Centurion Apartment REIT Completes Mortgage Financing at Record Low Interest Rate of 1.33%
September 18, 2015
On September 10, 2015 Centurion Apartment REIT completed a mortgage financing at the lowest interest rate it has ever managed to finance a property. The interest rate was fixed at a 1.33% per annum with a maturity of 5 years. The amount of the mortgage was $12.9 million. Commenting on the financing, Greg Romundt, President of the REIT stated:
“We are ecstatic to be able to finance long term mortgage liabilities at these interest rates. While these rates are new, historic lows, we have consistently stated our belief that interest rates would go lower and stay lower than the market expects for a considerable period of time. While interest rates will be volatile, the pressure is still for lower, not higher rates. Negative interest rates exist around the world and are a distinct possibility in Canada.
We are seizing upon the opportunity to refinance mortgage liabilities that are maturing in the near future to lower our all in cost of debt which currently stands at approximately 3.80%. We estimate that if we were to roll all of our mortgage liabilities over at today’s rates, that savings would be in the range of $6 million per year. While we cannot roll over the whole portfolio today because the mortgages do not all mature today, we believe that we will be able to do so over time and realize significant savings.
The global and Canadian economies will likely see low growth and low interest rates for a long time. Further, with our mortgage investment portfolio earning about 10 percent per year, the spread between our cost of debt capital and the yield we can earn on our mortgage investments is widening and it is expected that the REIT will become a net interest earner by the end of 2015 (meaning the REIT will earn more in interest on its mortgage investments than it pays on its mortgage liabilities). All of these forces are positive tailwinds for the apartment business in general and the REIT in particular and should continue to help us to drive earnings over time.