MAA 2026年第3四半期決算説明会：賃貸回復の第4四半期への後ずれに伴いガイダンスを下方修正

MAAの2026年第3四半期のコアFFOは同社予想に一致したものの、新規契約賃料の軟調さと稼働率の低下を受けて、経営陣は通期見通しを下方修正しました。第4四半期初期の賃貸動向は改善した一方、堅調な更新契約と費用抑制が引き続き業績を支えました。

要点

• 希薄化後1株あたりコアFFOは2.10ドルとなり、MAAの第3四半期予想に一致しました。
• MAAは通期の希薄化後1株あたりコアFFO予想の中央値を0.04ドル引き下げて8.49ドルとし、改定後のレンジを8.43〜8.55ドルに修正しました。
• 第3四半期の新規契約賃料改定率は約-6%となりましたが、更新賃料が5.3%上昇したため、ブレンド賃料改定率は前年同期比で10ベーシスポイント上昇しました。
• 経営陣は、10月の新規契約賃料改定率が前年同期を上回り、2026年で初の前年同期比プラスに転じると見込んでいます。10月の速報ブレンド賃料改定率は、2025年10月から100ベーシスポイント以上改善しました。
• 平均稼働率は第2四半期および第3四半期ともに95.3%でした。経営陣は第4四半期の稼働率が95.5%に近づくと予想しています。
• MAAは適正なレバレッジ水準を維持しており、9月30日時点での調整後EBITDAに対する純有利子負債倍率は4.7倍、現金およびリボルビング融資枠の利用可能高は6億6,100万ドルとなっています。

主要財務データ

事業および営業業績

既存物件NOI（純営業利益）は経営陣の予想通りとなりました。新規契約賃料と稼働率の低下による増収ペースの鈍化を、予想を下回る物件運営費用が相殺しました。

契約更新が引き続き主要な下支え要因となりました。更新賃料は5.3%上昇し、退去率は過去最低の39.6%にとどまりました。第4四半期の契約更新手続きの90%以上が完了しており、合意された更新賃料の上昇率は再び5%を超え、承諾率も前年水準を上回りました。

各市場の供給サイクルの段階が異なるため、地域別の業績は不均一な状態が続いています。第3四半期のブレンド賃料改定率はチャールストンとノーフォークが牽引しました。ダラスはポートフォリオ全体を上回る好調を維持し、オースティンは絶対水準としては引き続き弱いものの、ブレンド賃料改定率は前年同期比で420ベーシスポイント改善しました。オーランドは100ベーシスポイント改善しました。

フェニックス、シャーロット、サバナでは、高水準の供給による圧力が続いています。過去3年間で在庫が19%増加したシャーロットでは、募集中の特定の間取りで最大10〜12週間分のフリーレント（フリーレント特典）が提供されました。

MAAは当四半期中に2,040戸のアパート内装アップグレードを完了し、年初来では5,544戸に達しました。これは2025年同期間を16%上回っています。このリノベーションにより平均月額114ドルの賃料プレミアムを獲得し、1戸あたり5,926ドルの平均投資額に対して約23%のキャッシュ・オン・キャッシュ収益率を達成しました。

コミュニティ全域向けWi-Fiの収益は、第2四半期の85万ドルから第3四半期には135万ドルへと増加しました。運用中の28物件では、2027年後半にはフルランレート（年間換算走率）で約200万ドル規模に達する見込みです。さらに約1万4,000戸に相当する別の38物件でも、今後12〜15ヶ月かけて導入が進むにつれ、フルランレートは300万ドル近くに達すると予測されています。

経営陣による業績予想（ガイダンス）

MAAは、2026年通期の希薄化後1株あたりコアFFO予想を8.43〜8.55ドルに引き下げ、その中央値を8.49ドルとしました。経営陣はこの下方修正の主因として、第3四半期の既存物件の増収ペースの鈍化および非既存物件の想定NOIの低下を挙げており、費用および管理費の削減がこれを一部相殺したと説明しています。

第4四半期の希薄化後1株あたりコアFFOは2.12〜2.24ドル、中央値で2.18ドルと見込まれています。経営陣は、利息費用の増加に対し、季節的な費用の減少、非既存物件のNOI増加、および管理費削減がそれを十分に上回る効果をもたらすと見込んでいます。

MAAによると、賃貸市場の回復は従来予想より概ね1四半期遅れて進んでいます。同社は、稼働率と賃貸傾向の好転により、2027年に向けて3年ぶりにプラスの収益繰越効果（アーニン）が生じると見込んでいます。

リスクと注目点

アパートメント供給の高水準が、依然として新規契約賃料やフリーレント（コンセッション）設定における最大の重しとなっています。また経営陣は、想定を下回る雇用伸び率、経済の不透明感、軟調な消費者マインドも、2026年中の価格設定能力を制限した要因として挙げました。

回復の足調は地域市場によって異なります。シャーロットやその他の供給過多な郊外市場では大幅なフリーレント等の割引設定が続いていますが、より成熟した都市部の供給サイクルは全般的に回復が早いとMAAは述べています。

支払利息も考慮すべきポイントです。MAAの変動金利負債の加重平均コストは4.5%をわずかに下回っており、開発物件の竣工に伴い資本化利息が減少することが2027年にかけて緩やかな逆風になると経営陣は予想しています。

アナリスト質疑応答の主なポイント

• 賃貸市場の回復：11月および12月の事前予約件数と賃料水準は2025年の前年同期を上回って推移しています。それでも経営陣は、10月以降に季節的な鈍化が一定程度生じると予想しています。
• 価格設定の閾値：MAAは稼働率95.5%付近を、稼働率と賃料水準のバランスをより良好に保てる水準とみなしています。対象市場全体で入居募集中の物件供給数は、年初から約5万戸減少したと経営陣は推計しています。
• 資本配分：運用プラットフォームおよび既存コミュニティへの投資を引き続き最優先としています。還元利回り（キャップレート）が一段と上昇しない限り、現時点では物件買収よりも開発が選好されます。現在のレバレッジ水準を考慮すると、追加の資産売却がない限り、経営陣は短期的には自社株買いを行わない方針です。
• 開発事業：MAAは当四半期に3つのプロジェクトを着工し、2026年に計画していた計4件の着工を完了しました。経営陣は、最新のプロジェクトが供給の少ない環境下で2029年に安定稼働へ達すると見込んでおり、想定リターンは現在の資本コストを上回ると述べています。
• 供給見通し：経営陣によると、同社エリア全体の四半期ごとの着工数は3.5年間にわたり長期平均を下回ったままです。第三者機関の予測に差はあるものの、2027年の新供給量は長期平均を下回り続けると見込んでいます。

決算説明会（トランスクリプト）全編

---

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning, ladies and gentlemen, and welcome to the MAA Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, October 29, 2026. I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MAA, for opening comments. Andrew, please go ahead.

