I did, you know, this is our last panel of the day on the second day. I hope everyone had a really good conference. I'm real excited to be joined by MAA. With that, I'll pass it over to Al for introductions, and he can introduce his team here.
Great. Thank you, Josh. We appreciate that. Thank you all for staying around the last meeting. As Josh mentioned, we're glad to be here. We always like to have an opportunity to tell the story of MAA. So we brought the full team today, Al Campbell, CFO. To my right, you have Brad Hill, who's our Chief Investment Officer. To his right, you have Andrew Schaeffer, who's the head of our Capital Markets and Investor Relations. To my left, you have Clay Holder, who is the Chief Accounting Officer, and also taking on additional responsibilities for the company for the next couple quarters. So we're glad to be here.
We thought what we would do is start with a few comments up front, before we answer questions, talking maybe a little about who we are, our strategic focus for the people who don't know us as well, very briefly. The current environment that we're working in today, big topic, I'm sure, of our theme of the conference, and then how we're positioned as a company, really, to execute through this environment. So we're gonna share that across this, the panel today. So I'll start with talking about really who we are and our strategic focus, for those who are new to the company, just briefly. Also, page six of the presentation that's on our website, I think you have it out today, is a good starting point.
Tells us a little bit about us. I think the one thing that I would say that's, it's a bit unique about MAA is really just our geographic footprint, is a bit unique in the space, Sunbelt Southeast region only. You can see there that we have a portfolio that is very well diversified across the space. I think one of the key points is not only a number of markets, because we're in about 35 markets across the space, but also, very importantly, is locations within the market. We're in the urban areas, inner loop areas, in the suburban areas of most every market, and we have very good coverage of the markets.
Also, in terms of product type and pricing point, and so I think that diversification is really key to understanding our story and who we are at the core about building a strong, growing cash flow that through the full cycle as a company. We also have grown significantly over the last several years. We have very high level of acquisition and development capabilities with the company that allows us to continue adding high quality product to our portfolio through the full cycle. Brad will talk about that in just a moment.
Certainly very proud of our balance sheet, that Andrew will tell us about in just a moment, that we've really worked hard over the last several years to build what we think is, we believe is somewhat of a blue chip balance sheet that really provides not only safety, but strong opportunity in the current environment we're at today. And so... And then I think finally talk about just the track record. Now, you can see on slide number, the very first one, the very beginning, slide three. Not to be lost before we get into the comments, is just really the track record that we have as a company now.
Now, we have, you know, 25, more than 25 years of experience, in this region, operating in strong markets, tough markets, but through the cycle, you can see that the consistency of our business, we're a disciplined company, and just have really, you know, shown that you can perform well in this region and show the prospects. The dividend presentation as well just shows that we have, you know, many years of continuing growth in earnings, cash flow, supporting that strong dividend that has never been cut. We're one of the few people in the entire industry, certainly in the multifamily space, that's never cut our dividend, so we're very proud of that as a company, and we're positioned better today than ever to make that more certain. So that's a little bit about who we are.
Just touch on briefly the current environment before I turn it over to, to Brad. Page... I think a good place to do that would be page 14. Just quickly, one of the focuses currently, the pricing trends that we're seeing in our portfolio today. I think the backdrop for this is, as we went into this year, you know, we outlined a story as part of our guidance. Guidance was based on, you know, blended pricing performance, which is new lease. When a new lease is blended together, about 3% on average, and we expected this year to be a year coming off of a very strong, you know, performance the last couple of years, a more normalized period.
I mean, that word normalized is certainly one you're hearing a lot in the conference, I'm sure, this week, but certainly that's what we expected. And we're seeing that as we end the year. First half of the year was strong. We actually outperformed that with 3.8% occupancy blended price through the second quarter on average. You see on the middle of the page there. As we moved into July, and we've seen in August, we did see the moderation in that again. I would say that it was a little bit sooner than we had expected in our expectations, but there's several reasons for that I wanted to outline. One is, we made somewhat of a choice in that.
