Analysing REITS

[tanjm]

Just curious would a rising 10 yr SG bond yield affect the Cap rate valuation that our local REITS used to value their assets? If so, could anyone elaborate?

I had gave some thoughts abt this recently.

What I think is Cap Rate likely will likely be raised with raising interest. So in order to maintain the same asset value, the rental must increase. If the rental cannot increase, then the asset value will likely to fall.

If cap rate is not to be too arbitrary, a more likely method of deriving a cap rate would be to take actual transacted prices of equivalent actual property sales and reverse engineer (in financial engineering parlance - to imply) the cap rate that would explain the sale price.

In such a case cap rate would only be indirectly linked to rising interest rates in the sense that rising interest rates would make it more expensive to fund a property purchase.

This makes sense since you'd want to value a building based on actual transactions.