Modest Maturities and Minimal Variable Rate Debt Protect Real Estate Entities From Rising Interest Rates
Interest rates have risen at their quickest pace in the last 14 years in order to counter the current multidecade high levels of inflation. This contrasts with the environment of record low rates until only very recently, which were strongly supporting credit quality. In DBRS Morningstar's view, highly leveraged real estate entities with short debt maturity profiles, or a high proportion of variable rate debt, a low proportion of unencumbered assets, and limited access to liquidity could experience relatively more deterioration in credit quality in this rising rate environment. Furthermore, issuers with heightened development risk or who already generate low or negative free cash flows could exacerbate the impact of the current environment. Real estate entities rated by DBRS Morningstar are weathering the impact of rising interest rates through a laddered debt maturity profile and a low proportion of variable rate debt.
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