Mid-America Apartment Communities Q4 2022 Earnings Call Transcript

Participants

Corporate Executives

• Andrew Schaeffer, Senior Vice President, Treasurer & Director of Capital Markets
• H. Eric Bolton, Chairman & Chief Executive Officer
• Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer
• A. Bradley Hill, Executive Vice President, Chief Investment Officer
• Albert M. Campbell, Executive Vice President, Chief Financial Officer
• Robert J. DelPriore, Executive Vice President, Chief Administrative Officer & General Counsel

Analysts

• Nicholas Yulico, Scotiabank GBM
• Alexander Goldfarb, Piper Sandler Companies
• Austin Wurschmidt, KeyBanc Capital Markets
• Nick Joseph, Smith Barney Citigroup
• Anthony Powell, Barclays PLC
• Chandni Luthra, The Goldman Sachs Group, Inc.
• Haendel St. Juste, Mizuho Securities USA
• Richard C. Anderson, SMBC Nikko Securities America
• Wesley Golladay, Robert W. Baird & Co., Inc.
• Robert Stevenson, Janney Montgomery Scott
• Michael Goldsmith, UBS Group AG
• John Pawlowski, Green Street Advisors
• Tayo Okusanya, Credit Suisse Group AG
• Jamie Feldman, Wells Fargo & Company

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the MAA Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, February 22, 2022 [Phonetic].

I will now turn the call over to Andrew Schaeffer, Senior Vice President, Treasurer and Director of Capital Markets of MAA for opening comments. Please go ahead.

[Andrew Schaeffer, Senior Vice President, Treasurer & Director of Capital Markets at Mid-America Apartment Communities]

Thank you, Nickie, and good morning, everyone. This is Andrew Schaeffer, Treasurer & Director of Capital Markets for MAA. Members of the management team also participating on the call with me this morning are Eric Bolton, Tim Argo, Al Campbell, Rob DelPriore, Joe Fracchia and Brad Hill.

Before we begin with our prepared comments this morning, I want to point out, that as part of this discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our '34 Act filings with the SEC, which describe risk factors that may impact future results.

During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures, as well as reconciliations of the differences between non-GAAP and comparable GAAP measures, can be found in our earnings release and supplemental financial data. Our earnings release and 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 question.

I will now turn the call over to Eric.

[H. Eric Bolton, Chairman & Chief Executive Officer at Mid-America Apartment Communities]

Thanks, Andrew and good morning, everyone. MAA wrapped up calendar year 2022 with fourth quarter results for core FFO that were ahead of expectations as higher fee income, along with continued growth in average rent per unit and strong occupancy more than offset pressure from higher real estate taxes. Looking ahead to the coming year, there is clearly some uncertainty surrounding the outlook for the employment markets, the pace of inflation and the broader economy. In addition, while we do know that new supply deliveries in 2023, broadly, will be higher than in 2022, we continue to believe that MAA is well positioned for the coming year as the leasing market returns to more normalized conditions.

Our expectations for the coming year are built on a lease-over-lease pricing environment of 3%. This performance assumption, coupled with the earn-in from 2022's rent growth, should drive growth in effective rent per unit of around 7% over the coming year. We will, of course, see conditions vary some by market and submarket location, but we believe that our portfolio is in a uniquely solid position to weather expected moderation from the historically high rent growth of last year. This view is really supported by three key variables.

First, we continue to believe that our Sunbelt footprint maintains an advantageous position for capturing demand given the stronger and more stable employment markets in the Sunbelt states. We continue to see job growth, positive migration trends, affordable rent-to-income ratios and low resident turnover. Secondly, MAA's unique diversification across the Sunbelt region, including both large and high growth secondary markets, provides exposure to a good range of employment sectors and works to help soften some of the pressures surrounding new supply levels in a number of our larger markets. And, thirdly, with a rent price point average for our portfolio that appeals to a broad segment of the rental market, and that is around 20% below the price point of the mostly high-end new product being delivered, we believe we will capture more stability in top-line performance as leasing conditions normalize in 2023.

In the event that we do find ourselves later in the year headed towards a more severe contraction in the economy, or a recession, as MAA has consistently demonstrated over the past 20 years, we expect to perform with a lower level of volatility than what generally is seen with more concentrated portfolios and/or those concentrated in large coastal markets. The transaction market remains very quiet, and we are likewise remaining patient with what opportunities we do see. I expect it will be the second half of the year before pricing data becomes more readily available. We do have plans to initiate development on four new projects in 2023 associated with sites that we already own or that are under our control. These projects would, of course, not actually start delivering units for another couple of years.

In conclusion, I want to give a big thank you to our MAA associates for their tremendous service and record performance in 2022. We have the company well positioned for the next cycle as a number of new tech initiatives will positively impact performance over the coming years, our external growth pipeline continues to expand and the balance sheet provides a good, strong foundation for supporting our current portfolio operations as well as active pursuit of new growth opportunities.

That is all I have in the way of prepared comments and will now turn the call over to Tim.

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Thank you, Eric, and good morning, everyone. Same store performance for the quarter was once again strong and ahead of our expectations. While pricing performance moderated during the fourth quarter from the record growth we had achieved September year-to-date, blended lease-over-lease pricing was up 5.7%. As a result, effective rent growth or the growth on all in-place leases, for the fourth quarter was 14.9% versus the prior year and 2.0% sequentially from the prior quarter. Full year 2022 blended lease-over-lease pricing was 13.9%, helping to drive full year effective rent growth of 14.6%.

Alongside the strong pricing performance, average daily occupancy remained steady at 95.6% for the fourth quarter and 95.7% for the full year 2022. In line with normal seasonality, our January new lease rate of negative 0.3% improved from December's new lease rate of negative 0.9% and, other than 2022, represents a higher new lease rate than any year since we have been tracking the data. Combined with renewal pricing of 8.6%, January blended lease-over-lease pricing was 4.2% and average daily occupancy was 95.7%. With new lease pricing moderating as expected, 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.

We are achieving growth rates on signed renewals of around 8% to 9% for the first quarter. We do expect new supply in several of our markets to remain elevated in 2023, putting some pressure on rent growth, but the various demand indicators remain strong, and we expect our portfolio to continue to benefit from population, household, and job growth. As Eric mentioned, should we see a more dramatic downturn in the economy from here, we expect our markets, diversification, and price point will help mitigate some of the impact to performance.

During the quarter, we continued our various product upgrade initiatives. This includes our interior unit redevelopment program, our installation of smart home technology, and our broader amenity-based property repositioning program. For the full year 2022, we completed more than 6,500 interior unit upgrades and installed over 24,000 smart home packages. As of December 31, 2022, the total number of smart units is over 71,000, and we expect to finish out the remainder of the portfolio in 2023. For our repositioning program, leases have been fully or partially re-priced at the first 11 properties in the program, and the results have exceeded our expectations with yields on cost averaging approximately 17%. We have another four projects that will begin re-pricing this quarter and five additional projects currently under construction.