If you look at the bottom of that page, I think we mentioned, one of us, maybe even Tim Argo, mentioned on the call that we had at the second quarter, that we in July, our occupancy was about 95.3%, and so we sort of made a choice that as it, you know, given that we're moving into a more normal winter leasing season this year, we haven't seen that in several years. We felt it was prudent to begin to protect occupancy, to, to build occupancy, to move into that. So we did that, made that choice. We probably built, you know, in essence, we, we built about 40 basis points of occupancy there that did cost us something in pricing in July and August.
I think also, not to be lost, and as you look at last year, and very strong performance we had for a couple of years. Last year, the very peak performance of the pricing was in July of last year. So a bit of that is you're looking at the toughest comp in that July period, maybe the early August period. And then finally, certainly, supply in our region has been high for several years, several quarters. Continues to be so, and so we're seeing communities that impact that a bit. But the good news behind all of that, and I want to say one message you hear, probably, I hope you hear from everybody on the stage in some way today, is that behind that-...
All this, the supply and all the picture that we're talking about, demand is strong. I mean, no matter how you look at our business today, we're seeing, you know, prospects of demand being good. Whether you're talking about the traffic levels in our portfolio, the leads that we're producing, the leads per exposed units that we're producing. I mean, if you look at last year, we're a bit down from those levels, but if you look at a normal last year, that's a strong year, we would point to 2018 and '19, just pre-COVID, paint a good picture of that. We're at or well above those factors norm series. I mean, in fact, lead per exposed units were up 30%, and so from 2020 today versus 2018, '19.
So we feel good about the demand levels we're seeing today. That's one thing about our overall region we're in, you know, we have had historically good demand. We continue to have that today, and we continue to expect that into the future. So I think that is the core of the business. Supply will come and go in our business, but the key factor is are you positioned well with demand to work through that? I think the answer to that still is yes.
And as we look into next year, we would expect the supply that's coming. I mean, many pictures have been probably outlined this week, but our expectation, hard to put a fine point on it, but we'd expect the peak of the supply deliveries to be sometime mid, on average, next year. Could be a little later, could be a little earlier, but just on average, probably somewhere in the mid-year. But there's a very strong case to be building that following that, you know, you're going to see a meaningful decline in deliveries. The permitting today may not show that, but I'll talk about it in a minute, but certainly what we're seeing and feeling expect is a significant decline in that, which starts to build a pretty strong case for 2025 and even 2026 to be, you know, outperformance years.
And so I think if that's, if there's one message you hear from us today, probably that's the message that I'm expecting to be. So with that, then, hopefully, that gives you a good feel for who we are in the current environment. I'll turn it over now to Brad to talk about the opportunities we have.
Yep. All right. Thanks, Al. Yeah, one thing I wanted to just reiterate that Al talked about is really just the demand, and really what our strategy is from some of you who have been familiar with our story, you really know that our strategy is built on really the thesis of going where the demand is, and really building a portfolio that is maximizing our exposure to high-demand markets and areas, and that's really what we have. If you take a look at slide eight, and you look kind of more broadly at really the demand drivers, whether it's population growth, household formation, job growth, all of those in our region of the country are extremely strong. And we feel really good about those long term.
Kind of supplementing that are the migration trends. It's certainly a trend that was occurring before COVID. We saw people moving into our region of the country before COVID started. The migration trends ticked up a bit during COVID. And then today, still 13% of our leases are coming from outside of our region. So the migration trends continue to be pretty strong. We really have not seen folks reverting back to where they came from. About 4%-5% of our folks that are leaving us are going outside of our region, but that's pretty consistent with what we saw before COVID. So again, that's just a little bit about our portfolio. We want to be located where the demand drivers are.
Slide nine just indicates some of the big job announcements that have been announced for our region of the country, just indicative of the types of jobs that are coming. These are jobs and facilities that are being built that will drive job growth for a number of years. So some of this, we're on the early stages of some of this job growth coming to our region of the country. So, in terms of external growth, you know, really, we have a couple different avenues that we're focused on for external growth, and that's through development, predominantly in acquisitions. If you take a look at slide 18, it gives a little bit of an indication of where we are as a company.
