Rising Interest Rate May Not Be All Bad For REITs
Most investors have the perception that rising interest rate is bad for REITs. That may not be true. Higher interest rate usually is the result of better economy and that may translate to higher rental income for REITs.
The chart below is a comparison of 12 months SIBOR vs Capitaland Mall Trust & Ascendas REIT.
Upper panel is share price of Capitaland Mall Trust.
Middle panel is 12 months SIBOR.
Lower panel is share price of Ascendas REIT.
During 2003 to 2006 (pointed out by the arrow), SIBOR was up significantly from 1.00% to 3.50%. Only 2 Singapore REITs were listed before 2003: Capitaland Mall Trust & Ascendas REIT. During the same period, share price of both Capitaland Mall Trust & Ascendas REIT were up together with rising SIBOR rate.
Ironically during 2007 to 2008 when SIBOR was trending down, both REITs had fallen as well. Financial crisis occurred during this period.
* SIBOR stands for Singapore interbank offer rate. This is a reference rate based on interest rate at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market. Mortgage rate is usually pegged to SIBOR plus a fixed rate.
The chart below is a comparison of 12 months SIBOR vs Capitaland Mall Trust & Ascendas REIT.
Upper panel is share price of Capitaland Mall Trust.
Middle panel is 12 months SIBOR.
Lower panel is share price of Ascendas REIT.
During 2003 to 2006 (pointed out by the arrow), SIBOR was up significantly from 1.00% to 3.50%. Only 2 Singapore REITs were listed before 2003: Capitaland Mall Trust & Ascendas REIT. During the same period, share price of both Capitaland Mall Trust & Ascendas REIT were up together with rising SIBOR rate.
Ironically during 2007 to 2008 when SIBOR was trending down, both REITs had fallen as well. Financial crisis occurred during this period.
* SIBOR stands for Singapore interbank offer rate. This is a reference rate based on interest rate at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market. Mortgage rate is usually pegged to SIBOR plus a fixed rate.
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