Most REITs likely won't feel rate hike impact until 2025: CIBC

Many real estate investment trusts will be largely insulated from climbing interest rates for the next couple of years, a report from CIBC Capital Markets said Tuesday.

With the Bank of Canada’s policy rate hitting 1.5 per cent in June and set to rise further, higher debt servicing costs could eat into companies’ bottom lines. Companies that loaded up on cheap debt during the pandemic to fund growth projects could be hit particularly hard.

However, REITs appear to be well-positioned to handle rising rates because of how they typically structure their debt, meaning many will be partially protected from the impact of interest rate changes until 2025-26, according to CIBC.

“REITs typically only refinance their debt as the mortgage terms come due. As a result, during the low interest rate environment of the COVID-19 pandemic, most REITs were only able to refinance a portion of their maturing debt,” the analysts said.