MAA Group Berhad (MAA) stock price took a hit on January 6, 2025, following RBC Capital's decision to lower its price target for the company. The investment firm reduced its target from $165 to $158, maintaining a Sector Perform rating on the shares. This move comes as a result of updated residential real estate investment trust (REIT) estimates, which reflect recent market rent trends, leasing updates, and higher costs of debt.



Market rents in the fourth quarter of 2024 came in below expectations, particularly in the Sun Belt region. Additionally, the only post-quarter leasing update was also behind expectations. These factors led RBC Capital to moderate its spread assumptions slightly for 2025, indicating a more conservative outlook on MAA's future performance. As a result, the firm lowered its price target to $158.



MAA Group Berhad's financial performance has been impacted by higher costs of debt, which can have several significant consequences:

1. Increased interest expense: Higher debt costs lead to a higher interest expense, which directly reduces MAA's net income. In the first quarter of 2025, MAA reported an interest expense of RM42.73 million, contributing to a loss per share of RM0.071 (Source: First quarter 2025 earnings released on Nov 23, 2024).
2. Reduced cash flow: Higher debt costs can also reduce MAA's cash flow, as more cash is used to service the debt. This can limit MAA's ability to invest in new properties, renovations, or other growth opportunities. In the third quarter of 2024, MAA's free cash flow was RM954.96 million, which was lower than the previous year (Source: Third quarter 2024 earnings released on Jun 05, 2024).
3. Potential impact on dividends: Higher debt costs can also impact MAA's ability to pay dividends to shareholders. Although MAA has maintained its dividend payout, higher debt costs could potentially lead to a reduction in dividends if the company's earnings or cash flow are negatively affected.
4. Increased financial risk: Higher debt costs can increase MAA's financial risk, making the company more vulnerable to economic downturns or changes in interest rates. This can lead to a decrease in MAA's stock price and a potential downgrade in its credit rating, further increasing its cost of debt.

In conclusion, RBC Capital's decision to lower its price target for MAA Group Berhad reflects the impact of recent market rent trends, leasing updates, and higher costs of debt on the company's valuation. Investors should closely monitor MAA's financial performance and the broader real estate market to assess the potential impact on the company's stock price.