Those are all of my prepared comments, so I'll now turn the call over to Brad.

[A. Bradley Hill, Executive Vice President, Chief Investment Officer at Mid-America Apartment Communities]

Thank you, Tim, and good morning. Despite execution challenges in the transaction market, our team successfully completed our disposition plan for 2022 by closing our last two dispositions in the fourth quarter. Our total disposition proceeds for the year were approximately $325 million, representing a stabilized NOI Yield of 4.3% and an investment IRR of 17.7% for assets with an average age of 25 years old.

In 2023, we will continue the discipline of steadily recycling capital out of older, higher capex properties with the intent to redeploy the capital into newer, lower capex, higher rent growth properties to drive higher long-term earnings growth within our portfolio. 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. 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.

In the face of this lower volume, we have seen some upward pressure on cap rates with the degree of the movement varying based on property characteristics, embedded rent growth, as well as market and submarket location. However, until closed transactions materially increase, transparency around cap rates will be difficult. When marketed deal volume does increase, we expect buyer financial strength and speed of execution to be attractive key differentiators and our balance sheet strength and capacity will support our ability to transact, despite a more difficult credit environment.

On our new developments, our team has done a tremendous job working through the challenges of elevated construction costs and permitting delays, leading to steady growth in our development pipeline. During 2022, we started construction on 1,253 units at a cost of $468 million, a record level of starts for MAA. During the fourth quarter, we started construction on two projects that have been in pre-development for some time. These two projects will begin delivering units in two years and should finish construction in three years, lining up well with what we believe is likely to be a strong leasing environment. While the timing of planned construction starts can change as we work through the local approval and the construction bidding processes, we expect to start four new developments during the back half of 2023, this includes two in-house developments, one located in Orlando and one in Denver and two pre-purchase joint venture developments, one located in Charlotte and the other a Phase II to our West Midtown development in Atlanta.

Our construction management team continues to do a tremendous job actively managing our projects and working with our contractors to keep the inflationary and supply chain pressures from causing a meaningful increase to our overall development costs or our schedules. Despite these headwinds, the team delivered three projects on time in 2022 and under budget by approximately $4.5 million. During the fourth quarter, construction wrapped up on MAA Windmill Hill and we reached stabilization at MAA Robinson, MAA Westglenn and MAA Park Point with operating results well ahead of our pro forma expectations, delivering stabilized NOI yields on average of 6.6%. Leasing demand at our new properties remains high and the competition from other new supply has to date not had a significant impact on our lease-up performance with rents being achieved well ahead of pro formas.

That's all I have in the way of prepared comments, so with that I'll turn it over to Al.

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

Okay. Thank you, Brad, and good morning, everyone. Reported core FFO per share of $3.32 for the quarter was $0.05 above the mid-point of our guidance and contributed to core FFO for the full year of $8.50 per share, representing a 21% increase over the prior year. Same store rental pricing and occupancy levels were in-line with expectations for the quarter while higher fee and reimbursement revenues combined with strong lease-up and commercial revenues to produce about two-thirds of this earnings outperformance for the quarter. This favorability was partially offset by real estate tax expenses, as final millage rates came in higher than expected during the quarter for several markets, primarily in Texas.

Our real estate tax estimates were based on strong valuations, supported by the very strong revenue trends over the last year, offset by expected millage rate rollbacks as counties managed overall tax needs. Rollbacks occurred, but were less than expected in Texas, particularly in Dallas and Austin. Our internal guidance for -- our initial guidance, excuse me, for 2023, which we will discuss more in a moment, anticipates some continued pressure in this area given its backward-looking nature.

Our A minus balance sheet remains very strong as we ended the year with historically low leverage. Debt/EBITDAre of 3.71 times, with 99.5% of our debt fixed at an average interest rate of 3.4% and with $1.3 billion in available capacity to support growth and manage our debt maturities late in 2023. Also, at the end of January we settled our outstanding Forward Equity contracts, providing an additional $204 million of capacity at an attractive cost of capital. We currently expect to fund our near-term acquisition, development, and re-financing needs with short-term debt capacity, allowing the financing markets to continue to stabilize before locking in long-term financing.

Finally, we did provide initial earnings guidance for 2023 with our release, which is detailed in the supplemental information package. Core FFO for the year is projected to be $8.88 to $9.28 per share, or $9.08 at the mid-point, which represents a 6.8% increase over the prior year. The foundation for 20 -- for the projected 2023 performance is same store revenue growth, produced by a historically high rental pricing earn-in of about 5.5%, combined with a more normalized blended rental pricing performance of 3% for the year, as well as continued strong occupancy remaining between 95.6% and 96.0% for the year.

Based on this, effective rent growth for the year is projected to be a solid 7%, at the mid-point of our range, with total same store revenues expected to grow 6.25%, slightly diluted from the other revenue items, primarily reimbursement and fee income, which grow at a more modest pace. Same store operating expenses are projected to grow at 6.15%, at the mid-point for the year, with real estate taxes and insurance producing the most significant growth pressure. Combined, these two items alone are expected to grow just over 7% for 2023, with the remaining controllable operating items expected to grow around 5.5%. These expense pressures are offset by the continued strong revenue growth, with NOI for the year projected to grow 6.3%, at the mid-point.

We are also expecting continued external growth both through acquisitions and development opportunities during the year, with a combined $700 million full year, planned investment. This growth will be partially funded by asset sales, providing around $300 million of expected proceeds. We expect to fund the remaining capital needs for the year from internal cash flow and short-term variable rate borrowings, as we anticipate the financing markets to continue stabilizing over the next year, eventually providing better opportunities to lock in long-term debt rates. This does produce some slight pressure on current year FFO performance, given high short-term rates, but is expected to be rewarded with lower long-term financing costs when market conditions stabilize further.

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

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Now we will take our first question from Nick Yulico with Scotiabank. Please go ahead.

[Nicholas Yulico, Analyst at Scotiabank GBM]

Thanks. Good morning, everyone. So I just wanted to start with the guidance on same-store revenue. So if you're at sort of right around 6% at the midpoint, I think you guys had an earn-in that was close to that number coming into the year. So you have occupancy being roughly flat in the guidance. So just trying to understand kind of what might be the offset as to -- and you are assuming some market rent growth as well. So just trying to understand kind of the buildup there and if there is anything we're missing as to why the revenue growth guidance wouldn't be a little bit higher based on the earnings you've cited? Thanks.

