NTT DATA Group is set to enter the real estate investment trust (REIT) market with a focus on data centers. This initiative marks the first data center-specialized REIT established by a domestic company in Japan.
The REIT, targeted to launch by March 2026, boasts a projected asset size of up to 100 billion yen. NTT DATA aims to leverage this new structure to accelerate data center construction, capitalizing on the surging demand fueled by factors like generative AI.
To establish the REIT management company by fiscal year 2025, NTT DATA plans to raise funds from investors through public or private offerings, with the possibility of an initial public offering (IPO) down the line.
The company will initially contribute data centers, primarily overseas facilities, to the REIT and retain their management responsibility. If the offering goes public, the initial asset sale is estimated to range from hundreds of billions of yen to a staggering 1 trillion yen. NTT DATA ambitiously targets selling approximately 500 billion yen worth of data centers by March 2026 through this REIT and other potential avenues.
This strategic move addresses the growing financial demands associated with data center construction. NTT DATA is committed to significant expansion, planning to invest over 1.5 trillion yen in data centers within the next five years.
REITs offer a solution to the upfront costs typically associated with data center development. This funding mechanism becomes particularly relevant considering NTT DATA’s current financial state. The company’s interest-bearing debt has quadrupled since March 2022, reaching a significant 2.2 trillion yen by March 2024.
Selling data centers to REITs is a well-established practice overseas, with industry leaders like Equinix and Digital Realty Trust demonstrating its success. Investors are also drawn to this asset class due to its perceived stability.
Beyond the immediate funding benefit, NTT DATA aims to enhance its overall capital efficiency by removing data centers from its core holdings. This strategic move could significantly improve the company’s return on invested capital (ROIC), a key metric reflecting profitability. NTT DATA’s ROIC has dipped to a nine-year low of 4.7% in the fiscal year ending March 2024. By reducing assets, the company hopes to achieve a significant increase in ROIC.