Andrew Schaeffer

Thank you, Samantha, and good morning, everyone. This is Andrew Schaeffer, Treasurer and Director of Capital Markets for MAA. Members of the management team participating on the call this morning are Brad Hill, Tim Argo, Clay Holder and Rob DelPriore. 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 an audio recording of this call will also be available on our website later today. After some brief prepared comments, the management team will be available to answer questions. [Operator Instructions]

I will now turn the call over to Brad.

Brad Hill

Thank you, Andrew, and good morning, everyone. As highlighted in our earnings release, our third quarter core FFO results met our expectations. While expense discipline supported third quarter results, the later recovery in new lease pricing is reflected in our revised full year outlook that Clay Holder will walk through. As we move further into the fourth quarter, we continue to see evidence of recovery across our markets. Based on current trends, we're optimistic we will see year-over-year improvement in new resident lease-over-lease rates for the full fourth quarter, slightly later than the previously expected third quarter.

While the timing has shifted slightly, the underlying drivers of recovery remain intact. Robust demand continues to absorb the elevated supply delivered over the past few years, and we're encouraged by the early signs of firming market conditions. Our renewal performance strengthened further with year-over-year improvement accelerating 80 basis points in the third quarter from 50 basis points in the second quarter, supporting our blended lease-over-lease and revenue performance as new resident pricing continues to recover.

With more stable occupancy, we're seeing a strong start to the fourth quarter with preliminary October new resident lease-over-lease pricing improving sequentially from September. This improved new lease performance, combined with sustained strong renewals, results in preliminary October blended lease-over-lease rates improving by more than 100 basis points compared to October 2025. We are optimistic this leasing momentum will continue to build into the busier spring leasing season. Demand fundamentals across our footprint remain healthy and continue to outperform non-MAA markets. Job growth, household formation, inbound migration and population growth, along with persistent single-family affordability challenges, continue to support demand for rental housing across our footprint.

The Sunbelt remains an attractive destination for employers and employees, supported by the high quality of life and relative affordability. These advantages reinforce our conviction in the long-term appeal of the Sunbelt, even as the near-term pace of recovery has been impacted by temporary supply pressure. Robust demand, coupled with lower supply levels, is beginning to translate to a more balanced operating environment. Performance varies depending on the stage of the local supply cycle, but year-to-date absorption across our markets has exceeded new supply deliveries, reducing the number of communities in lease-up and supporting a gradual reduction in concessions.

As lease-up communities stabilize and new starts remain low, the impact of elevated supply eases and the balance between supply and demand shifts more toward demand. That process is occurring and provides a foundation for improving leasing conditions and ultimately should lead to stronger pricing power. Our focus during this transition is to best position MAA to capture the benefits of that improvement. Our priorities remain disciplined expense management, investments in technology to support a stronger platform with the increased centralization and specialization and enhancements to our communities through redevelopment, repositioning and property-wide WiFi.

Together, these initiatives are aimed at strengthening the resident experience to support our sector-leading renewals, improving operating efficiency and expanding our earnings growth opportunity as the operating environment further improves. In addition to these initiatives to strengthen our operating platform, we remain focused on creating long-term shareholder value through disciplined capital allocation. Our strategy balances investments in our existing portfolio with selective external growth opportunities while maintaining financial flexibility.

During the quarter, we started construction on 3 projects, wrapping up our 4 planned starts for the year. These projects include an 88-unit wholly owned Phase II development in Kansas City, a 306-unit prepurchased joint venture development in Northern Virginia and a 312-unit prepurchased joint venture development in Nashville, Tennessee. All 3 projects should reach stabilization in a much lower supply environment and with stronger operating fundamentals in 2029 and are expected to deliver long-term shareholder returns above our current elevated cost of capital even under conservative underwriting assumptions.

Looking ahead to 2027, we are optimistic that the balance will continue to shift more broadly from supply driven competition toward demand-led improvement, supporting an acceleration in operating fundamentals. The timing and pace will vary by market, but with healthy demand, absorption exceeding new deliveries and markets gradually firming, we see a favorable foundation for the next phase of recovery. As supply pressures ease, we believe the strength of our operating platform and the capabilities we've been building should become more evident to our performance. And to all of our associates across our communities and corporate and regional offices, thank you for your continued service to our residents and to MAA.

With that, I'll turn the call over to Tim.

Tim Argo

Thanks, Brad, and good morning, everyone. For the third quarter, same-store NOI was in line with our expectations with continued lower-than-projected property operating expenses offsetting lower-than-projected revenue, which was driven primarily by slightly weaker new lease pricing. As Brad mentioned, October and early fourth quarter trends for new lease pricing are encouraging. But while positive absorption is occurring, we continue to see consumers being selective in the third quarter, resulting in downward pressure on new lease rates.

Despite these trends in new lease pricing, renewal retention rates and lease rates remain strong. Turnover remained at record lows with 39.6% turnover on a rolling 12-month basis and renewal lease-over-lease rates up 5.3% for the quarter. As a result, blended lease-over-lease rates were up 10 basis points from the blended rates of the third quarter of 2025. Our sector-leading net delinquency performance continued with just 0.3% of billed rents outstanding, a level that has remained consistent for several quarters. Our average residents' financial health remains strong with our rent-to-income ratio at 18%, matching the second quarter, continuing at the lowest level we have seen since pre-COVID.

Individual market fundamentals broadly look similar to last quarter with a lot of consistency in markets that are showing pricing strength and pricing improvement. Most of our markets in South Carolina and Virginia continue to outperform our broader portfolio from a pricing standpoint, with the Charleston and Norfolk, Virginia blended lease-over-lease pricing performance -- sorry, with Charleston and Norfolk, Virginia markets gaining even more momentum and leading the portfolio in third quarter blended lease-over-lease pricing performance. Dallas continues to outperform our portfolio, and Austin, though still an underperforming market on an absolute basis, continued its relative improvement with a 420 basis point year-over-year increase in blended pricing.

Orlando is another improving market with blended pricing up 100 basis points from the third quarter of 2025. Phoenix, Charlotte and Savannah are relatively high concentration markets for us that are still working through heavy supply pressure and struggling to gain new lease momentum despite continued strong demand. During the quarter, MAA Val Vista in Phoenix and MAA Breakwater in Tampa stabilized and MAA Milepost II in Denver completed construction and moved into our lease-up portfolio. Two additional lease-up properties, MAA Nixie in Raleigh and MAA Liberty Row in Charlotte, are expected to stabilize in the fourth quarter of this year.

As with some of our same-store portfolio properties, working through the excess supply is still a challenge, particularly in a market like Charlotte, where 19% of inventory was delivered into the market over the last 3 years. Our 2 Charlotte lease-up properties have seen the heaviest concession usage with up to 10 to 12 weeks offered on certain floor plans. But as with the overall lease-up portfolio, we feel good about the long-term NOI growth and value proposition as markets continue to improve. NOI contributions from this group will continue to build through the rest of this year and into 2027.