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

Yeah. Nick, I'll give you the components, this is Al. I'll give you the components of how we built it, and maybe Tim can give a little color, if he would like, on some of the components. But really it's built on the earn-in. You talked about based on where pricing was when we think about earnings is pricing at the end the year if it were to carry-forward that same level, not up or down, what would it be built into our portfolio that's about 5.5% that's the way we think about it. And on top of that, you get about half of the current year expected blended pricing. And as we talked about, we're expecting about 3%. So you add those two numbers together, you get right at the 7% effective rent growth guidance that we put out. Now that is, as we mentioned in the comments, a little bit moderated from other income items. About 10% of our revenue stream is from reimbursements and fees those things and they're expected to grow more modestly than that. So that's what gets to 6.25%, but in terms of the earn-in and the components, that's really what it is.

[Nicholas Yulico, Analyst at Scotiabank GBM]

Okay. Thanks. That's helpful. And then just the second question is just to get a feel for what type of economic scenario is baked into guidance, whether this is a softer landing with modest job losses, any commentary from you guys on the economic outlook would be helpful? Thanks.

[H. Eric Bolton, Chairman & Chief Executive Officer at Mid-America Apartment Communities]

Well, Nick, this is Eric. I mean broadly, as Al mentioned, I mean, we do expect that the overall rent growth for the market next year will be something around 3%, which I think is going to be fueled by what we expect to be a continued relatively stable employment backdrop to what we're seeing today. We're not seeing any real evidence, significant evidence building in any of our markets at this point relating to employment weakness or people losing jobs. We're not having any kind of issues surrounding collections. Migration trends continue to be very positive.

And so, as we think about the outlook for '23, I mean, we're -- it's definitely moderated from what it was 2022, but we're not seeing any concerns at the moment that a severe contraction or any sort of a worse -- a materially worse decline in the employment markets were to occur now. If that does happen is, as I alluded to in my comments, we've been through recessions in the past, and we think that if we find ourselves in a more severe economic contraction, where broadly the employment markets start to really pull back, we think that that's where the sort of defensive characteristics that we've built into our strategy really start to pay a dividend for us and that's where our secondary markets come into play on lower price point of our product comes into play and the broad diversification to employment sectors that we have across the large number of markets that we're in, all provide some level of cushion, if you will, if we find ourselves in a more severe downturn. So right now, we're not calling for that, but we think that it should have happen, we would probably weather that pressure better than a lot of others.

[Nicholas Yulico, Analyst at Scotiabank GBM]

Thanks, Eric.

[Operator]

We will take our next question from Alexander Goldfarb with Piper Sandler. Please go ahead.

[Alexander Goldfarb, Analyst at Piper Sandler Companies]

Hey, good morning. Just -- first question is on development and your appetite for using capital. You said that cap rates overall for stabilized products are still sort of influx. The debt market is clearly better for apartments, but CMBS, which you guys don't use or Fannie, Freddie, whatever, that's still -- well, I guess, more CMBS remains sort of closed. So as you guys think about development, do you think more about starting on your own account or do you see the potential that you're better off buying from other people who may run into financial difficulty, where on a risk-adjusted, you're better off to pick from someone else rather than starting ground up from you guys?

[A. Bradley Hill, Executive Vice President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah, Alex, this is Brad, I'll start off with that. I'd say, it's both. We're looking at both opportunities, both on our balance sheet and then working with partners, as well. I mean what we haven't seen broadly yet, are developers kind of spitting sites -- spitting land sites. We've seen it a little bit, but it's been sites that we're not really interested in. We've not seen the well located sites that have gone under contract kind of being let go, we've not seen that yet. So we will keep our eye on that for sure, because I think that's where the opportunity presents itself for our on-balance sheet developments, where we can pick up some of those land sites that other people drop.

I think what we are seeing short-term is exactly what you mentioned is the difficulties in the debt market kind of showing up through some of our development partners, maybe they can't get the debt financing for some of their developments going or equity partners backing out on deals. We are seeing that short-term. We've got a team of folks this week that are out at NMHC and we've already got a number of emails of projects, JV development opportunities that are a follow-up from that, where their shovel-ready, could start mid-year. So we'll begin evaluating those because I think those are the ones that are going to be impacted by the debt market and just how tight that is right now. But the long story is, we'll look for opportunities in both of those areas.

[Alexander Goldfarb, Analyst at Piper Sandler Companies]

Okay. And the second question is just going back to Nick's question on sort of state of the markets and the employment. One of the common refrains about the Sunbelt is, it always has a lot of supply, but the economic growth seems to be more than offset and you spoke about that relative to your ability to manage higher taxes, higher insurance. As you look at this year, and based on what your property managers see among the resident base and employment stats' within your markets, do you see any like substantial risk that employment or economic job growth in your markets will not be able to exceed the new supply coming on? Or as you sit here today, your -- as you guys sit around the round table, you're like, there are a few more markets that we're more concerned about now than we were back in, let's say, November, when you guys were assessing how 2023 would look?

[H. Eric Bolton, Chairman & Chief Executive Officer at Mid-America Apartment Communities]

Well, Alex, this is Eric. As we sit here today, we continue to feel good about the demand side of the equation for us. As I mentioned, we're not seeing any -- I mean, the lead volume and traffic that we're seeing is still strong. We are seeing -- not seeing any evidence of stress with our renters in terms of collections. We're not seeing any evidence of people coming in, talking about losing their job because of -- and needing to get out their lease. We're not seeing any room-rating trends starting to pick up. And so, as we sit here -- and then also, you look at the migration trends, we still saw 12% of the leases that we did in the fourth quarter were for people moving into the Sunbelt from outside of Sunbelt. So we are still not seeing any worries build on the demand side of the equation at this point, moderating from what it was but still quite strong.

[Speech Overlap] is it coming?

[Alexander Goldfarb, Analyst at Piper Sandler Companies]

All good on our end. Thank you.

[H. Eric Bolton, Chairman & Chief Executive Officer at Mid-America Apartment Communities]

Okay. Thank you.

[Operator]

We'll take our next question from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Great. Thanks guys. I was just curious if you could share how -- I believe the 3% figure you provided on lease over leases, the blended lease rate growth assumption embedded in guidance. And I'm just wondering if you could breakdown that between sort of the first half assumption and back half, as you alluded to, kind of renewals maybe trending a little bit lower as the year progresses?

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Hey, Austin, this is Tim. Yeah, you heard me mention in the comments that renewals right now are the catalyst for us and kind of carrying the strength, new lease pricing outpace renewals for the bulk of 2022. So we knew we kind of had some runway on the renewal side that's carrying us through this early part of 2023. So the 8% to 9% I talked about on renewals, I think that probably carries through the first quarter, call it, and then starts to moderate a little bit as you get into probably, June through the rest of the year, I would expect it to be a little more normal with sort of what you've typically seen from MAA, which is kind of in that 6% to 7% range and then on the new lease side, we're sitting slightly negative right now.