We have about $730 million under construction right now. You compare that with where we ended 2021 at about $420 million or so, so significant growth has occurred over the last couple of years. We think there's an opportunity for us to continue to grow that platform to about $1 billion-$1.2 billion, in terms of size of the platform. That will be about a $400 million-$500 million annual spend number. Our team has made great progress in that. Today, we own and control 12 sites for future development. About 3,400 units are in that pipeline. The great thing about that is we control when we start those, so we can slow that process down if we need to.
We can speed it up if we need to. So we're very patient in that, and we have a lot of optionality about when we start that program. Additionally, we are looking to deploy capital through acquisitions. It's been slow the last couple of years, for sure. You know, we're still waiting for the transaction market to pick up a bit. We're starting to see early signs of that process starting.
The number of projects that are coming to market starting in the third quarter has increased, and as we've been saying for a few quarters now, we, you know, as that volume picks up, we do expect cap rates to come up as the capital is spread out a little bit more, and I think we're starting to get to that point. So here in the back half of this year, we do expect that we'll be a little bit more active in that area than we have been historically. You know, our goal on an annual basis is about $400 million or so of acquisitions, and you pair that with where we are on the development side.
So we have a significant amount of external growth that we're really focused on a long-term basis. So, with that, I'll turn it over to Andrew to give you a little bit of information about how we look to fund that.
... Thanks, Brad. The balance sheet continues to be in great shape with sector leading metrics and A-minus rated. Right now, we have 100% fixed rate, and thus have full availability on our commercial paper program and line of credit. We also had $150 million in cash as of June 30. On our metrics, debt to gross assets was 27.5% versus a sector of 30%. Net debt to EBITDA is 3.41x versus a sector of 4.73. So frankly, we're underlevered right now, it's where we wanna be in the cycle to support Brad and all his acquisition and development opportunities.
The weighted average maturity of our debt is 7.5 years, with an average interest rate of 3.4%, and we have very manageable maturities over the next few years.
Yeah, I appreciate those opening remarks, guys. Maybe just going back to something you said early on, Al, about just how you thought the occupancy was a little bit weaker, so you started pulling back on rates. Just like, what was not... I guess, before August, just thinking about the occupancy levels, like, what wasn't—did you just weren't getting the traffic? Because, just trying to tie that comment about the occupancy being below expectations versus, like, demand is really good.
I think it goes back to what you've heard us talk about over the last several quarters, probably the last couple of years, really, is that we have really, focused on, on pushing price, through this, through the strength in the cycle and, and have been effective with that. And really haven't, in the last couple of years, really haven't had to deal with a, a normal seasonal environment that we, that we typically would have. Typically, you have, you know, your first quarter and your fourth quarters are, are more, more seasonally challenging. Your second and third are the ones where you have stronger pricing, but particularly in new lease pricing, your, your renewals tend to be stable through the year, but new leases is the most competitive point. So I think, we, we continued that through the first half of this year.
I think what we saw in the as we got into July and August was the you know I guess the impact and the combination of all those moves we talked about earlier was one the prior comps began to be a challenge the combination of accumulation and supply. Just we began to see the typical moderation begin that we've seen in the past. And so we had continued focus on price. Our occupancy got down to that 95.3. Still not a bad place to be, but I think as we...
We're comfortable with being in that 95 range. We feel like we continue to keep the foot on the gas for pricing, but feeling that we're approaching, you know, a leasing season that's more normal, with more challenging in the winter, you know. We chose to build our occupancy up to that 96 range, and I think you'll see us, you know, somewhat protect that as we move to the back part of the year, and look as we look into early next year.
Okay. But then just thinking about, like, what's built into the guide from here on out, what, what, what was assumed as far as new lease rate growth?
