To The Moon

The Federal Reserve held interest rates steady at 4.25%-4.5% in its June 2025 meeting, maintaining this level for the fourth consecutive meeting since December 2024. Despite persistent inflation and lowered growth projections, the Fed signaled two potential rate cuts later this year through its "dot plot" forecast, though officials remain divided with seven members opposing any 2025 cuts. This decision occurs amid economic uncertainty fueled by tariff policies and stagflationary pressures, with GDP growth now projected at 1.4% and inflation at 3% for 2024.

How US Interest Rates Affect Singapore REITs

Singapore REITs (S-REITs) face significant challenges from US rate policies due to their heavy reliance on debt financing and competition for investor capital. Higher US rates trigger a dual impact:

• Increased borrowing costs that constrain acquisitions and expansion, as S-REITs typically grow through property purchases funded by debt.

• Investor yield expectations rise when safer alternatives like Singapore T-bills (offering 1.945% returns) or US 10 Years Risk Free Rate (offering 4.39%) become more attractive, forcing S-REITs to deliver higher distributions to remain competitive.

Interest Cost Impact on each S-REITs

US 10 Year Risk Free Rate

Singapore 1 Year T Bill Interest Rate

This dynamic has pressured the sector, driving the iEdge S-REIT Index toward multi-year lows earlier this year. However, any Fed pivot toward rate cuts typically boosts S-REIT sentiment by easing these constraints, as seen in November 2023's 7.4% index surge following dovish Fed signals.

REIT Case Studies: DPU Outlook Under Current Conditions

1. $Keppel DC Reit(AJBU.SI)$ This data centre-focused REIT reported a 14.2% YoY DPU increase in Q1 2025 to S$0.02503. Its specialised assets (data centres) benefit from resilient tenant demand for digital infrastructure, potentially shielding it from broader economic volatility. However, prolonged high rates could pressure funding costs for future expansions, limiting DPU growth if the Fed delays cuts.

2. $Mapletree Ind Tr(ME8U.SI)$ The industrial REIT achieved a 1% YoY DPU rise in fiscal 2025. Its exposure to logistics and tech parks provides stability, but tariff-induced supply chain disruptions could affect tenant health. If US rates remain elevated, refinancing existing debt at higher costs may gradually erode DPU growth, despite its current resilience.

Forward Outlook

With the Fed projecting two 2025 cuts amid persistent inflation and policy uncertainty, S-REITs face continued volatility. REITs with strong operational metrics—like those in data centres or industrial sectors—appear better positioned to navigate higher-for-longer rates, while those carrying heavy debt loads remain vulnerable to DPU compression. Investors should monitor Fed signals closely, as even tentative cut discussions could trigger sector rallies.