I think that will slowly accelerate through the spring and summer and go modestly positive and then trend back down towards the end of the year. So, kind of higher renewals in the first half of the year, moderating a little bit, new lease rates growing slightly through the year and then moderating just with seasonality, as we typically would see in Q4 and then you kind of blend that all together and get to the forecast that we have for blended lease-over-lease.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Well, on the new lease rate side, I guess what specifically -- I mean it seems like that's fairly low relative to what you've achieved historically, pre-pandemic period and with 3% market rent growth, you would think that you kind of surpass that 3% into the peak leasing season before it moderates in the back half of the year. So I guess I'm trying to understand that kind of cautious new lease rate growth assumption in your guidance? And then, could you also just share what would get you to the low end of the guidance range because that seems like a pretty draconian scenario to be able to achieve the lower end? Thanks.

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

I'll give you sort of the forecast how it's laid out quarter by quarter, and Tim will give a little more specifics on it. It is fairly consistent around that 3% for the year with obviously more -- a little higher in the second two quarters of the year, as Tim mentioned, as we get more traffic and renewals hold stronger and new lease pricing becomes most robust. It's really going to come down to new lease pricing as the variable through the year. But the band is fairly tight around 3% in our expectation, just given the blend of overall demand. And so --

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Yeah. Following-up on the new lease rate, I mean, we again, absent last year that was record highs, new lease rates kind of November-December, early part of the first quarter, typically are negative. So it's not unusual kind of the new lease rates that we're seeing right now and then they start to accelerate as we get into the spring and summer. But in terms of getting to low end, I think it's kind of back to Eric's comments on the economy, if we see a further deceleration in demand or see something a shock on the economic front that could drive pricing obviously lower and that's how you get towards the lower end of the guidance and then the opposite a little bit better economic backdrop would push pricing higher and get us more to the higher end of revenue guidance.

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

If that shot came, it would -- given that it's coming -- the impact will come through pricing, it would be manifest probably in the latter part of the year as those new leases blended in.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

All right. Got it. That's helpful. Thanks everybody.

[Operator]

We'll take our next question from Nick Joseph with Citi. Please go ahead.

[Nick Joseph, Analyst at Smith Barney Citigroup]

Thanks. Eric, in your comments on the stuff, you talked about the strong balance sheet and have been in a position to capture any growth opportunities. It sounds like you think may emerge from your comments on the call, it sounds like maybe that's more of a second half '23 comment. But where do you think there's opportunities could come from? Is that more acquisitions, land, something else?

[H. Eric Bolton, Chairman & Chief Executive Officer at Mid-America Apartment Communities]

Nick, I would tell you that my belief is that we've been through this in the past, where we tend to find the best opportunity is in projects that are in lease-up, fairly newly constructed. There are more not have already finished the construction. They may be at that 50%, 60% occupancy level in their initial lease-up. They've been leasing for probably the better part of the year. So they're still -- they are now getting to a point where they're starting to run into lease expirations and related turnover, which just brings that much more pressure on the lease-up effort itself. And these, as I say, are not yet fully stabilized assets and thus, they're more difficult to finance from a typical leverage buyer so that's where we're hopeful that we will find more emerging opportunities in that kind of a scenario.

We've certainly seen that in the past. And one of the things I think is important to point out, I mean, our assumptions is built around -- for 2023, our guidance is built around the assumption of a $400 million acquisition volume. Now we are assuming that their initial yield on this $400 million of acquisition is only 3%, reflecting that non-stabilized status of these investments, so while that is weighing on FFO performance for the year, we think that it has great value proposition, value opportunity going forward long term. And so we're -- given the supply that's coming into the market, given the difficult financing environment we find ourselves in, we think that, that area of opportunity is going to emerge over the course of this year, and that's what we've kind of dialed into our guidance for the year.

[Nick Joseph, Analyst at Smith Barney Citigroup]

Thanks. That's very helpful. And then, I guess, we've spent a lot of time on kind of macro backdrop and the blended rent growth assumption and everything that goes into revenue. But if you think about from a market perspective in '23, given your kind of new guidance, what does that imply for which markets are kind of the top performers and which you're concerned about?

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Yeah, Nick, this is Tim. I mean with the earned in, we talked about of our larger markets, I expect just rent growth or revenue growth should be pretty solid for several of our markets due to that earn-in. But if you think about some of the stronger ones that we think will continue into 2023, I mean, Orlando, continues to be a really strong market for us. It's been strong now for a couple of years. In terms of demand, it's our number one job growth market that we're expecting for 2023. It is getting a little bit of supply, but it's not necessarily situated where our portfolio is in Orlando of some markets in our portfolio that are getting the most supply only one of those is in Orlando.

So the demand, combined with the supply there expects Orlando to be strong. It's continued to have really strong blended pricing both in Q4 and January. And then Dallas is another one I'd point out that we think can show some strength in 2023. It's one of our lower supply markets we would expect. There is a couple submarkets that we're in, particularly in North Dallas, Frisco, Plano Allen, that will get some supply. But broadly, Dallas hasn't seen as much supply pressure, and we've seen the pricing both in Q4 and January been a little bit higher than portfolio average.

So those are a couple that we've kind of got our eye on from a strength standpoint. Austin is probably one that on the downside that we're keeping our eye on more than anything. It's kind of got the extremes on supply and demand. It's one of the better indicators in terms of demand with job growth, migration, population, all that, but it also has absolute high supply coming into the market of any of our portfolios or any of the markets in our portfolio out of the various submarkets that we're seeing supply, four out of the top 20 are in Austin. So that's one we do expect to moderate, though it does have pretty good earned in rate growth. So those are a couple that we're kind of keeping our eye on.

[Nick Joseph, Analyst at Smith Barney Citigroup]

Thanks. That's helpful. So it sounds like maybe the large still outperformed the secondary markets in '23 or maybe that spread narrows a bit?

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Yeah. It probably narrows a bit just with moderating rent growth. We typically see the secondary markets holdup a little more if we get into softer economic environment. But I think broadly in terms of revenue growth, again, with the earn-in, I would expect that the large markets hold up pretty well.

[Nick Joseph, Analyst at Smith Barney Citigroup]

Thank you very much.

[Operator]

We'll take our next question from Anthony Powell with Barclays. Please go ahead.

[Anthony Powell, Analyst at Barclays]

Hi, good morning. Thanks. Just a question on new lease spreads and pricing going into the spring. What would cause you to get a bit more, I guess, confident on pushing rate more as you get to the peak leasing season, would it be just general improvement and economic sentiment, job to be where it is, the market continuing to do well? Just curious how you may change your approach to pricing in spring if things get a bit better?