We have for the full year, we want to be saying about 3% on average. We outperformed that in the first half, so I think, and we still believe that's the right level for the full year at this point. So I think that would put the, the second half a little bit below 3%, call it 2.5 range, something like that, to 2.5 range. But I think in terms of overall revenue, what you're seeing is that the, that we're giving up a little bit of pricing in the back half from that expectation, and we're gaining in that occupancy that we've built. And so in terms of our revenue position and our earning position, we're in really good shape in the back half and where our expectations go.
Sorry, was that on blended or new?
That was blended. Did you say new?
Yeah. Well, yeah, what's the expectation on the new?
I think the expectation for the, you know, two components is we would expect renewals to be pretty stable on the 4.5%-5.5% band for the back half of the year, and the new lease fee would be the most competitive point, call it, you know, the 1.5%, maybe, you know, from 0% to -2% down as the most competitive point for the remainder of the year. That's the expectation at this point.
Okay. Any questions from the field on the operating update? Maybe just congrats on your announced retirement, Al. Just curious, just, you know, what drove the decision, and how do you feel like the transition is gonna go? Like, any—are you gonna stay on, I think it's through year-end?
Staying on as CFO through March 31st, and then I'll be around through the end of the year in a supportive capacity. So I think the story there is, I mean, first of all, I appreciate that. I'm very excited about my future, just personal things that I want to pursue, but I'm very excited about the company. And I think, hopefully, you see today, you know, we've got tremendous talent in the MAA, and we have, over the last few years, really built a lot of talent. So Clay is gonna be taking over that role at the end of March. He's well prepared for this with background and preparation from what he's been doing the last couple of years, preparing well.
So I think we feel very, very blessed to have that as a company, that deep bench.
Awesome, and congrats, Clay. I guess, what... When you think about your new role as CFO going forward, just like, what are the new responsibilities versus, you know, like, that you hadn't been working on before when- as you take on that, that position?
Yeah, sure. I mean, primarily it's working with Andrew and his team and getting more involved in the capital markets, also working with our tax team and, you know, working with those guys just from a dividend planning standpoint, those sorts of things. But, so I think it's even more than that. It's just helping kind of set that strategic vision for the company and continue to execute, do the things that we've been doing all along. And, I-- you're not gonna see us change our momentum or how we're addressing these things. It's gonna be just rolling right along where we've been.
Sorry, one more question on just, like, the operating update. Was there a wide variance across markets as far as, like, how the quarter's been trending? Just kind of curious where maybe things have been doing better and where's things a little bit worse, and if there's any thoughts on, like, what's driving it, if it's supply or something else?
Yeah. I'll give. On slide 12, there's a good picture of that and how investment with that. So it shows by market there. Really, the point of that slide is to show that, you know, diversification in our portfolio that we talked about is a really important part of our strategy, and it does mitigate the supply, you know, and helps our ability to work through that as it comes. You know, we're gonna. We're certainly gonna feel that supply, like, you know, but this really helps us. You can see there, it shows the number of markets, you know, many markets, some markets that we're in, in each market, the number, the percentage of exposure that we have to new supply coming in.
But I think also that third, the really important one, the price gap on that third, third column there shows that, the amount of price that new product is coming in is above our average in that market. And so the point of all that is to show that, that is, you know, just because, you know, overall market has a high level of supply, you've got to get people going to understand the sub-market dynamics, understand your competitive position, and then the outcome of all that is, is the far right column, the pricing, when pricing grows. So and I think that to the point you're making, what are the most challenged markets today? Probably sit there, Atlanta, Austin, and Nashville pop out, really for different reasons.
Atlanta is a market where we've had, you know, late last year, early this year, we had some storms that took some units offline. We repaired those units, put them back on early this year, took on about 100 units more, had a fire early in the year as well. And so that as we took those units back on, at one time, that caused a little bit of an occupancy issue, not significant, but one that we need to work through. And then one of the things in Atlanta as a market, you probably heard, is there's a little bit of a fraud issue in some of the markets in Atlanta.
