While multifamily owners around the country are preparing for a slower rental market in 2023, Eric Bolton, chairman and CEO of Memphis-based REIT MAA, sees a “relatively stable employment” picture continuing to drive rental growth in his largely Sun Belt portfolio — even if it will be more modest than the last couple of years.

“We're not seeing any real evidence, significant evidence, building in our markets at this point relating to employment weakness or people losing jobs,” Bolton said on the company’s fourth-quarter earnings call last week. “We're not having any kind of issues surrounding collections. Migration trends continue to be very positive.”

Those solid fundamentals helped drive price increases in the fourth quarter. However, that growth came from an unusual source — renewals. 

MAA, the nation’s second-largest owner, saw its same-store lease prices ticked up only 2.2% for new move-in residents, which it said reflected typically slower seasonal leasing volumes. However, renewal leases rose by 10.1%, producing an overall increase of 5.7%. For the full year, move-in pricing rose 13.0% and renewal pricing jumped 14.8%, producing a 13.9% increase overall.

MAA sees robust renewal price growth for the first part of the year until around June. 

“Renewal pricing, which lagged new lease pricing for much of 2022, is providing a catalyst for the strong January pricing and is expected to be strong for the next few months before moderating to a more typical range,” said Timothy Argo, MAA’s chief strategy and analysis offer of the earnings call.

Development and disposition activity

Even in a slower market, MAA remained active in the fourth quarter. It sold a 396-unit property in Maryland and a 288-unit community in Austin, Texas, for a combined $157.7 million. It also closed on the pre-purchase of a multifamily community in the Charlotte, North Carolina, market, where development is expected to begin in the second half of 2023.

The REIT completed construction of the MAA Windmill Hill in Austin and broke ground on MAA Breakwater in Tampa and MAA Nixie in the Raleigh/Durham, North Carolina, market. At the end of the quarter, it had six projects, totaling 2,310 units, with a projected cost of $728.7 million under development.

MAA also completed the redevelopment of 1,327 units during the fourth quarter of 2022, capturing average rental rate increases of approximately 10% above non-renovated units. 

As of the end of 2022, MAA had $1.3 billion of combined cash and available capacity under its unsecured revolving credit facility —- giving it the capability to fund more acquisitions if they become available.

“While transaction volume continues to be muted, we believe it's likely that the transaction market will provide more opportunities toward the back half of the year,” said A. Bradley Hill, MAA’s chief investment officer, on the fourth quarter earnings call last week. “Currently, the number of marketed properties is down substantially from 2022, with the majority of sellers waiting until at least the spring leasing season before reevaluating their planned sale timing.”

2023 guidance

MAA also released 2023 guidance, with same-store NOI projected to come in between 5.3% and 7.3%, revenues hitting between 5.25% and 7.25% and operating expenses moderating to between 5.15% and 7.15%.

If the market does deteriorate more than expected, Bolton said MAA’s focus on secondary markets, exposure to a diversity of employment sectors and portfolio of moderately priced rentals (which are on average 20% less than new construction) should serve it well. 

“As MAA has consistently demonstrated over the past 20 years, we expect a lower level of volatility than what generally is seen with more concentrated portfolios in large coastal markets,” he said.

Analysts agree that MAA seems well-positioned for the year ahead because of its Sun Belt focus. 

“Economic growth is what drives apartments, and we continue to point out that 70% or more of layoffs since Labor Day have emanated from companies based in the six major coastal markets,” Alexander Goldfarb, managing director and senior research analyst of REITs, and Connor Mitchell, research analyst, at investment bank and financial services company Piper Sandler & Co. said in a research note. “Further, MAA's average rent of approximately $1,600 remains a strong selling point to a wide swath of renters.”

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