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Yeah. I mean, generally, it's going to be -- it will be that. It's the economy and the demand, and we look at lead volume, we look at exposure, we look at rent to income and various things there that drives some of our decisions on -- we are always sort of balancing how much we want to push price versus occupancy. So there's nothing -- there is no blinking red lights right now that would suggest that we see any sort of downturn. We're kind of we're kind of monitoring all those various metrics right now and everything looks about what you would typically think during this time of the year, during the winter. So it will really be as we get into spring and summer as demand picks up and traffic pick up and we pick up that will be really the determining factor on where 2023 heads in terms of demand.

[Anthony Powell, Analyst at Barclays]

Okay, thanks. And turnover seemed pretty consistent. And any changes in how certain residents responded to lease renewals, price increases? And any trends there you want to call out?

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Yeah. I mean the turnover was -- remains pretty low. Historically speaking, it was up a little bit in Q4, but the reasons for turn have been pretty consistent. We've actually seen the move-out to rent increase decline a little bit, but it's still -- it's a job transfer and buy a house are still the two biggest factors, but those have certainly been down from what we've seen in the past. But no notable trends one way or the other.

[Anthony Powell, Analyst at Barclays]

Right. Thank you.

[Operator]

We'll move next with Chandni Luthra with Goldman Sachs. Please go ahead.

[Chandni Luthra, Analyst at The Goldman Sachs Group]

Hi, good morning and thank you for taking my question. Could you spend some time talking about the expense outlook for 2023, what would get you to the low end versus the high end? And guidance does talk about property taxes in there, but perhaps you could spend some time on other elements? And then, what are the markets where you see more tax pressures versus others? Thank you.

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

Chandni, this is Al. I'll start with that and then maybe Tim can give some color on some of that. I think the way to think about that as you go into 2023 is, we're continuing to see general inflationary pressures a bit in our expenses, but really taxes and insurance are the drivers of the main pressure. And as I mentioned in my comments, those two together are over 7% and so that's really -- and taxes are 35% of all operating expenses. So it's very meaningful. And then the other expenses together are about 5.5%. I think we're beginning to see some moderation in personnel, repair maintenance and those things.

And I think you'll see that manifest, and Tim can talk about components of it, but as we move more into the back of the year, you'll see a little more of that manifest in those loan items. But taxes and insurance, there's a pressure point. What could take us higher or lower to our guidance on the overall, which is primarily going to be taxes and insurance, would be we don't have a lot of information yet on either one of those. Taxes, when you go into the year, notoriously, you don't have a lot, you're going off -- you have a good idea what you think valuations will be based on cap rate markets, but you're totally guessing on millage rates, and that has been very volatile in the last year-or-so as municipalities deal with their budget issues.

So we think we -- and we've got a few fights left over from last year. I mean we've got some things that we're going to fight hard, and we continue to. In Texas, we'll formally litigate half of our properties this year than we did last year, and some of those have not yet finished. And so there are things like that that can make you go higher or lower. We feel like we've got our best estimate in there right now, and that's the appropriate thing to do. And so overall, we'll see some moderation in the controllable expenses, but expense pressure driven by insurance and taxes.

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Yeah, Chandni, I'll add to that. As Al mentioned, about 40% of our expenses are taxed at insurance, call it, around 7% and then the other 60% around 5.5%. So if I had to just thinking in terms of absolute year-over-year growth, I sort of rank them, I would say insurance is probably the highest, R&M probably the second highest in real estate tax is the third. So hitting on R&M, it's really driven by inflationary pressures, not so much we expect to get really any worse in 2023 that kind of carry over earn-in, if you will, on some of the inflationary increases that we saw in 2022,we've seen HVAC up 16%, plumbing up 18%, appliances up 17%. So that's expected to drive the pressure on the R&M side, but we still remain on a per unit basis lower than the sector average. I do think personnel moderates from what we saw in 2022. I think we have some opportunity there. But -- and then the other smaller line items are fairly manageable. So it's really on a controllable, if you will, side it's R&M, we think is driving the bulk of the increase.

[Chandni Luthra, Analyst at The Goldman Sachs Group]

Thank you for all that details. For my follow-up question, I just wanted to clarify or trying to understand how are you thinking about bad debt in 2023? What's embedded in your guidance if there is anything and how does that compare versus 2022? And then as you've obviously talked about supply being higher in 2023, how are you thinking about concessions? Are you seeing more concessions in your markets, in your properties? Any thoughts around that would be very helpful. Thank you.

[A. Bradley Hill, Executive Vice President, Chief Investment Officer at Mid-America Apartment Communities]

I'll start with the bad debt. I mean I think in terms of what we have in our guidance, collection practices have come pretty much back to normal, not 100% maybe, but very close, I would say, something to say about that. But collections are very good. What we dialed in as close to historic normal, call it, 40 to 50 basis points delinquency, which is very low. And we have almost no collections coming from any government programs. We have the amount of our uncollected from history as it continues to decline. So we're in a very good position there. And so our forecast for the year reflects that. And so moderating or normalizing trends that we're putting our forecast really has collections about where they typically are in a normal environment.

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Yeah. And, one, I'll add on the concession point, we're not seeing any significant increase in concessions at this point. It was 0.3% of rents overall in Q4, which is in line with what we saw in Q3. We are -- to the extent we're seeing them, it's still largely across the portfolio, more in some of the urban or downtown submarkets, which has seen more of the supply and seeing less concession usage on more suburban assets. But generally, no big change from what we've seen in the last couple of quarters.

[Chandni Luthra, Analyst at The Goldman Sachs Group]

Thank you for that.

[Operator]

We'll take our next question from Haendel St. Juste with Mizuho. Please go ahead.

[Haendel St. Juste, Analyst at Mizuho Securities USA]

Hey, good morning out there, few questions from me. On the external growth front, I was at National Multi-Housing, too, but heard that there is a -- that buyers more institutional demand, but a shortage of sellers and products. But I guess I am curious if you would see an advantage to a selling more assets now is that perhaps the premium and perhaps be willing to sell a bit earlier in the year to capitalize on even if it doesn't mean to put a dilution as the way to redeploy in a more favorable acquisition market in the back half of the year?

[A. Bradley Hill, Executive Vice President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah, Haendel, this is Brad. I'll take that. As we entered this year, our disposition plan is really big component of that, as you mentioned, is the ability to redeploy that capital. That's a big part of what we're looking to do. And so we're not looking to time the market. We do a very in-depth review of our disposition plans in the third, fourth quarter of the year to really identify what we're going to sell for the year. And we generally don't factor in what we think are going to be the market dynamics in terms of just maximizing value. We want to do that. But broadly speaking, what we're trying to do is really build a long-term earnings within the company that really supports our ability to pay a growing dividend over time.