So that's something that in the first half year, we really changed our procedures to help us, cost us a little bit of occupancy in the first, maybe in the second quarter, but really allowed us to get the right residents in there so that when they got it, we knew we were comfortable that we got quality residents, and they could pay the rents. We're kind of beyond that, and we think the future in those markets will be better, though it is, it causes some performance right now. I think Austin is just more a pure supply issue, and that is where it's, it's great demand market, but it's got, you know, has the overall portfolio is probably at 4-4.5% supply.
To the stock, it's 8% in Austin, and so just a significant level of supply there. And so that's really a pure story there. Though we're in a good competitive position here, I mean, the new product coming in is $660 higher than our product. It's just the absolute volume, which is causing some of that. And then those are the main ones I think I would point out. The one that's not on that chart is Phoenix, which is, you know, it's a bit challenging.
I think Phoenix has been a great market for many quarters, and probably not on this chart because of the size of our—in our portfolio, but it's probably feeling a little bit of price fatigue, just because it's so good for so long and has gotten some supply. So those are the ones that I think underperforming and over- and strong performers. Brad, you might want to talk about that.
Yeah, I was just gonna indicate on the strong performer markets, the Carolinas, really throughout the Carolinas, doing better than our portfolio average just generally. There is some supply, especially if you look at Charlotte, but the demand is really exceeding the supply in that market. And then you look at a market like Orlando, there is a little bit of supply there, but that and Austin are probably the two markets with the strongest demand across our portfolio. So they could... Orlando continues to perform better than our portfolio average as well.
If the price gap is that after concessions from, like, the new supply?
Net effect, yeah.
Yeah.
We're a net pricing shop, so it's after, yeah, so-
Okay. It's like, if they start increasing concessions, like, how many more weeks we kind of maybe equalize it or make it comparable?
Yeah, I mean, if you think, you know, two months is 16% or so, and our average rent is $1,600, you know, so, you know, you start to get into, you need about three months. You know, the average gap here is $352 at the top of that. So you need to be getting to two and a half, three months to start equalizing-
Okay.
The two before, you know, it makes sense to, you know, from a pricing perspective. But, you know, what you have to take into account there is certainly the friction of moving.
Because you, you think of the dynamics of how these properties are concessed. The concessions are upfront concessions. So, you know, if they concess $352 on effective basis, and give, you know, two to three months free rent, the rent is gonna be $352 higher the month they start paying. Which means when they get to the end of that lease, they're gonna renew off of that rate. So the renter has to be convinced, that they're gonna be willing to move again in a year if they make that move.
So there's just a lot of friction that we believe and we see with our residents in terms of relocating that really causes the differential between us and new supply to be, needs to be material before folks are willing to relocate, and we find that. You look at our renewal stats, you know, the rates, both the rates we're getting, as Al mentioned earlier, and then the retention that we have right now is at record highs. You know, folks are wanting to stay where they are at the moment. And certainly, the single-family housing market is a little bit of a tailwind for us there and helps support, you know, residents wanting to stay with us a little bit longer.
Okay. And then, I guess, trying to think about like the cadence, like, more supply is coming, like, do you think the concessions can build to that level, or?
You know, we're certainly not seeing it right now. You know, where we see supply more acutely is through our lease-up deals, and we're just not seeing that. You know, really across the board, the most we see in markets right now are, call it six weeks, but we're not seeing it broadly. You know, we generally underwrite in our new developments about a month free, and we haven't had to use that. We're still not using that right now. We have a project in Austin that's in lease-up right now.
Windmill Hill has two competing projects just within a mile or so from the property, and selectively, we're using concessions on select units that, you know, maybe aren't in the right location of the building, but we're not having to use them broadly to compete. Really, we want to use price as the last point of competition with our competitors, and we really want our folks to focus on the product, to focus on the selling of the asset before they're focused on price.
Okay. Any questions from the field? Yep.
Question about the chart here.
