It finally happened.
The US Federal Reserve raised interest rates by 0.25% on 16 September 2026.
More increases have been signalled.
S-REITs, which have spent six difficult years adjusting to higher borrowing costs, now face the question again: can they cope with another round of rate hikes?
Many will remember the damage interest rates inflicted on S-REITs two years ago.
It begs the question: are S-REITs doomed to mediocrity again?
The answer depends less on where rates end up and more on how quickly they get there.
Did REITs cope with the last round of gradual hikes?
Between 2015 and 2018, the Fed raised rates in 0.25% increments over a three-to-four-year period.
The increases were predictable and spaced out.
Many S-REITs grew their distribution per unit (DPU) throughout that entire cycle.
For instance, Mapletree Logistics Trust (SGX: M44U), or MLT, raised its DPU from S$0.075 in its financial year ended 31 March 2015 (FY15) to S$0.07941 in FY19.
And MLT isn’t the only one.
The same can be said of CapitaLand Integrated Commercial Trust (SGX: C38U) and Parkway Life REIT (SGX: C2PU).
Tellingly, all three are from different industries.
There is a reason why these REITs were able to do so, in our eyes.
REITs operate under long-term contracts on both sides of their balance sheet.
Their tenants sign multi-year leases.
Their lenders extend loans with fixed maturity dates.
A REIT cannot walk into its bank tomorrow and refinance every loan, nor can it approach its tenants mid-lease and demand higher rents.
It is bound by what it has already signed.
Gradual rate hikes give REITs time to work within these constraints.
As leases expire, they renew at higher rents that reflect the new rate environment.
As loans mature, they refinance at whatever rate the market offers.
The income side and the cost side adjust in parallel, and the REIT absorbs the change without squeezing its distributions.
Why did the 2022-2023 cycle catch REITs off guard?
In contrast, the rate-hike cycle that began in 2022 was not gradual.
It was the steepest increase in roughly 35 years.
Between March 2022 and July 2023, the US federal funds rate climbed from near zero to 5.5% in under two years.
That steep increase left almost no room for adjustment.
REITs were locked into existing leases that reflected a near-zero rate world.
Their floating-rate loans repriced immediately at far higher costs, while their rental income stayed flat until leases came up for renewal.
The mismatch between fast-rising costs and slow-moving revenue squeezed DPUs across the sector.
The damage showed up in earnings over 2024 and 2025, when higher borrowing costs started to bite into distributable income.
Very few S-REITs came through this period with their DPU intact.
A handful managed to grow distributions every single year from 2020 through to today — a stretch that included a pandemic, tariff disruptions, and the sharpest rate spike in a generation.
They were the exception, not the norm.
Where do rates sit today?
The current US federal funds rate sits at around 4%.
That is higher in the pre-2022 world, but it remains 1.5 percentage points below the 2023–2024 peak of 5.5%.
This gap matters for REITs in a specific way.
Any loan taken out or refinanced near the 2023–2024 peak can now be renewed at a lower rate, even after the latest increase.
S-REITs that locked in borrowing at those elevated levels would actually see their interest costs fall when they next refinance, as long as rates stay below 5.5%.
The risk is not today’s rate level.
Instead, the risk is whether the Fed’s signalled increases come gradually or steeply.
A measured path from 4% to 5%, spread over two years with predictable 0.25% steps, gives REITs the same adjustment window that made 2015–2018 manageable.
A rapid march back towards 5.5% in under a year would recreate the same mismatch that hurt the sector in 2022 and 2023.
Get Smart: It’s about pacing
When rates rise, the reaction is to ask whether your REIT can survive higher borrowing costs.
That question skips the refinancing cycle that is more important.
REITs do not fail because rates are high.
They get squeezed when rates rise faster than their leases and loans can adjust.
The next time the Fed signals a hike, check your REIT’s weighted average debt maturity and lease expiry profile.
A REIT with well-staggered maturities on both sides of its balance sheet may be able to digest gradual increases without cutting its DPU.
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Disclosure: Chin Hui Leong owns all the REITs mentioned.