And so we think that's better done on a consistent basis where we're in a position to be able to sell assets, maximize our proceeds to the best we can and then redeploy that capital into external growth opportunities. So what we have in our forecast right now is a sale of one asset earlier in the year. And the reason for that is we're targeting a strong primary market that's in Charlotte where we think we can kind of maximize the proceeds given the fact that there aren't a lot of sellers out there right now in that specific market. And then we'll come out with our other assets later in the year when we think the debt markets will be a little bit settled down a little bit, spreads will be a little bit less volatile than where they are right now and frankly, where buyers can get a little bit more visibility on values. We think that that's the best direction for us in terms of our dispositions and our external growth plan.

[Haendel St. Juste, Analyst at Mizuho Securities USA]

That's very helpful. I appreciate the color there. A follow-up maybe on the different side, but external growth related. We've seen a lot of mid and high four cap rate trades of late, but hearing the bid-ask spread that remains fairly wide, 10-ish from some folks, so curious kind of what you're hearing or seeing on the bid-ask spread? And how this plays out? What do you think the market clearing price is or what you'd be willing to pay to get some deals done here? Thanks.

[A. Bradley Hill, Executive Vice President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah. It's hard to say. I mean there is just, as we looked at the market in the fourth quarter, honestly, in terms of the assets that we would be interested in buying and track, there was really only seven. So in the universe of us normally tracking 40 deals in a quarter to only have seven transact is a very, very small universe and we have seen cap rates move up. I would say, in the third quarter, they're around 4.5 on the projects that we looked at. In the fourth quarter, they were 4.75. We -- but there is a spread, obviously, and it really depends on where the assets are located. We saw one in the fourth quarter that traded, call it, for 5.25, but generally, when you're getting into that cap rate range right now, we found that the quality of the asset or the location is not ideal and it's not generally a location that we're interested in. So for assets we're interested in, they're still in the 4.75 range.

To your earlier point, I think part of the driver there is that there's just not a lot on the market. And I think as more volume to come to market, which we think will happen late second quarter and into the third quarter later this year, even as more properties come to market that those cap rates likely expand a bit. I mean the fact is interest rates are up substantially. Today, the debt rates are five to 5.5 and that's got to push cap rates up at some point, negative leverage is not something that we can maintain in perpetuity. But until you have a significant volume of assets coming to market, there's still going to be a number of aggressive buyers out there that are bidding hard at assets that are really setting a lower cap rate range. And then I would also say that a majority of what's selling right now continues to be loan assumptions. And so that kind of masks what true cap rates are out in the market, and we just need volume to really help us see that.

[Haendel St. Juste, Analyst at Mizuho Securities USA]

That's really helpful, too, appreciate that. If I could squeeze in one more, I don't think I heard it, but did you guys share or can you share what your turnover assumption is for a full year '23? Thanks.

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Yeah, Haendel, this is Tim. For now, we're expecting it to be pretty similar. I think some of the reasons that drove turnover this year probably moderate a little bit and maybe some of the other reasons go up a little bit. But in general, we're expecting similar turnover to what we saw in 2022.

[Haendel St. Juste, Analyst at Mizuho Securities USA]

Got it. Thanks.

[Operator]

We'll take our next question from Rich Anderson with SMBC. Please go ahead.

[Richard C. Anderson, Analyst at SMBC Nikko Securities America]

Thanks. Good morning. My first question is on the expected deceleration of rent growth, obviously, in 2023, no one is surprised by that. But I'm wondering if you can sort of get into some more of the nitty-gritty detail of where you're landing, how much of it is proactive on your part? How much of is it reactive? Are you sensing fatigue from customers? Are you noticing occupancy moving around or turnover? I think you mentioned -- Tim, I think you mentioned turnover uptick in the fourth quarter. Are there any things that you're reacting to that's causing you to pinpoint where you're headed for same-store revenue growth in 2023? Or are you just sort of protecting the downside given some of the uncertainty in the macro environment and being more proactive in your approach?

[H. Eric Bolton, Chairman & Chief Executive Officer at Mid-America Apartment Communities]

Well, Rich, this is Eric. Let me try to answer that. I think that at the ground level, I would say that we're not really seeing anything at this point that causes us to believe that we're looking at a much weaker demand environment over the coming year. I mean as I touched on earlier, I mean we're still seeing no evidence of distress with our vendor base. Our rent-to-income ratios remain very stable relative to where they have been. Collections performance has been very strong. We're not seeing any behavioral changes with room rating, things of that nature. We're not in the trends to migrate -- migration trends continue to be quite positive.

Move outs to non-MAA markets and our move outs out of the Sunbelt continue to be quite low. So I think more than anything for us, we're just trying to keep an eye on the broader economy and the broader employment markets and any evidence that the employers are really starting to get aggressive at downscaling and downsizing their staffing. And we've not seen that yet, but that would be obviously a cause for concern. But at a macro level, move-outs to home buying continues to be quite low, and there's no evidence mounting that that's starting to change and move outs due to the people not wanting to pay their rent increase that we're asking for, still is our third biggest reason.

But we're still having people come in after them when they do move out, willing to pay more than what we were asking the renewing resident to pay. So that's a -- that to me, is a fairly strong indicator that the market is still holding up quite well. And so, I think we're just -- we're moderating off of incredible highs and that's what's happening here. But in terms of any significant pullback in demand, we are just not seeing that at this point.

[Richard C. Anderson, Analyst at SMBC Nikko Securities America]

Okay. Fair enough. Second question is, just closing the loop on the supply conversation, what always happens is developers chasing 2022 growth by delivering product in 2024. Always a smart strategy. But I guess my question is, do you feel like the environment and interest rates and everything else, do you feel like sort of the private developer model is on shaker ground than normal this time around? And perhaps even more of an opportunity for you to step in at some point down the road? Or is it sort of a typical environment, different, obviously, variables, but a typical opportunity for you a year or two down the road?

[A. Bradley Hill, Executive Vice President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah. Hey, Rich, this is Brad. I definitely think in terms of new starts, they're on much shaker ground, the privates are, for sure, in terms of getting financing. I would say that anything that is in lease-up right now. I mean there's not distress in that market currently. So there's not a lot of forced selling at the moment. Now there are still equity and capital folks that they want to cycle out of. As I mentioned earlier, our region is predominantly controlled or developed by merchant developers and they're really -- their model is built on developing an asset and selling it, taking the profit, moving on to the next deal and rinsing and repeating. I'd say that's a little bit in flux right now with nothing selling and the inability to start new assets. I would say the private developer is a little bit more in flux right now because of those reasons.

[Richard C. Anderson, Analyst at SMBC Nikko Securities America]

Okay. Thanks very much.

[Operator]

We'll take our next question from Wes Golladay with Baird. Please go ahead.

[Wesley Golladay, Analyst at Robert W. Baird & Co., Inc.]

Hey, good morning, everyone. Last year, you had about just under $200 million of non-recurring capex, how are you thinking about the spend for this year and is there anything in there that would drive down expenses maybe in 2023 or 2024?

