7 Reasons to Buy Mapletree Industrial Trust After Its Data Centre Acquisition

May 31, 2023

Demand for data storage and processing capabilities is skyrocketing, fuelled by breakthroughs in Artificial Intelligence (AI) and digitalisation.

From powering e-commerce platforms to supporting AI algorithms, data centres form the physical backbone of today’s digital economy.

As the data centre industry is experiencing an unprecedented boom, one standout in this landscape is Mapletree Industrial Trust (SGX: ME8U).

It’s a component stock of Singapore’s Straits Times Index (STI) and is one of the biggest Singapore REITs with data centre exposure.

Recently, Mapletree Industrial Trust made headlines with its strategic acquisition of a newly-built data centre in Osaka, Japan for ¥52 billion (S$503.8 million).

This purchase will mark its maiden foray into the Japanese data centre market.

So, here are seven reasons why this acquisition makes Mapletree Industrial Trust a strong buy for your long-term investment portfolio.

1. Expansion into Japan

The acquisition of the new data centre in Osaka, Japan, marked Mapletree Industrial Trust’s entry into the third-largest data centre market in the APAC region.

This strategic move provides investors with a golden opportunity to capitalise on the rapidly-growing data centre industry in Japan.

As data centres are becoming crucial to support the explosive growth of AI, cloud computing, and digital transformation, Mapletree Industrial Trust’s commitment to this sector sets a robust growth trajectory for the REIT.

This proactive strategy not only aligns with the global digitalisation trend but also presents potential upside for investors.

2. Stable income stream

The Osaka data centre is leased to an established data centre operator for 20 years under a net lease structure, providing a long-term stable income stream.

Such stability in revenue generation is a significant plus point for investors, reinforcing the trust’s capability in providing consistent returns.

3. Portfolio diversification

The acquisition expands Mapletree Industrial Trust’s portfolio to S$9.3bn, with Japan accounting for 5.5% of the enlarged assets under management (AUM).

This diversification reduces the risk associated with overexposure to a single market, ensuring a balanced and resilient portfolio.

The REIT’s approach to diversification conveys its strategic investment management skills.

4. Accretive acquisition

Mapletree Industrial Trust’s Osaka acquisition is expected to be Distribution Per Unit (DPU) and Net Asset Value (NAV) accretive, increasing these by 2.1% and 0.5%, respectively.

This implies an enhanced dividend yield for investors, signalling attractive return potential.

5. Strong management team

Mapletree Industrial Trust’s management team has demonstrated a strategic and forward-thinking approach to investments, as evidenced by this well-planned entry into the Japanese data centre market.

The successful execution of such major deals points to their expertise and commitment to driving growth, which can assure investors of the REIT’s future performance and portfolio.

6. Positive market outlook and proactive risk management

The global data centre market is witnessing a massive surge driven by the proliferation of data, AI, and increasing cloud usage.

Mapletree Industrial Trust’s entry into this booming market indicates a favourable market outlook.

In addition to the positive industry trend, Mapletree Industrial Trust has demonstrated effective risk management by lowering its single tenant exposure to 5.7%.

This further safeguards the REIT’s assets against potential defaults, enhancing the security of investors’ capital.

7. Low interest rate environment in japan

With the rise of interest rates over the last year, Japan’s low interest rate environment presents a favourable condition for Mapletree Industrial Trust’s recent acquisition and future expansion plans.

Lower borrowing costs in Japan mean that the REIT can finance its acquisitions more affordably, potentially leading to higher profitability and an enhanced yield for its investors.

This is particularly beneficial for REITs like Mapletree Industrial Trust, where leverage is a common strategy used to finance property acquisitions and enhance returns.

For this acquisition, Mapletree Industrial Trust indicated it will fund the total acquisition cost of ¥51.8 billion (S$505.9 million) through a combination of Yen-denominated debt (net S$310.2 million) and proceeds of S$195.7 million from a proposed private placement of 92.593 million new units, at an indicative price range of S$2.16-2.212.

Strong position for REIT to tap booming market

Mapletree Industrial Trust’s strategic acquisition in Osaka reflects the trust’s robust investment approach and commitment to capitalising on high-growth markets.

Moreover, its commitment to providing stable income streams and diversifying its portfolio offers an attractive prospect for investors looking for balanced and resilient income opportunities.

With its dynamic investment strategy and strong management, Mapletree Industrial Trust is positioned to leverage the booming data centre industry, potentially delivering higher-than-average returns for its investors.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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