We continue to execute on our various targeted redevelopment and repositioning initiatives in the third quarter with strong results. During the third quarter of 2026, we completed 2,040 interior unit upgrades, bringing our year-to-date total to 5,544 units, 16% higher than the number of units renovated in the first 3 quarters of 2025. Through the third quarter year-to-date, we have achieved rent increases of $114 above non-upgraded units on an average per unit spend of $5,926 and average cash-on-cash return is approximately 23% versus expected returns of 19% and prior year returns of 20%. These units also continue to lease faster than non-renovated units when adjusted for the additional turn time. We would expect to further accelerate this program in 2027.

We also continue to make progress on our common area and amenity repositioning program. The last of 6 completed properties wrapped up the repricing phase in the third quarter, 5 properties are early in the repricing phase and 6 additional are in the construction phase and will begin the repricing phase in the spring of 2027. The completed group achieved an average cash-on-cash return in excess of 11%. We expect similar returns from the remaining active projects and are evaluating 8 to 12 additional projects for this initiative in 2027. Our community-wide WiFi initiative that began in 2024 continues to expand. The existing 28 live properties, where the service is rolling out to residents as leases are signed, continue to gain momentum, and the additional 38 properties that commenced in 2026 will start going live this quarter.

Revenue from the currently live properties is quickly increasing from $850,000 in the second quarter to $1.35 million in the third quarter and will continue to grow from here. As Brad referenced, we are encouraged by what we have seen so far in October with only a few days left to close out the month. Additionally, the early pre-leasing pricing trends so far for November and December relative to last year are positive as well. While blended lease-over-lease pricing for each of the first 3 quarters of 2026 was higher than each of the 3 quarters of 2025, new lease-over-lease performance has continued to lag the prior year. However, we expect October new lease-over-lease pricing will exceed last October, which would represent the first year-over-year improvement in new lease pricing this year.

Furthermore, pre-leasing volume for November and December is ahead of the same time last year with stronger lease-over-lease rates as well. The strong renewal trends continue into the fourth quarter also. With decisions made on over 90% of our fourth quarter renewals, we are once again exceeding 5% lease-over-lease growth on accepted renewals and achieving higher accept rates than the prior year. These trends set us up to capture growing occupancy and carry a positive earn-in into 2027 for the first time in 3 years.

That's all I have in the way of prepared comments. Now I'll turn the call over to Clay.

A. Holder

Thank you, Tim, and good morning, everyone. We reported core FFO for the quarter of $2.10 per diluted share, which was in line with our third quarter guidance. Same-store revenues were approximately $0.02 below our expectations, primarily related to pricing and occupancy, while same-store expenses were approximately $0.02 favorable, driven primarily by real estate taxes. Below same-store operations, favorability in overhead and other income and expense was offset by slightly lower-than-expected non-same-store NOI.

On the capital allocation front, we funded approximately $84 million of development and predevelopment costs during the quarter. At quarter end, we had approximately $367 million of remaining funding commitments on our development pipeline and expect to spend approximately $320 million on total development costs for the full year. Our balance sheet remains well positioned to support our development pipeline and other growth initiatives. At September 30, we had approximately $661 million of combined cash and capacity under our revolving credit facility, and net debt to adjusted EBITDA was 4.7x. Our outstanding debt had an average effective interest rate of 4.1% and an average maturity of 5.6 years.

During the quarter, we borrowed the remaining $250 million available under the delayed draw term loan we established in June, bringing total borrowings under that facility to $350 million at quarter end. The proceeds were used to help refinance $300 million of bonds that matured in September. We also continued our measured approach to share repurchases, repurchasing approximately 400,000 shares of common stock at a weighted average price of $126.72 per share for a total investment of $50 million. In addition, during September, we settled a forward sale agreement under our ATM program and issued approximately 300,000 shares at a forward sale price of $130.34 per share. Those proceeds were used on October 1 to fund the approximately $43 million redemption of our Series I preferred shares.

Turning to our outlook for the remainder of the year. We have lowered the midpoint of our full year core FFO guidance by $0.04 to $8.49 per diluted share and established a revised range of $8.43 to $8.55. The change primarily reflects the impact of third quarter same-store revenue performance, along with lower projected non-same-store NOI, partially offset by favorable expense performance and lower projected overhead. Within same-store operations, we reduced our full year revenue growth midpoint by 35 basis points to negative 0.25%, primarily reflecting third quarter results. New lease pricing during the quarter was below our expectations. And while we built occupancy during the quarter, average occupancy for the quarter was also modestly lower than anticipated.

As Brad discussed, more recent leasing trends support our view that the recovery we anticipated is developing, but approximately 1 quarter later than we originally expected. Accordingly, we reduced our expected full year effective rent growth midpoint by 20 basis points to negative 0.1% and our expected average physical occupancy midpoint by 10 basis points to 95.4%. We also lowered our same-store expense growth midpoint by 35 basis points to 1.4%, driven primarily by lower projected real estate taxes. Together, the revisions to our revenue and expense outlook resulted in a 35 basis points reduction in our full year same-store NOI growth midpoint to negative 1.25%. We also lowered projected full year overhead by $1.5 million, reflecting our third quarter performance and expectations for the balance of the year.

For the fourth quarter, we expect core FFO to be in the range of $2.12 to $2.24 per diluted share, or $2.18 at the midpoint. The sequential increase from the third quarter primarily reflects normal seasonal decline in operating expenses, along with higher contributions from our non-same-store portfolio and lower overhead costs, partially offset by higher interest expense.

That is all that we have in the way of prepared comments. So Samantha, we will now turn the call back to you for questions.

Operator

[Operator Instructions] Your first question comes from the line of Nick Joseph with Citi.

質疑応答

Eric Wolfe

It's Eric here with Nick. You mentioned in your prepared remarks that you were confident that the improving trends in October would translate to all the way through, I think, you said next year's peak leasing season. And then I think you also said that November and December pre-leasing was better. Could you just explain sort of what you mean by that? And also share what you're expecting for the fourth quarter in terms of blended rate growth, just so we can see if the October trends are translating to better November and December as well.

Tim Argo

Yes, Eric, this is Tim. I'll hit on some of the details there. I mean, so for October, as we mentioned, we're seeing it trend better than both last October, both in terms of new lease and renewals, and a little bit better than September as well on new lease and renewals. And what -- when we talk about pre-leasing, what we really mean there is units that are on notice to move out, we've pre-leased those units and captured better pricing than we had this time last year. And so when we look at October trends and we look forward to November and December trends, both our pre-lease volume for November and December and our pre-lease rates for November and December are trending better than they were this time last year. Obviously, it will be dependent on the rest of the leasing we do. Still early for November and December, but the trends we're seeing are good.