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

Wes, this is Al. I'll start and frame the capital. I mean overall, we're spending -- all the programs to get her probably around $300 million in recurring and enhancing together probably $180 million. And so that's about $1,800 a unit, probably $1,000 recurring a little more and the rest being rent-enhancing. We continue our programs in redevelopment program, which includes our smart grant. So we'll do those interior programs and smart get together that's another $97 million and we'll continue our property repositioning program with Tim talks about taking properties and increasing their revenue potential of another $20 million or so. So overall, it's about $300 million. I mean certainly, there's some There's certainly some things in the revenue has we think whether there'll be some ESG investments or some things like that, that will have some potential for the future. We're also seeing some inflationary pressures in that as well. And then a large portion of that fee is just investment for the future in some of those programs, repositioning program, redevelopment and smart rents. So that's kind of how we think about that.

[Wesley Golladay, Analyst at Robert W. Baird & Co., Inc.]

Okay. And then I guess as we maybe fast forward for the next few years, does this ever start to ramp down or do you have just a big pipeline of when the smart rent is done, you just move on to something else? How should we think about a multi-year view on this?

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Yeah. Wes, this is Tim. I mean, in total, I think it comes down a little bit. The Smart Brent installation is a fairly significant piece of that. we expect to finish that capital project this year. I think you'll see that come down. But I would expect both on the unit interior redevelopment program and the broader sort of amenity-based property repositioning program that we expect to continue those at similar levels.

[Wesley Golladay, Analyst at Robert W. Baird & Co., Inc.]

Okay. And then did you comment on the exposure right now? I might have missed it?

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Exposure right now sit at about 7.5%, which is in line with what it was last year and kind of what we would typically expect this time of the year.

[Wesley Golladay, Analyst at Robert W. Baird & Co., Inc.]

Okay. Thanks a lot, everyone.

[Operator]

We'll take our next question from Rob Stevenson with Janney. Please go ahead.

[Robert Stevenson, Analyst at Janney Montgomery Scott]

Good morning, guys. Brad, what are the markets represented by the four to six development starts over the next year plus? And given Tim's comments on R&M pressures, what are you seeing in terms of construction cost pressures going forward for new starts?

[A. Bradley Hill, Executive Vice President, Chief Investment Officer at Mid-America Apartment Communities]

Yeah, Rob. So for the four starts that we feel we're in good shape on for this year. We've got one in Charlotte, we've got one in Denver, we've got one in Orlando and one in Atlanta. I think I had those in my prepared comments. So those are projects we've been working on for a while and plans are in process on those. So we feel pretty good about those. In addition to those projects, we own a number of sites and we've got some in Denver, another phase in Orlando. Second phase in the Raleigh market, so a number of those projects that would add up to that six over the next 18 months or so.

But for this year, the four are the ones that I mentioned in my comments. In terms of construction costs, what we're seeing right now is that costs are not escalating like they were in 2022. We saw a significant increase in construction costs throughout the year. At this point, we're not seeing that at the moment. It's certainly our hope that as we get further into this year, the times where our developments will be starting second or third and fourth quarter that perhaps we get some relief there. The first signs of that are that we're getting calls from contractors saying they didn't think they had capacity to bid our job originally, but now they do. We're hearing that from subcontractors as well. So given where the single-family market is and the fact that we expect new supply starts to come down on multifamily, we hope to see some relief on the construction side but for now, it's just holding flat.

[Robert Stevenson, Analyst at Janney Montgomery Scott]

Okay. And then, Al, G&A was $58.8 million in '22 and the guidance is $55.5 million at the midpoint for '23. Obviously, Tom's left, but what else is in that expected decrease?

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

I think that's, well, let me start with Rob, as we talked about, we really look at overhead as a total. And so I would focus more on the $128.5 million and then that's over 3% growth in total for the year, which we think is rise. But on that specific G&A line, the biggest item there is we had very strong performance in 2022. So you've got certain programs that performance incentive programs that are max and then we said our guidance for next year is based on target. So that's a big part of that. And then on the property management expense line, the growth in that, that you see is really investments in, primarily in technology, both to strengthen our platform and to support the initiatives that were going on. So and I answered both of those because I think that's both together a part of that overall overhead growth for the year, Rob.

[Robert Stevenson, Analyst at Janney Montgomery Scott]

Okay. Thanks guys. I appreciate it.

[Operator]

We'll take our next question from Michael Goldsmith with UBS. Please go ahead.

[Michael Goldsmith, Analyst at UBS Group]

Good morning. Thanks all for taking my question. What's the expected expense growth cadence during the year? Is that relatively flat or is that accelerating? And within that are you have a midyear renewal or insurance but easier compares in the back half, how does that reconcile? And then on real estate taxes, the midpoint of the guidance is 6.25%, but that would be lower than 6.5% last year. So just trying to understand the shape of the expenses through the year and also why the real estate taxes would be perhaps slightly down this year?

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

Okay. I'll try to answer that. This is Al. I think what you -- the cadence for expenses, you should see the most pressure in probably Q1 and that's because you've got a continuation of sort of the inflationary levels that we saw in third and fourth quarter carrying sequentially over and comparing to Q1 last year with a lot of inflationary pressure wasn't yet built in. So the highest point would probably be Q1 and it will moderate down Q2 and Q3 to more level more that mid-single-digit range. So that's the main thing. In taxes, the 6.25%, I think we are -- last year, what we saw in 2022 was looking back to a strong year. We saw millage rates come in that we thought would roll back more than they did. It surprised us a little bit in the fourth quarter as we talked about.

And so that was -- we ended the year a little higher than we expected in 2022. And I think as we move in 2023, we don't expect significant reprising key areas. Our -- we got a pretty -- we have a pretty good beat on what's revaluing this year, it's primarily Texas and part of Atlanta, parts of Georgia, there's primarily Atlanta, and so given what's revaluing and our expectations for millage rates, and we have a few of our cases from 2022 that we're litigating that are spilling over into 2023. And so we've got an estimate of what we think we'll win on that. We may be wrong, but we've got an estimate on that, included in that. So all that together gets us that that 6.25% range. And a lot of unknown in that right now, as we talked about, but we think where we stand, that's a very good estimate.

[Michael Goldsmith, Analyst at UBS Group]

Got it. And sticking with you, Al. NOI growth has been strong, but property values haven't had the same magnitude of increase due to the rise in cap rate. So does that leave more opportunity for successful appeals maybe in '24 and beyond? Thanks.

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

Yeah, I think what we'd say is '23 is a year just that they're still looking back at very strong revenue. It's kind of backward-looking game, looking at the beginning of this year. Still looking at strong revenues for 2022 and a pretty stable cap rate environment has changed, but it's still fairly stable. So that's driving it. I do think your point, I think, is a very good point. As we move into 2024 that they're looking back in a more normalized year, we would expect some moderation in taxes, primarily in Texas, Georgia, and Florida. We're seeing that in most pressure because there -- it's going to be driven by a normalized top line to your point. So we would agree with that comment.