... Is it the right way to say that, yes, supply is coming to the markets here is going to be in for, and that's going to test the price. You're not going to be able to get as much price as you do. Is that correct, first of all? Second of all, do you have any sense of where this, from where the supply is coming? Is it your peer group? Is it some other provider? The provider is small, or if it's some other type, what do you see, or do you have any insight into how potential refinancing or transitioning financing is gonna go with that, given the change in base rates and issuance from the stock that's happened?
Well, you can jump in on that. Yeah. Yeah. You know, our strategy in the acquisition space for the last few years has really been focused on, you know, properties that are in lease-up, late in the lease-up, which is targeting exactly what you're talking about. Normally, the maximum pressure that a property faces is when it gets to 70% or 80% occupancy, when the back door opens up, and it's really more difficult to get the property stabilized. You know, that's where the maximum pressure builds. And I think in an environment where interest rates, you know, went from what a developer underwrote at 3% to now 7%-8%, that math begins to be a little bit more difficult, for those. And that's really what we've targeted, in terms of our acquisitions plan.
In terms of, you know, really what is driving the development in our market, it's merchant developers. If you think about what their business model is built on, it's develop, lease it up, and sell it, because their capital, at some point, has to be refinanced. They have a construction loan that they've got to get out of. So, you know, if you look back to the construction that's taken place in our region since 2020, 2021, supply has definitely been higher. The last year, the transaction market has been shut down, and that's part of the reasoning why we've been saying the transaction market is gonna open up. Cap rates are gonna have to move up because the merchant developers have to trade at some point.
As we get later into this year and into next year, we continue to believe that that pressure builds. You throw into that the stress that you have in the banking sector right now, you know, these assets need to trade at some point. You know, I think there's enough capital out there to really complete the transactions on this side. You mentioned that the properties are kind of the last. You know, I think that transactions get completed on these. There's not distress in the market. I mean, the operating fundamentals are strong enough to where they're still cash flowing.
Then I think if you look back to construction costs when these started, even though folks aren't gonna get a home run on the deal, they may get a single out of it, there's still profit margin built into these, even if at lower cap rates. You know, the truth is, as part of our joint venture development platform, where we partner with developers, and we develop assets with them with a clear path for us to own it 100%, generally, what we underwrote in 2020 and 2021 was a 5.25 cap rate. And so we're just kind of getting back to really what the expectations were at the time these deals were started. I think transactions will continue to build from this point.
We're starting to see more brokers' BOVs come out, projects hitting the market. So I think as you get to the back half of this year, and you get to the first half of next year, the transaction market continues to pick up from here.
The sense idea that you're saying have beneficial to you, is that correct?
It would absolutely be beneficial to us.
Are those benefits baked into your guidance, or would that size surprise you?
Well, I think our guidance is built on that. If you're talking about acquisition volume and build, built on what we've got in the guide there now. So you can see what we've got for next quarter. But if those opportunities come, it will be added to. And I think in terms of the point of the slide, it really was just to say that though supply is high, and it will be for several quarters, that our specific portfolio, the diversification, it doesn't totally eliminate that risk, but it certainly helps mitigate that some and puts us in a pretty competitive position in terms of operating, you know, working through that supply. And so, you know, opportunities come from, you know, on the acquisition side of the business, that just comes from this disruption.
As other people have questions, you know, Brad can take opportunities on that. But our earnings guidance is based on what you're seeing in our release now. And so if we do have more opportunities, it would be upside on that.
Any other questions from the field? Maybe just, Brad, since you're the CIO, just thinking about the balance sheet, Al left a, you know, very low leverage in place for, you know, Clay to take over with. When I met with you guys a few weeks ago, talking about using that as a potential asset, like, how do you, how do you feel like, the opportunity sets out there, and just also, like, where do you think the best opportunities are going to come? Is it gonna be redevelopments? Is it gonna be developments, external growth?