And I think the other point I'll make there is contrasted with what we saw early in Q3, is that we're seeing better pre-lease volume, better pre-lease rates, occupancy is in a stable position. We have fewer lease expirations in Q4 and more renewals in Q4. So we're less reliant on leasing as many -- we're not building occupancy. We're less reliant on leasing as many of those current vacant units, which obviously have the most pricing pressure. So feel good with the trends we're seeing so far. Obviously, a little more time to go.

And then hitting on the guidance for Q4. If we look at what Q3 was, new lease pricing was about negative 6% or so. We typically see a 300-plus basis point moderation in new lease rates from Q3 to Q4. We expect probably half of that in Q4 for the full quarter. We're seeing a little bit better than that for October, but we expect a little bit of moderation in November and December. And then continue to see renewals in the 5-plus percent range as well.

Operator

Your next question comes from the line of Jamie Feldman with Wells Fargo.

James Feldman

Great. So we were taking a closer look at Atlanta specifically, which is a big market and was also kind of leading the Sunbelt recovery for a while. But if you look at the Q3 numbers, you had NOI down, occupancy down. And so I guess the question for you is just, a, is there something specific about Atlanta in the third quarter? But more importantly, like is this a sign that some of these markets are stalling out already? And what gives you confidence that they're not?

I think Jacksonville is another one that seemed like it was kind of ahead of the pack, and then it slowed down pretty meaningfully. So if you could just provide some more color just on where your head is there and then also what should give us confidence that these really are going to restart. And then also urban versus suburban, maybe that's part of the issue in Atlanta. We're just curious if there's something playing out there between your urban versus suburban markets.

Tim Argo

Yes. So this is Tim. I'll touch on that. So for Atlanta, I think it was really sort of a temporary blip, if you will. We did see -- in early Q3, really the month of July, we saw traffic moderate a little bit. We saw concessions jump up, particularly in some of our more heavily supplied or our more heavily concentrated submarkets, looking at Brookhaven and Duluth specifically. We saw concessions spike, and we're holding on to pricing a little bit. So we saw occupancy dip a little bit there, but it quickly recovered.

We're above 95% in Atlanta now as we sit here in early Q4. And actually, when we look at new lease pricing for Atlanta, we've seen a little bit of acceleration from September to October in new lease pricing. So nothing we see in Atlanta to be long-term trends. We're still seeing good performance in the more in-town, Buckhead, Midtown, Downtown still leading the way there. So we're still seeing the trend in Atlanta and other markets where the urban submarkets are tending, for the most part, to still outperform the more suburban submarkets as that supply came a little bit earlier and they're working through that. So nothing long term, we believe, in Atlanta. Expect that to bounce back.

And then Jacksonville, Jacksonville has been a relatively weak market for us for a while. It seems to have stabilized a little bit. We're seeing -- the pricing in Q3 for Jacksonville was about 70 basis points better than it was in Q3 of last year. So while it's still a laggard in the portfolio, still a laggard to some of the Florida markets, we think it's sort of stabilized and trending a little bit flat, but trending a little bit up. So don't feel like any of these have stalled out. Most of these are -- there's something unique in the market temporarily that's driving little blips from month-to-month.

Brad Hill

Yes. Jamie, this is Brad. Further context I would just add to that is if you look at all of our markets in context and you kind of rank those markets in terms of performance, about 60% of our markets are kind of above portfolio average trend line. And if you look at those, 90% of those markets that are above the trend line are more than 2x the trend in terms of our blended performance. So in terms of the strength of performance and improvement that we're seeing, it's pretty broad-based across our portfolio. And really, it depends on where the market is in terms of its supply cycle because we're seeing strong demand really across the portfolio.

And then if you look at the markets clearly that are below the trend line for us, clearly, those are the high supply markets that continue to drag down the total portfolio performance. And then the other piece I would just add of those markets that are toward the bottom of the list in terms of high supply, we are seeing improved performance there. You look at Nashville, and certainly in Austin, it's still showing pretty good year-over-year improvement. So I'd say we're seeing improvement across the portfolio that is pretty broad-based.

Operator

Your next question comes from the line of Austin Wurschmidt with KeyBanc.

Austin Wurschmidt

So you guys have referenced now a few times that the strong demand trends are providing some optimism around -- about kind of the recent improvement in the lease rate growth but during a period where there's really low lease expirations. I guess how do you connect the dots that, that translates into during a period of higher lease expirations, improving fundamentals? And more specifically, like what have you seen historically that it will take for pricing power to meaningfully improve? Is there some vacancy threshold across the market that you need to cross? And just trying to understand given the sluggishness in the recovery up until this point.

Tim Argo

Yes, Austin, this is Tim. On your first point, I mean, certainly, fewer lease expirations in Q4, so it's less impactful when you think about the broader portfolio. But there's obviously less traffic this time of the year as well. So I think on a relative basis, the strength we're seeing relative to what we typically see this time of the year is encouraging. And I think, to be able to be building occupancy, which we did through Q3, and we expect to build a little bit more into Q4, and see better pricing trends and see, it's all the different components. It's the renewals, it's the pre-leasing, it's the occupancy. All of those seem to be trending in the right direction. And to do that -- for all those to be moving in the same direction, to do that in a quarter with less demand in general from a seasonal perspective, I think that's encouraging for us.

And then on the second point, for us, being in that 95.5% range, somewhere around there is kind of like where we want to be and where we think we can start pushing on price and balancing that trade-off a little bit. When we look at market level occupancies broadly across the board, they're pretty much back to the pre-supply glut levels. So we think -- the number of units in lease-up, we think there's 50,000 fewer units available in our markets than there were at the beginning of the year than now. So there's less units to be absorbed. So all those factors kind of lead us to believe that the trends are real, and we'll start to see some real recovery as we get into 2027.

Operator

Your next question comes from the line of Nick Yulico with Scotiabank.

Nicholas Yulico

I guess for either Clay or Brad, I just wanted to ask about the balance sheet, make sure we're understanding this correctly. So you guys took out the bond maturity with floating rate debt. So your floating rate debt exposure went up this quarter. And so I guess what I'm wondering is, a couple of things. Are you planning on reducing that floating rate debt exposure via doing some sort of fixed rate issuance or swaps?

And then the other thing is I want to make sure we're sort of looking at this right, in terms of the effective interest rate that you guys have in the supp. I know there's like a mix of different debt in that floating rate debt. Is it possible just to get what the overall spread is on that $1.2 billion? Because I know it's a mix of, again, like commercial paper, other forms of debt. And then just lastly as well, if you had any high-level thoughts on capitalized interest next year, just as we're thinking about modeling interest expense going forward.

