities to potentially materialize in the back half of the year.

To fund these investments and enhance portfolio quality, MAA engages in ongoing asset recycling. In Q1 2025, the company disposed of two multifamily communities in Columbia, South Carolina, for net proceeds of approximately $81 million, generating a significant gain. These dispositions are part of a broader effort to exit older, higher CapEx properties and redeploy capital into newer assets with higher earnings growth potential.

MAA's balance sheet remains a key strength, providing ample liquidity and flexibility. As of March 31, 2025, the company had $1.0 billion in combined unrestricted cash and cash equivalents and available capacity under its $1.25 billion revolving credit facility. The debt structure is predominantly fixed-rate (93.9%), mitigating interest rate risk. The net debt to Adjusted EBITDAre ratio stood at 4.0x, consistent with year-end 2024, a level management monitors closely to maintain investment-grade credit ratings. Upcoming debt maturities in the next 12 months from March 31, 2025, total approximately $710 million in principal, including commercial paper and senior notes. Management views debt as the primary source for funding incremental capital needs, given the current leverage levels.

Outlook and Risks

Management's outlook for 2025 is grounded in the expectation of improving market conditions as the supply-demand balance shifts. They anticipate a significant decline in new supply deliveries throughout 2025 and into 2026/2027, following the peak in 2024. Coupled with sustained strong demand drivers in their markets, this is expected to fuel a recovery in rent performance.

For the full year 2025, MAA provided guidance reflecting these expectations. The Core FFO midpoint is projected at $8.77 per diluted share. Same Store Revenue growth is guided to a midpoint of 0.4%, resulting from a blended rental pricing expectation of 1.7% at the midpoint. This blended rate is expected to comprise new lease pricing still impacted by elevated supply but improving sequentially, and renewal pricing in line with historical levels. Average physical occupancy is projected to remain stable at a midpoint of 95.6%. Same Store Operating Expenses are expected to grow at a midpoint of 3.2%, with personnel and repair/maintenance costs growing just over 3%, but continued pressure from marketing and insurance expenses. This results in a projected Same Store NOI decline of 1.15% at the midpoint. External growth from the lease-up pipeline and new acquisitions/development is expected to be slightly diluted in the first half of 2025 but turn accretive in the second half, contributing approximately $0.03 to Core FFO for the year, net of interest carry.

Key risks to the outlook include macroeconomic uncertainties, potential impacts from tariffs, and the persistence of elevated supply levels in certain markets which could continue to pressure rent growth. Rising borrowing costs remain a factor, although MAA's high fixed-rate debt mitigates some of this exposure. Legal proceedings, such as the RealPage litigation, pose potential financial and operational risks, although management is vigorously defending these claims and does not currently believe they will have a material adverse effect on financial condition. While management monitors potential impacts from immigration policy changes and return-to-office trends, they view MAA's portfolio demographic and diversification as limiting significant direct exposure. The potential for lower interest rates to increase resident move-outs to buy homes is also a factor, though the affordability gap remains substantial.

Conclusion

Mid-America Apartment Communities is navigating a period of elevated new supply from a position of strength, leveraging its deep Sunbelt presence, diversified portfolio, and operational expertise. While recent performance reflects the impact of supply pressures on pricing, particularly in certain markets, the company's ability to maintain stable occupancy, low turnover, and strong collections underscores the resilience of demand in its markets and the effectiveness of its strategy.

Management's outlook for 2025 is predicated on a favorable shift in market dynamics as new supply deliveries are expected to decline significantly. Coupled with ongoing investments in accretive development and acquisitions, portfolio enhancements through renovations and technology, and a solid balance sheet, MAA appears well-positioned to capitalize on the anticipated recovery. The investment thesis hinges on MAA's ability to translate improving market fundamentals and operational efficiencies into accelerating NOI and FFO growth, supported by its differentiated strategy and disciplined capital allocation, offering a compelling opportunity for investors seeking exposure to the long-term growth trajectory of the Sunbelt multifamily market.