... I mean, I think it's gonna be really all of the above. Those are, you know, redevelopments, certainly, and repositioning some of our products or projects are the best use of our capital. So first and foremost, we'll continue to work through that angle. And then from there, I think it is development and acquisitions, and at different points in the cycle, we will lean into those two methods at different degrees. You know, the great thing about our development pipeline, as I was mentioning earlier, is we have flexibility of when we start those. There's nothing that says that we have to start those projects by a specific point in time.
Generally, our entitlements are there for a long period of time, so it's not like those are burning off anytime soon. And I think as we get into a market where cap rates are increasing, certainly you know, the acquisitions become more compelling. And so we'll lean into acquisitions when it makes sense to do that. You know, what we wanna do on our development is to continue to be and on acquisitions, to be disciplined in how we underwrite things, to be realistic with what the returns are, given where cost of capital is. And if you look back over the years, we have been quiet in the acquisition arena because, you know, we felt like cap rates were too aggressive.
And now that we're starting to see those move up a bit more, we think it's time to start finding opportunities to put our balance sheet at work. And on the development side, same thing. If we find opportunities that the returns make sense, we think it makes sense to start those as well, especially in the backdrop that Al talked about a little bit earlier, where we believe that the supply pipeline, delivery pipeline, as you get into late 2025 and into 2026, is materially lower than what it is now.
I know if you look at certainly the permit data and the starts data, it's a little bit confusing because it's hard to see where those numbers are coming from, given the developers we're talking to indicate their pipelines are off 50%-70% this year. We believe you get late into 2025 and 2026, the delivery pipeline looks considerably lower than it does today, and the operating fundamentals looks really good at that point, which lines up really well with anything that we're able to start on the development side.
So one of the questions I've been getting a lot, from, from investors is on the operating expense side. Can we go through kind of like the pain points that, pain points or maybe better-than-expected kind of, line items in there? Insurance is probably the first one. Just kind of any early indication of what might be happening for your renewal next year? Just any, any color would be great.
Yeah, I mean, our insurance is a rather small part of our same-store operating expenses, roughly 5%. We renewed on July first of this year, and we'll have a 20% growth over last year's renewal. And so, you know, that, that'll be a something we'll manage through. But again, we've got, you know, such a small part of our overall expense structure that we should be able to handle that just fine. As we look forward to next year, I mean, you know, insurers are still probably going to be looking to try to recoup some of the losses that they've had over the past several years, and so that could continue to be a challenge for us.
But again, you know, that's such a small part of our overall expense structure that we believe that we'll be able to manage through that. When you look at the rest of our operating expenses, you know, you got personnel, repair and maintenance, and real estate taxes, that makes up a much larger share of our expense structure. So that's roughly 75% of it. Personnel and repair and maintenance, you know, we expect that to moderate from where it's sitting today, and it's been moderating over the first half of the year, and we expect that to continue over the latter half of the year. We expect also that to, you know, going into next year as well. We'll have more to say about that in the coming months.
Real estate taxes, on the other hand, you know, something that we're still monitoring very closely. The Texas legislation should give us some relief there. So we're, we're looking at, you know, continuing to look into that. But then as you see, cap rates move up and, and some of our, you know, properties out there trying to stabilize off from a revenue growth standpoint, we expect those property valuations to, to slow down, and that'll, that'll benefit us from the real estate tax standpoint as well.
Any last questions? Scott, I have three rapid-fire questions that I've been asking all the management teams. The first one is, it's a two-parter: Do you believe the Fed is done hiking, yes or no? And do you expect the Fed to cut rates in 2024, yes or no?
Not done hiking, and likely start late 2024.
Would you say?
Do you believe real estate transactions will meaningfully pick up by, A, the fourth quarter of 2023, B, the first half of 2024, or, C, the second half of 2024?
Well, without defining meaningful, I'm gonna say first quarter of next year.
Are you using AI today to help you run your business, yes or no? And do you plan to ramp up spending on AI initiatives over the next year, yes or no?
Certainly using it today in certain areas, particularly in our marketing solution and areas of the business and lead traffic generation, and I'm sure it will grow in the future.