A. Holder

Yes, Nick, this is Clay. I'll take that and make sure I hit them all for you. I think, going back to the beginning of the year, we had talked about that we would expect there to be a couple of bond issuances this year. And as we sit here today, we probably expect that to still be the case. And so the term of that maturity -- term of that issuance would probably be a little different than what we thought at the beginning of the year. But as we sit here today, it's probably going to be probably around a 5 or so, something lower than 10 for sure, just given where rates are today. So I think that would play itself out over the remaining course of the year.

Whenever you look at our floating rate debt and kind of think about the kind of the weighted piece of that, our commercial, all in, it's about a little over 4% for it. So our CP program is -- I'm sorry, excuse me, our CP program is a little over 4%, and it's about $750 million. And then we've got the $350 million term loan at about 4.7% and then the revolver being the difference there, about a 4.65%. So it's all weighted at about 4.5% -- a little lower than 4.5% there.

And then on cap interest, as we think about next year, I mean, what we will -- as we sit here today, we've had the 4 starts this year. Of course, we've had a couple of deliveries this -- here recently. And that's part of the driver of the increased impact to interest expense that we're seeing in the fourth quarter. I would expect cap interest for next year to be a little lower than what we're seeing this year, just given the timing of some of the deliveries plus some of the timing of the starts that we're expecting for next year. So it will be a small headwind for us as we go into 2027.

Operator

Your next question comes from the line of Brad Heffern with RBC Capital Markets.

Brad Heffern

Can you go through the capital priorities right now? Kind of been doing a bit of everything this year, but I'm wondering if higher rates and a lower stock price maybe shift things in the favor of repurchases. Or how you rank things otherwise?

Brad Hill

Brad, this is Brad. I mean, I think our strategy in that area hasn't changed, certainly trying to drive long-term compounded earnings performance. And I think, based on where we are and where interest rates and things of that nature, our priorities, I'd say, number one, continues to be investing in our operating platform. We've done that certainly in a number of ways. We have talked about the ReIMAAgine initiative that we're focused on. That's strengthening our operating platform. You've seen the benefit of that on the personnel side. This year, we see about $25 million improvement in margins in our run rate by the end of next year. We'll continue to do that. As Tim talked about in his comments, we continue to reinvest in our existing portfolio through our redevelopments, pretty strong returns there. Our WiFi initiative, we'll continue to do that as well.

I'd say on the external growth front, that's really going to depend on where values go. I'd say if cap rates continue to kind of be in the range of where they are now -- they moved up in the third quarter about 25, 30 basis points versus where they were in the second quarter. But if cap rates kind of hang in there or move up another, call it, 25 basis points, we'll continue to favor development in that equation. I think the returns we continue to get from our development platform continues to exceed even our current elevated cost of capital from an IRR perspective. So we feel really good about what we're able to achieve there, the longer-term growth rates as well.

If we see that the capital markets change a bit and force cap rates to move up a bit more, we'll get more active in the acquisition space. We're pretty opportunistic in terms of our deployment of capital in that area. We've been pretty disciplined in the last few years. We've only purchased one project in the last 2 years because cap rates have been so low. But if you go back to the GFC period, we bought 10,000 units in one-off transactions over a 3-year period there. So we want to really protect our balance sheet. We want to be flexible in terms of where we're able to lean in to drive long-term shareholder value.

But I'd say given where our current leverage is and our dispositions for the year that we've executed at about $150 million net to us, we have reinvested that $150 million into share repurchases. We don't have dispositions planned for the back part of the -- last part of the year. So probably not going to see us active in the share repurchase area right now given where our dispositions and leverage are.

Operator

Your next question comes from the line of John Kim with BMO Capital Markets.

John Kim

I wanted to ask what your primary metric that you look at when you determine your dividend policy. When you look at your funds available for distribution and you add back redevelopment CapEx, year-to-date, it's down 4% year-over-year and the payout ratio is 99%. So it doesn't really leave that much capital for reinvestment and maybe you can make the case that it should be reset lower if this continues. On the flip side, CapEx is variable, especially revenue-enhancing CapEx, so this number may improve from that and other measures. But just wanted to get your thoughts on dividend policy.

A. Holder

Yes, John, this is Clay. You're hitting on all the things that we look at. And in a given year, to your point, CapEx can be variable from time to time. And so we have -- you have to consider that, especially when you think about the potential for some casualty events to come into play. But that's the way we think about it, is that we're looking at it on a kind of pre-development cap spend basis, given the fact that those items are typically going to provide some sort of return that's higher than our cost of capital.

So I think you kind of hit on it. And it's obviously been down a little bit this past year versus last year, to your point. It's running right around flat to slightly positive. We'd look for that to -- we're going to continue to manage that to at least that level, if not better, just given the fact that we don't want to be leveraging up to fund other capital needs that have to be funded.

Operator

Your next question comes from the line of Adam Kramer with Morgan Stanley.

Adam Kramer

Maybe just want to talk about the sort of cadence of lease growth in the quarter on a monthly basis. I know you guys have sort of shifted away from that. But I think it would be helpful just to understand sort of the degree of improvement you saw over the course of the quarter. And then I guess sort of bridging from that into the Q4 commentary, I would love to hear October metrics to the extent you're comfortable disclosing, at least directionally. And then maybe just sort of occupancy target for Q4 as we get into what's typically been the seasonally slower months, although it seems like this year has an element of sort of contra-seasonality to it as well.

Tim Argo

Yes, Adam, this is Tim. As far as Q3 goes, renewals were pretty consistent in that 5.2%, 5.3%, 5.4% range. And on the new lease side, I mean, we saw the typical seasonality, I would say. It was a little bit less than normal. But the typical seasonality where July was a little better than August, August was a little better than September, and it averaged out to the 6% over the full quarter. September was a little bit over 7%. And so if we think about October, I mean, I'll say October preliminarily with a few days less, trending slightly better than September.

And then on the occupancy side, we were 95.3% for Q2 and Q3. We would expect something better than that in Q4. So we're slowly building occupancy through the quarter. So I think closer to that 95.5% range, give or take. And for some of the reasons I mentioned earlier, we have better retention, fewer lease expirations and better pre-lease volume. So we think occupancy will slowly build throughout the quarter and put us in a good position as we head into 2027 to take advantage of improving fundamentals.

Operator

Your next question comes from the line of Jana Galan with Bank of America.

Jana Galan

Just wanted to follow up on the positive earn-in comment. Are there any other building blocks for 2027 that you can talk to? It sounds like occupancy can be a slight benefit. Just curious if there's any initiatives to increase the other revenues. And then the bad debt is excellent, so I'm not sure if that can get better from here.

