Should Hong Kong REIT Investors Fear Higher Interest Rates?
Real estate investment trust (REIT) investors have had it good for many years, as a low-interest rate environment has been extremely beneficial for these leveraged real estate vehicles. As REITs typically borrow heavily to finance their operations as well as to acquire properties, low rates mean REITs end up paying much lower finance costs, resulting in higher levels of cash to pay out to investors.
Investors would do well to remember that REITs tend to pay just the interest portion of their loans, and will roll-over the loan once the maturity date nears. Alternatively, the REIT could also look for an alternative lender (preferably with an even more competitive interest rate) to replace the loan that is coming due.
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Source Fool.com
