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Digital Realty-Mitsubishi JV to Acquire Land Parcel in Tokyo

Zacks Equity Research

In an effort to expand its presence in Japan, data-center REIT Digital Realty Trust, Inc. DLR recently announced that its 50/50 joint venture with Mitsubishi Corporation — MC Digital Realty — has struck a deal to acquire a five-acre land parcel in Tokyo.

The acquisition, likely to conclude later this year, is subject to customary closing norms. Moreover, conditioned upon planning approvals, the data-center development on this site is expected to commence in 2020. Initially, the facility is estimated to deliver up to 35.6 megawatts of total IT capacity.

The acquisition of the land parcel is a strategic fit. This is because the site is situated at the center of the Inzai data-center cluster. It is one of the topmost dense areas in Japan enjoying presence of leading global cloud providers and financial institutions. Moreover, there is a well-established utility and connectivity infrastructure.

In fact, Tokyo has emerged as one of the top financial and technology centers in the Asia Pacific region. Additionally, with public cloud growth and rising demand for data-center solutions, this data-center market is likely to witness quick expansion in the upcoming years. Digital Realty too is focused on leveraging on growth potential of the Asia Pacific region, and operates a network of data centers situated in Singapore, Hong Kong, Osaka, Melbourne and Sydney, at present.

Admittedly, with growing popularity of cloud computing, Internet of Things and big data, as well as the use of third-party IT infrastructure by several companies, data-center REITs are experiencing a boom. Additionally, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to eight years. This will significantly propel growth of data-center REITs, such as Digital Realty, Equinix, Inc. EQIX, CyrusOne Inc. CONE, CoreSite Realty Corp. COR and others.

Amid these, accretive acquisitions and development efforts are expected to boost top-line growth for Digital Realty. In January, the company announced the expansion of its Singapore-connected campus with a new facility. Further, during the Dec-end quarter, it completed the previously-announced acquisition of Ascenty, a data-center provider in Brazil, in a transaction worth nearly $1.8 billion.

However, given the solid growth potential of the data-center real estate market, competition is expected to intensify in the upcoming period from existing as well as new players. Amid all these, an aggressive pricing pressure is anticipated in the data-center market.

Digital Realty has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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