Tim Argo

Yes. I mean, you hit the points. I mean, we'll have a slightly positive earn-in heading into 2027. And then, obviously, rent growth will be highly dependent on pricing for what we do in 2027. Occupancy, we would expect to be something similar, if not a little bit better. I mentioned earlier, 95.5% is kind of our sweet spot where we think we can balance out the pricing and occupancy component.

As far as other income, I mean, the big one would be our WiFi initiative that we continue to roll out. We had $1.35 million of revenue from those projects in Q3. I think the full run rate for that group of properties is probably close to $2 million or so, which we'll get to later next year. And then we have 38 properties or so that we're finishing up or starting to go live on right now. And all those will play out over the course of the next 12 to 15 months in terms of the ramp-up. But that full run rate for those projects is closer to $3 million, representing about 14,000 units. So obviously, take a long time to get to that run rate, but you can get a feel for what the opportunity is on the WiFi side. That would be the big one in terms of other income.

Operator

Your next question comes from the line of Haendel St. Juste with Mizuho.

Michael Stefany

This is Mike on with Haendel at Mizuho. How would you characterize demand and your pricing power here? And how do you think concessions and consumer AI agents are impacting renter psychology and willingness or ability to negotiate in real time?

Tim Argo

This is Tim. On the first part, demand, Brad talked a lot about this in his comments where we're continuing to see strong demand. I think that will continue the in-migration, job growth, household formation. All those macro-level things that we look at are certainly more positive and trending well relative to other parts of the country. So we expect that to continue. When we look at more of our internal metrics, lead volume, those sorts of things, are up quite a bit over last year. We've been seeing lead volume run 10% to 15% higher this year over last year. Now it's taking more leads to generate those leases as people are taking longer to make decisions but not really seeing anything concerning and actually optimistic on the demand side.

As far as the second part of your question, I know -- you mentioned concessions. I think concessions has been the limitation, if you will, from seeing the quicker recovery that we had hoped and anticipated and still think is starting to show its head now where we've had 3 years now of kind of less than normal leasing performance due to all the supply, and a lot of operators have gotten very, very comfortable and very used to only being in operating environments where there's heavy concession usage. And so I think that is what can create the opportunity going forward where, with now occupancy stabilized and fewer units in lease-up, I believe operators start to get more comfortable to bring those concessions down.

We started to see that a little bit in late Q3 and into early Q4 where concessions have ticked down slightly. But I think that's been more of a function of the leasing environment we've been in the last 2 or 3 years and working the supply than anything else.

Operator

Your next question comes from the line of Rich Anderson with Cantor Fitzgerald.

Richard Anderson

So just thinking big picture here. Brad, I remember we had an event, I think it was June of '25 -- and maybe it was '24, I can't remember they all blend together. But we've been trying to pinpoint this recovery in the Sunbelt for a long time now. And so similar views of improvement in the following year have been expressed and then ultimately missed because of this sort of biblical nature of oversupply. But what do you think people should be thinking about in terms of how this will ultimately recover?

I mean, doesn't it sound like you're looking at a hockey stick-ish type of opportunity? It's sort of going to be more of a gradual sort of improvement over the course of the next several years. Would that be the right way to think about it? Maybe we transition next year, but it's not going to be anything sort of earth-shattering or sudden. Is that a fair way to say it? And if so, how would you -- why would that be the case? Like besides supply, what other factors are making it so sort of slow in its recovery?

Brad Hill

Well, thanks, Rich. I think in terms of the pace of recovery next year from a portfolio level perspective, I mean, it really depends on where each individual market is upon -- is on that kind of supply curve because overall, what we're seeing across our markets is this is not a demand issue. This is a supply issue, and it's taking time to certainly work through that supply. As I mentioned earlier, for the markets that have worked their way through the supply pipeline, we're seeing some very good results there.

And I think in some of those markets, you are seeing a hockey stick type of year-over-year recovery. You look at in Austin, for example, it's still a challenged market right now. It has seen the most supply, but it's also got tremendous demand, and we continue to see blended rate performance year-over-year be the strongest in our portfolio. So I wouldn't rule out a hockey stick type of recovery in certain markets depending on where it is in that supply pipeline. And then that's obviously where each of those and how they overlay each other is going to determine how the overall portfolio reacts.

But broad demand, I think, is pretty strong in our markets. Certainly, job growth has been a little bit underwhelming this year versus what we had hoped it would be. But we've got other things that are tremendously positive from population growth, migration trends, household formation. We're also -- at this moment, we've got one of the higher levels of bundling that we've seen in the last few years. So if we can get to the point where concession -- these markets, market level occupancies continue to improve. We've seen that. Tim gave the numbers about the excess absorption versus new supply coming into the market. That sets us up for a pretty good recovery trajectory as we get into the spring next year.

We've said for a few quarters now that we -- it's hard to see a significant improvement in the numbers even if the supply, demand dynamics improve in the fourth quarter and first quarter. It's really going to be the spring leasing season before you see that. So we do expect that recovery could be pretty significant depending on where markets are in that supply cycle. And there are other things that I think could improve that. If the economy improves, I think that job growth improves, that unbundling begins to happen, and that's a significant demand factor as well that we need to keep our eyes on.

Operator

Your next question comes from Rich Hightower with Barclays.

Richard Hightower

I guess a bit of a follow-up on Rich Anderson's question and also Adam's question before. But just thinking about what happened during the third quarter and the fact that you were able to give guidance kind of in late July, sort of having an understanding of what the following couple of months that would complete the quarter would look like and then the miss and the guide down for the full year. I mean, was there something isolated in August and September that just played out simply unexpected? And as we think about next year, do you think a wider range to start the year is warranted just as you think about the risk calibration to the outlook that you're sort of hinting at for next year?

Brad Hill

Yes, Rich, this is Brad. I'll start, and certainly Tim can add some details. I mean, I think if you look at third quarter and where we were in July and what we kind of expected to happen, at that point, certainly, we had pre-leasing results out for August and September, and those were screening quite well versus the year-over-year. I'd say what, obviously, what we saw is a little bit more pressure on the new lease rate side, leasing up vacant units as we built occupancy through the quarter and a higher percentage of the units that we were leasing were in that kind of vacant bucket. You saw a slight uptick in our concessions in our portfolio in the third quarter as a result of us having to compete more with some of that new supply that's out there in order to gain residents in that quarter. So we're at a more stable occupancy point at this point, but I'd say that's what caused the pressure point in the third quarter.

And in terms of setting guidance for next year, I mean, we have a very thorough process. Our team does a great job in preparing that guidance every year. And as we do every year, we'll go back and look at what were our expectations for the year and how did that manifest in our forecast and is there anything that we need to improve in that area. But as we set out this year, there were certainly some things that we expected to occur this year that didn't. We expected there to be less economic uncertainty in the market this year. We expected the consumer sentiment to improve throughout the year. And those 2 things really ultimately impact new lease pricing and the confidence and the ability for us to push a little bit more on the new lease rate side, and that didn't materialize like we had expected. But we'll review all of those things as we get ready to put our forecast out for next year.

