As if the current plight of REITs wasn’t bad enough, JPMorgan analysts added insult to injury by downgrading Mapletree Industrial Trust (MINT) in their latest report from ‘Overweight’ to ‘Underweight.’ They also slashed the target price significantly from S$2.50 to S$1.90, sending the stock down 3% in a single day.
Investors were already jittery about MINT, as its share price has been on a downward trend since September 2024. In fact, a MINT unitholder would have lost 3% over the past five years, even after factoring in dividends.
REIT investors enjoyed a strong decade of returns in a low-interest-rate environment, but the landscape has shifted dramatically since the Fed began raising rates in 2022. Every year, investors hope for a more favorable macro backdrop—especially with interest rate cuts—but reality has been different. While short-term interest rates have eased, long-term rates have risen instead over the past year. Since property loans typically span multiple years, REITs have found no relief, continuing to grapple with elevated financing costs.
While higher interest rates are a widespread challenge for REITs due to their leveraged nature, weak property fundamentals have compounded the struggles for some. This is precisely JPMorgan’s concern about MINT—they expect rising vacancies in data centers across the U.S. and Singapore. The result? A projected 5-6% revenue decline and a 4% drop in distribution per unit (DPU), with these pressures expected to persist for the next two years.
My first instinct was—how the heck did they know vacancies were coming up?
Apparently, MINT had already disclosed this information to analysts, and UOB Kay Hian picked up the memo as well, adjusting their DPU forecasts down by 1% for FY25 and 4% for FY26. Here’s the situation:
- 2000 Kubach Road, Philadelphia: Vanguard’s lease expired in December 2024, and they won’t be renewing. This accounts for 1.2% of MINT’s revenue. MINT plans to either re-lease, convert the space for other uses, or divest the property.
- 400 Holger Way, San Jose: Centersquare is expected not to renew its lease expiring in August 2025, representing 0.9% of revenue. MINT is considering redeveloping the site or divesting it.
- 250 William Street, Atlanta: InComm’s lease ends in February 2026, and they are also unlikely to renew. This space contributes 1% of revenue. MINT is exploring the possibility of converting office space into additional data center capacity, but this would require increased power capacity.
- 7337 Trade Street, San Diego: AT&T’s lease will expire in May 2026, impacting 2.5% of revenue. MINT is assessing options to convert the space for alternative uses or divest it.
So, there are some headwinds ahead, with approximately 5.6% of MINT’s revenue at risk over the next two years. However, there are also mitigating factors.
1. Not a Catastrophic Hit, with Backfilling and Divestment as Possibilities
Firstly, this is not an apocalyptic scenario. MINT can still backfill the vacancies—perhaps not fully, but even a partial re-leasing would help offset revenue losses. Given that data center demand remains strong, filling these spaces should be more manageable.
That said, MINT’s data centers tend to be smaller in size. With AI trends driving demand for high-performance computing, data centers with higher power capacity are now preferred. The challenge? Increasing power capacity isn’t easy—power stations take much longer to build than data centers. If MINT cannot upgrade the power supply for these properties, divesting them might make more sense.
Of course, the emergence of DeepSeek and its potential to drive a shift toward lightweight AI models could change this dynamic. If AI applications become less reliant on high computing power, smaller data centers could remain relevant. But at this point, it’s still unclear which direction the industry will take.
2. Industrial Properties in Singapore Provide Stability
MINT still holds a strong portfolio of non-data center industrial properties in Singapore, making up 47.3% of its total assets. These properties remain resilient, which offers a layer of stability.
To put things in perspective, let’s compare MINT to two peers:
- Digital Core REIT—heavily exposed to North American data centers—has seen its market cap almost halved since its IPO in 2021 due to tenancy issues and declining DPUs. This highlights that even in a booming data center sector, not all win. MINT is facing similar challenges, albeit at a lower intensity.
- CapitaLand Ascendas REIT, with a large portfolio of Singapore industrial properties, has had flattish returns—dragged by high interest rates, but at least unitholders haven’t suffered massive losses like those in Digital Core REIT.
MINT, which owns both North American data centers and Singapore industrial properties, will likely deliver returns somewhere between the two peers—which seems reasonable given both exposure.
3. Diversifying Data Center Investments
Despite the current challenges, MINT remains focused on data centers, as they continue to be the fastest-growing and most structurally sound real estate segment. The issue is its heavy concentration in the U.S., which it has been actively trying to diversify away from.
A recent example is MINT’s acquisition of a mixed-use property in Tokyo, which it plans to convert into a data center. Selling some of its smaller, less competitive data centers and redeploying capital into stronger markets would enhance its portfolio’s resilience.
That said, I personally would prefer MINT to acquire properties in Singapore. Singapore’s real estate market has proven to be more resilient than most global markets. However, acquiring new properties here—especially data centers—is challenging. Data centers are power-hungry and high in carbon emissions, which runs counter to Singapore’s sustainability goals. This forces MINT to look overseas for acquisitions.
Ultimately, management’s investment acumen will be critical in identifying high-quality data center opportunities that can strengthen MINT’s long-term prospects.
Conclusion
The pain for REIT unitholders isn’t going away anytime soon. In MINT’s case, unitholders should brace for at least two lackluster years—and potentially worse if vacancies rise, backfilling takes longer than expected, or divestments prove difficult to execute.
At this juncture, a portfolio restructuring seems necessary, with greater geographical diversification. However, expanding overseas comes with its own set of challenges, and MINT’s management has its work cut out in navigating these risks while building a high-quality global data center portfolio.
The investment risk in MINT has undoubtedly increased, and unitholders must be comfortable with the uncertainties ahead. Even for those who believe in MINT’s long-term potential, it will take time to weather through. Patience is required—not just for MINT, but for REITs in general.