For those who have read my earlier review of Mapletree Industrial Trust’s (SGX: ME8U) results for the 2nd quarter and 1st half of FY2025/26 ended 30 September 2025 (if you haven’t, you may refer to it here), you would recall my concerns surrounding the occupancy of its North American data centre portfolio.

Since 2Q FY2024/25 (90.9%), occupancy has trended down over successive quarters to 87.8% in 2Q FY2025/26. The quarterly progression is as follows:

90.9% (2Q FY2024/25) → 90.3% (3Q) → 88.2% (4Q) → 88.0% (1Q FY2025/26) → 87.8% (2Q FY2025/26)

Given the prevailing narrative that AI-driven demand should be supportive for data centre performance, the continued decline in occupancy warranted further clarification.

I reached out to the REIT’s Investor Relations (IR) team via email with several questions on this matter. In response, they kindly initiated an e-meet to address my queries directly. The IR team provided useful context on the situation and explained how the REIT’s management is approaching the issue moving forward.

During our discussion, I also took the opportunity to enquire about Mapletree Rosewood Data Centre Trust (MRODCT), in which Mapletree Industrial Trust (MIT) holds a 50% interest, as well as its high proportion of fixed-rate borrowings (92.9% as at 30 September 2025).

In this post, I will be sharing the key takeaways from the 45-minute conversation (and before I begin, I’d like to take this opportunity to express my appreciation to the IR team for their time and transparency):

MIT’s North American Data Centres:

• Most of the non-renewals were from enterprise/end-user facilities, which were acquired in 2017, at which time the weighted average lease expiry (WALE) was approximately 6 years.
• These data centres are primarily located in secondary markets. They are generally lower-power facilities and not designed for artificial intelligence (AI) computing workloads (e.g., AI training). Enterprise users may assess their data centre requirements (e.g., space utilisation) from a corporate standpoint, which might not be the optimised layouts preferred by data centre operators. This has made re-leasing more challenging in the current environment, where demand is stronger for higher-power, AI-capable data centre infrastructure.
• Regarding the non-renewals observed over recent quarters, the IR team highlighted several contributing factors: tenants restructuring operations in response to remote and hybrid work arrangements, and the consolidation of data centre requirements by the organisations.
• Despite these challenges, management has secured leases of about 184, 300 square feet, where around 23% of these space relates to new tenants. However, most of these leases will only commence in the next financial year. In addition, the team cautioned that some US leases include rent-free periods, meaning revenue recovery may lag occupancy recovery.
• Looking ahead, management is actively seeking to reduce the REIT’s reliance on North America by evaluating potential acquisitions in several key European data centre markets, including Frankfurt, London, Amsterdam, and Dublin, as well as in Asia, particularly Japan and South Korea. They are also open to pursuing joint ventures where such structures make strategic sense. At the same time, the REIT intends to deepen its exposure to hyperscale and colocation data centres (which currently account for 22.7% and 43.5% of its data centre portfolio by gross rental income respectively as at 30 September 2025), given the stronger and more sustained demand in these segments.
• In addition to AI computing workloads, growth in cloud computing and edge computing are also driving the demand for data centre space. MIT’s data centres would benefit from capturing demand from these trends.
• The management is also proactively engaging existing tenants on lease renewals well in advance. An example shared was the lease extension at Richmond, where the team successfully secured a lease extension 2 years before the lease was due to expire.

Mapletree Rosewood Data Centre Trust (MRODCT):

• MRODCT’s portfolio comprises 10 powered shell data centres and 3 fully fitted hyperscale data centres. The joint venture, MRODCT holds an 80% interest in these hyperscale facilities, with the remaining 20% owned by Digital Realty. All 3 hyperscale data centres are located in Northern Virginia, which is the world’s largest data centre market, where market vacancy remains very tight.
• The tenant profile within MRODCT is primarily made up of cloud hyperscale operators and colocation providers, both of which continue to see strong and sustained demand.
• MIT holds a right of first refusal (ROFR) over MRODCT’s assets, meaning any future acquisition opportunities from this vehicle could meaningfully increase MIT’s exposure to hyperscale data centres. As such, MRODCT represents a significant growth pipeline for the REIT.

High Percentage of Borrowings Hedged at Fixed Rates:

• MIT’s proportion of borrowings hedged at fixed rates increased significantly from 79.7% in 1Q FY2025/26 to 92.9% in 2Q FY2025/26.
• The IR team explained that this was largely driven by the use of net divestment proceeds (from the sale of 3 Singapore properties completed on 15 August 2025) to repay floating rate debt, which in turn raised the hedge ratio.
• The hedge ratio will normalise over time. It generally ranges from 70% to 80%.

Challenges at Hand & the Path Forward:

• There are 2 key challenges currently weighing on the REIT’s performance: ongoing non-renewals within the North American data centre portfolio, and the impact of higher borrowing costs from the replacement of the interest rate hedges.
• With aggregate leverage at 37.3%, MIT retains approximately 12.7% of debt headroom before reaching the regulatory limit of 50%. This capacity provides flexibility for MIT to pursue diversification, both in tenant mix and property types, as well as geographically, to support long-term growth and earnings stability.

Closing Thoughts

Once again, I would like to express my deepest appreciation to the IR team for initiating the virtual discussion and taking the time to walk me through the challenges currently faced, particularly in the North American portfolio. Their transparency and willingness to address concerns directly is, in my view, a hallmark of a committed and reliable management team.

While there may be pressure on distributions over the next few quarters (due to the absence of contributions from divested properties and the lower occupancy in the North American data centres), it is reassuring to learn that backfilling efforts are already underway, with new leases secured (even though the revenue impact will only be reflected from the next financial year onwards).

In addition, the REIT’s healthy debt headroom provides it with the flexibility to pursue acquisitions that diversify both its geographical exposure and tenant profile, reducing reliance on any single market.

As a unitholder of MIT, I remain confident in the management’s ability to navigate through the current headwinds and to restore growth in distributions over time.

This brings me to the end of my post where I shared key takeaways from my discussion with the investors’ relation of MIT on the various issues. Do take note that the contents presented within are for educational purposes only, and do not constitute any buy or sell calls for the REIT’s units. You should always do your own due diligence before making any investment decisions.

Disclaimer: At the time of writing, I am a unitholder of Mapletree Industrial Trust.

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