Singapore REITs must brace themselves for 'secular trend' of interest rate hikes

Ditch expectations of cyclical trend.

According to OCBC, they believe this is the beginning of a long term secular, not cyclical, trend of rising interest rates (with the long-end driving the curve steeper  in 2H13-FY14 and flattening out as the Fed lifts the short-end FFR anchor  in FY15). 

Higher discount rates and liquidity factors, due to capital reallocation across assets, would negatively impact prices of yield assets, such as REITs. 

Here's more from OCBC:

To be clear, however, we need to put this in a full context as history shows that S-REITs can outperform in periods of rising interest rates.

For example, from Mar 2009 to May 2010, the FSTREI Index increased a whopping 102% as the 10Y SG bond rate increased 88 bps to 2.85%. 

This performance was driven by improvement in underlying fundamentals; over that period, Bloomberg estimated blended forward 12-month DPU for the FSTREI Index bottomed out in Jul 2009 and subsequently grew by 12.8% over the next 20 months.