[Michael Goldsmith, Analyst at UBS Group]

Thank you very much. Good luck in '23.

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

Thank you.

[Operator]

We'll take our next question from John Pawlowski with Green Street. Please go ahead.

[John Pawlowski, Analyst at Green Street Advisors]

Hey, thanks for keeping the call going. Al, maybe just a few quick follow-ups on the property tax conversation. Could you just give me a rough sense what percentage of the portfolio you already have a high degree of visibility for the increases this year?

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

Man, it's -- what we have a high degree of visibility is pretty low other than we have a good beat on what we think the values are. Obviously, we know given the current cap rate environment is what they are. And John, I mean, 70% to 75% of our tax exposure is from Texas, Florida and Georgia. So it's really going to come down to the millage rates. It's going to turn down to what municipalities need? What are they going to -- we expect to have continued strong valuations and probably millage rates rolling back again. Where that all ends up? It's hard to have precise visibility at this point. I mean I think we have consultants that help us. We have a lot of market knowledge. So it's based on -- our estimates based on Texas Georgia and Florida, the key drivers of our expense. And that's -- I wish we had more at this point, but I do think that our experience our history in the markets, our consultants give us a pretty good understanding at this point, as good as we can have until second quarter, John, we'll have more third quarter, we'll have not perfect, but very good knowledge, I would say.

[John Pawlowski, Analyst at Green Street Advisors]

Okay and I understand there's a range around all the estimates. But just curious, A1, what do you think a reasonable worst-case scenario is for property taxes this year?

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

[Speech Overlap] That's kind of why we've been a little higher -- I am sorry yes, that's a good question. That's why we put a little bit higher range or a wider range on that, John. You saw that we put seven at the top end of our -- I think that's what we would say. I mean we're 6.25%, it could go -- you could have some things go either way. We're hopeful that we have some strong fights in these areas, but I think seven would be several things going against us that we didn't expect.

[John Pawlowski, Analyst at Green Street Advisors]

Is eight, nine, 10, zero -- zero probability if cities don't lower millage rates --

[Albert M. Campbell, Executive Vice President, Chief Financial Officer at Mid-America Apartment Communities]

I mean eight, nine or 10. I mean, given what's revaluing and given the shape of where things are, I think eight, nine, 10 is probably low probability I do think zero too low end is low probably, I mean the we're looking back again to a very strong 2022. I'm going to use that to put a cap rate on. And so I think it's hard to see much reduction in expectation this year. But as we mentioned, John, as you move into 2024, it would be hard to not be able to argue that some of those because so we would expect what moderation that we see at the beginning 2024.

[John Pawlowski, Analyst at Green Street Advisors]

Okay. Thank you.

[Operator]

We'll take our next question from Tayo Okusanya with Credit Suisse. Please go ahead.

[Tayo Okusanya, Analyst at Credit Suisse Group]

Hi, yes, good morning, everyone. Thanks for keeping the call going. Just a broader general question about the regulatory backdrop, again, I apologize if this has been asked, but again, just a lot of talk in several municipalities around additional rent control, even at the federal level you have the White House putting out guidelines. Just curious, your overall thoughts on this particular actually have any impact in the short, medium or long term. But if you kind of think maybe a lot of the suggestions are just things that may not impact you at all because it's all about just reading out the bad players in the industry?

[Robert J. DelPriore, Executive Vice President, Chief Administrative Officer & General Counsel at Mid-America Apartment Communities]

Tayo, this is Rob. I'll take a shot at answering that. I think really like if you start at the federal level and the White House blueprint that they put out a couple of weeks ago, it really does seem to focus a lot on -- more on the affordable housing component of it. And really almost using the agencies as part of the leverage there, as we look at our states in which we operate and the municipalities, there is some rent control pressure or proposals that come up from time to time, but really don't ever see them gain any traction. So from a kind of a short, medium term, we don't really see anything as we're tracking legislation across the board that gives us any significant concern and still view it as really if affordable housing is the end goal, it's more of a supply-driven pressure that needs to be added to the system rather than focusing on rent control, which ultimately is a negative for both the owners and the residents.

[Tayo Okusanya, Analyst at Credit Suisse Group]

Great. Thank you.

[Operator]

We will move next with Jamie Feldman of Wells Fargo. Please go ahead.

[Jamie Feldman, Analyst at Wells Fargo & Company]

Great. Thank you. I guess just a follow-up on question, I mean, do you, in any way, include handicap any kind of rent control risk in your guidance or your rent outlook?

[Robert J. DelPriore, Executive Vice President, Chief Administrative Officer & General Counsel at Mid-America Apartment Communities]

We have not.

[Jamie Feldman, Analyst at Wells Fargo & Company]

Okay. And then, I appreciate all the color on so far in kind of markets. It sounds like things are still going pretty well. But I guess if you focus specifically on like Austin, Nashville, Raleigh, some of these big tech growth markets in recent years and probably market have more layoffs than others. Can you provide any kind of anecdotal evidence of anything changing there, whether it's different types of people backfilling vacancies or move-outs or anything like that, just those kind of markets versus the rest of the portfolio would be helpful? Thank you.

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Hey, Jamie, this is Tim. I mean I think the ones you point out are right in terms of Austin, Nashville, Raleigh are the ones where we would have more tech exposure than some of the others. But as of now, we haven't seen it. I mean we're keeping an eye on what it exactly means in terms of which staff are going to be impacted by some of the announcements that have already been made, but to date, we haven't seen any impact from that. No trends different in those markets other than sort of the broader we talked about Austin with broader supply/demand concerns, but we haven't seen anything yet, but those are the ones we would be keeping an eye on, for sure.

[Jamie Feldman, Analyst at Wells Fargo & Company]

Okay. Are you seeing slower demand from those types of employees, people in those industries?

[Timothy P. Argo, Executive Vice President, Chief Strategy & Analysis Officer at Mid-America Apartment Communities]

Not really. I mean, a lot of these markets aren't quite the Silicon Valley in terms of the types of employment that we had there. It's a little more call it, mid-level or if you want to say more a little more blue-collar-type tech, but we've not seen it yet. Like I said, it's some we're keeping an eye on, and that could be what drives more of the downside risk on our forecast for 2023, but nothing reportable so far.

[Jamie Feldman, Analyst at Wells Fargo & Company]

Okay. All right. Thank you.

[Operator]

We have no further questions. I will return the call to MAA for closing remarks.

[H. Eric Bolton, Chairman & Chief Executive Officer at Mid-America Apartment Communities]

Okay. Well, we appreciate everyone joining us this morning. If you have any other thoughts or questions follow up, just reach out at any point. So thank you for joining us.

[Operator]

[Operator Closing Remarks]