Operator

Your next question comes from the line of Steve Sakwa with Evercore ISI.

Steve Sakwa

A lot of questions have been asked and answered. I guess real quick on expense growth, just thinking about the containment you've had the last couple of years. Anything that we should be sort of thinking about going into '27 on that front?

A. Holder

Steve, this is Clay. I mean, I think what you'll see going into 2027, we'll talk probably more about this at Nareit in a couple of weeks as far as what 2027 begins to look like. But as we sit here today, I think personnel will still continue to be a positive for us, probably below kind of your typical market level increases there, just as we continue to push on our ReIMAAgine initiative and are able to continue to specialize and centralize some of our roles at the properties. And so that will also benefit from us continuing to be able to pod some of our properties as well. So that should continue to trend well for us.

Insurance will get the benefit of our recent renewal over the first half of the year, then we'll start again next year. But as we sit here today, claims activity has been very strong and positive for us. And so I wouldn't expect a significant increase in insurance like we saw a couple of years ago. Property taxes will be one, obviously, the biggest line on the expense ladder. And I think with valuations continuing to be depressed a little bit over these past couple of years, I wouldn't expect to see an outsized growth there in property taxes. But again, I also think that jurisdictions just have the nature of wanting to push on revenue as much as possible, and it will be on us to combat that as we need to, to make sure that we're getting a reasonable and fair rate there.

I'd say the one that's been high this year is marketing, for all the reasons we've been talking about. You may see that come down a little bit as some of the supply gets absorbed. I wouldn't expect that to continue to run at the same rate that it's been running this past year. But it could be a little bit elevated in the first half of the year, and I expect it to continue to kind of fall off over the course of the year. R&M, utilities, I think that's going to be mostly dependent on inflationary cost, and we'll see how that continues to balance out over the next few months as we get ready to set guidance for next year.

Operator

Your next question comes from the line of Anthony Paolone from JPMorgan.

Nahom Tesfazghi

You have Nahom on for Tony this morning. Maybe shifting gears a bit. I think you guys noted move-outs to homeownership hit a record low in the quarter, at about 10%. But I guess what's your sense as to how much competition you're seeing these days from the single-family rental side as opposed to homeownership?

Tim Argo

Yes. This is Tim. As far as single-family rental, I mean, it is a very minimal part of our reasons for move-out and therefore, not a huge competition for us. We look at Q3, for example, move-outs to rent a house was only about 3%, down from 4% a year ago. So really, really minimal at this point. I think it's more of a difference of change in somebody's lifestyle in terms of having a family or that sort of thing that really drives that versus really a direct competition for us. So we continue to not be concerned or really see a lot of competition due to rental housing.

Operator

Your next question comes from the line of Alec Feygin with Baird.

Alec Feygin

Maybe on the big picture. You talked about acquisitions and share buybacks and maybe your thinking around them. But as the cost of capital rises, how does it change or shift your views on development, whether it's from ground up or expansions?

Brad Hill

Alec, this is Brad. I mean, I think we've always been pretty conservative in the way that we approached development, either through our return requirements, being sure that they meet our current cost of capital and -- or in our underwriting assumptions. And I mean, if you think -- if you look, for example, where our current underwritings are, we've got a number of deals that are certainly under pressure in the Charlotte market in terms of the lease-up pressure, but yet we're still hitting our underwritten returns on our development pipeline. I think we're doing a pretty good job in the development world in terms of weighing the risk and the reward, despite where our current cost of capital is. So we'll continue to look at development.

I mean, I think the reality is our cost of capital is up. So we need to be sure that we're doing a good job of capturing that and delivering returns and shareholder value that exceed our current cost of capital. But we continue to believe in development. The long-term growth opportunities that comes from development continues to be higher than what our existing portfolio delivers. So we'll continue to allocate capital to development. But obviously, we need the yields to perhaps increase a little bit.

Operator

Your next question comes from the line of Ami Probandt with UBS.

Ami Probandt

Across your portfolio, how has market rent trended? So maybe a way to look at this is, for your portfolio, how have new lease versus new lease spreads been trending? And then if we think about the ongoing wide spread between new and renewal rents, do you think that we could see turnover start to tick higher if the consumer backdrop remains challenging?

Tim Argo

Ami, this is Tim. As far as new lease rents, it's kind of another variation on lost-to-lease and all that. But our new lease prices for September, for example, on an absolute basis, were about 2% higher than they were in December. And obviously, that ebbs and flows throughout the year based on seasonality and time of year. But I think one other point I'll make on new lease rents there is that while we've reported year-to-date, I think our new lease-over-lease rates is about negative 5.3% or so, which is all new leases.

But if you look at just leases where a resident moved out, new resident moved in, and they lived with us one term. So really somebody coming in and shopping for the best deal, they move out, somebody else shopping, our new lease-over-lease rate in those scenarios is only negative 1.9%, which is consistent with what it was last year. So to me, that's a better proxy for really what overall long-term market rents are doing is those prospects that are shopping and coming off a one-term lease versus you have a lot of different mix of time that people stayed with us when you have that overall new lease-over-lease rate.

What was the second part of her question?

Brad Hill

I think the follow-up question was on renewal. [indiscernible]

Tim Argo

Yes. And then the spread on new lease for renewals, I mean, it's been wider, I would say, wider than normal for really going on 12 quarters at this point. And we haven't seen -- we've continued to see 5-plus percent renewals. We've continued to see turnover go down and not really -- and then the other point is that gap has kind of stabilized. So on a pure dollar basis, it's been between $190 and $200, the dollar gap between new leases and renewals, and it's been that way for about 4 straight quarters now, which when you think about over the term of 12-month lease is really not that big of a difference, and you think about cost to move out and hassle and all that.

So we really don't see any pressure there. We monitor reasons for move out. Obviously, we monitor the different tranches of people, where they are relative to market and ones that are moving out and not seeing any changes there. So don't anticipate any pressure on that side.

Operator

Your next question comes from the line of Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb

Brad, just a question on sort of the macro and the political. Certainly, the midterms are proving a lot more competitive for the Democrats in markets that were traditionally red. You guys have long focused on the Sunbelt, which has been mostly red. Are you seeing a rise now that there's a number of potential upsets where you could suddenly see those policies like rent control, things that were formerly in the coast, but policies that could infiltrate into your markets? Are you seeing a rise of that or you're not? I'm just trying to understand how the shifting landscape may filter in on the regulatory front in your markets.

Brad Hill

Alex, no. I mean, I would say, in general, we're not seeing that broadly in our markets. I mean, certainly, you're seeing in a couple of markets, like Colorado, where you've got some different legislative actions that are impacting fee disclosures and all-in pricing and things of that nature. But broadly across our footprint, I mean, we continue to believe that the regulatory landscape in those markets is pretty positive for us. They still generally have more of a business-friendly environment than other regions of the country. And we don't really see that changing. So I'd say, despite what the headlines and what things that are going on, on the ground, we're just -- we're not seeing much of that change from a regulatory risk perspective within our footprint.

Operator

Your next question comes from the line of Michael Lewis with Truist Securities.

Michael Lewis

So you've said, I think, a couple of times on this call that it's not a demand issue, and I understand why. But I'd say U.S. job growth has been disappointing in the last 12 to 18 months. It sounds like you agree with that. But my real question is, the migration to the U.S., and these numbers are kind of all over the place, but I pulled up the U.S. Census Bureau. They said 2.7 million in migration in 2024, and that's forecasted to be about 0 this year. So I know these migrants might not be your core renter cohort, but they tend to be renters. So is it wrong to think that between the jobs and the demographics of 18- to 34-year-olds and the immigration, which is a big number, it seems to me like maybe there are some demand headwinds that have been kind of under the surface? And so what kind of gives you the confidence in demand going forward in the next few years?

Brad Hill

Yes. Michael, this is Brad. I mean, I think what -- I think those are all valid points that we're all looking at and trying to see if there's any impact of it and things of that nature. But we really have not seen much impact associated with the immigration side of things in our asset quality and asset types. And I'd say what gives us confidence in that is just if you look broadly across the board, I mean, all of the other demand factors that we talk about continue to be quite strong. The population growth, the migration numbers that we have from people coming to our properties and then leaving our property is still pretty positive within our footprint.

And so -- and I think the other piece is just if you look at the broad absorption numbers that we continue to see across our footprint, we're seeing more units year-to-date be absorbed than it's being supplied into the market. So I think that's certainly a positive demand factor not only right now, but also as we look forward and we get back to a more equal supply and demand and then transition into, as I said in my opening comments, where demand -- we come into more of a demand-led environment, we'll see things strengthen a little bit. So we, again, I think immigration is certainly out there, but we're not seeing it in our portfolio broadly.

Operator

Your next question comes from the line of Alex Kim with Zelman & Associates.

Alex Kim

You guys have previously talked about targeting stabilized yields in that 6.25% to 6.50% range on new developments with underwriting generally incorporating around 2% rent growth through stabilization. Just given that new lease pricing across the portfolio remains negative and the recovery has been slower than anticipated, have you adjusted those underwriting assumptions for projects you're evaluating today? And how much flexibility do you have on those stabilized yields if market rents remain relatively flat for another year?

Brad Hill

Alex, this is Brad. I mean, I think as I mentioned earlier in one of my comments, we're pretty conservative in the way that we underwrite these projects. I think if you look at the 2 deals, for example, that just came out of our lease-up portfolio, you look at Breakwater and Val Vista, those 2 combined have actual yields in the upper 6% range. We certainly didn't underwrite that. And if you look at the projects that we have, the Charlotte ones, as I mentioned, are definitely under pressure. But overall, generally, what we find is the rents on our development deals, if you look over the last 5 years, have outperformed the expectations that we have in the way that we've underwritten these deals.

The other piece of that is the construction costs have consistently come in below what we expected. So generally, the yields we deliver are in excess of what we underwrite. So I feel good about our process in terms of how we approach the development from a conservative standpoint.

Operator

Your next question comes from the line of John Pawlowski with Green Street.

John Pawlowski

I have a follow-up on the suburban versus urban conversation. Just how much supply pipelines have shifted suburban over the last several years? Tim, can you give us a sense for like full year '26, what new leases, new lease spreads, how they compare within your urban versus suburban new lease spreads?

Tim Argo

Yes. So on a blended basis, we're running -- our urban is running probably 40 basis points better than our suburban. On the new lease, it's more like 100 basis points. It's a little bit closer to our renewal for a lot of the reasons we've talked about. So about 100 basis point spread on new lease and 40 overall blended and then probably about 5 bps or so higher occupancy. Obviously, our urban footprint isn't huge, but it probably represents 25% or so of our overall portfolio.

But for all the reasons we talked about, just supply coming a little bit quicker in those urban submarkets, we've seen those areas start to recover a little bit. And although that gap has probably narrowed a little bit, I think it widened more like a little over 100 basis points late last year, early into this year. We've seen it narrow a little bit as we've seen a few pockets of recovery in some of the more suburban submarkets.

Operator

Your final question comes from the line of Peter Abramowitz with Deutsche Bank.

Peter Abramowitz

I know you mentioned, I think, in your prepared remarks about some of the supply impacting some of your developments in Charlotte still and overall, some of the pressures in the portfolio still. I know we can kind of look at CoStar or whatever data sources we have and they have their estimates for supply next year. But just curious kind of maybe from a more qualitative perspective, any considerations or anything nuanced to the supply picture that we're thinking about for 2027? And just kind of curious your overall thoughts about how you're feeling about supply there.

Brad Hill

Peter, this is Brad. I mean, I think as we look at the supply picture, we're pretty encouraged by what we see for a few reasons. And as you mentioned, you could look at 3 different third-party data sources and get 3 different projections for what next year looks like. But I think the reality is, if you go back and look at the starts that we've seen now for 3.5 years, the past 3.5 years, quarterly starts have been below long-term average in our footprint. And so we feel really, really good about that. We feel really good about this year is the first year where we've seen new deliveries below long-term averages.

Over the last 3 years, we had 5 years' worth of supply. If you look at absorption numbers, we continue to have positive absorption that is now coming in and helping market level occupancies improve. We're seeing, as Tim mentioned, concessions are starting to tick down a little bit. Hard to see that improvement in the fourth quarter and first quarter. As we look into next year, some sources show in our footprint, new deliveries declining, some show them flat, some show them up. I think the point is in all of those instances, the supply deliveries in our markets next year will be below the long-term average.

And we're getting to the point where in more of our markets, as I mentioned in a comment earlier, more of our markets are getting past that supply, demand equilibrium point where demand is really starting to show in our blended performance. That will occur to a larger degree next year as absorption continues and demand continues to remain strong. So we're pretty optimistic about what the next few years look like. Again, we've got 3.5 years of below average starts. That will continue, I think, for some period of time, especially with costs where they are and certainly interest rates where they are.

The hurdle to start a new development for someone in the market is a lot higher today. The access to capital is more constrained. So that supply pipeline will continue to decline. So we're pretty encouraged by what that looks like next year. No matter the source, the deliveries will be below long-term average, which is a positive.

Operator

This concludes the question-and-answer session. I will now turn the call back to MAA for closing remarks.

Brad Hill

Well, no more questions from us. If anything comes up, don't hesitate to reach out. Otherwise, we'll see you guys all in Atlanta at Nareit.

Operator

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