NTT DC REIT went public on the Singapore Exchange, with an offering price of US$1 (S$1.276) per unit.
Its IPO was a huge success, making it Singapore’s largest listing since 2017. And the largest REIT IPO in over a decade, with a market capitalization of ~US$1 billion.
This is a hot IPO in a traditional REIT sector, because of its exposure to the tech sector.
After listing, excitement faded, and the stock has barely moved above its IPO price. Today, it trades below IPO at US$0.97 per unit.
This is seven key things I observed about NTT DC REIT you might want to know before buying for its potential 7.5% yield:
1. NTT DC REIT is a “pure-play” data centre REIT
Like Keppel DC REIT and Digital Core REIT, NTT DC REIT is a “pure-play” data centre REIT. It owns six assets worth US$1.6 billion across the US, Austria and Singapore. ~68% of the portfolio is located in the US.
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2. NTT DC REIT’s properties have high, stable occupancy rate
Its overall occupancy rate stands at ~94%, with a weighted average lease to expiry (WALE) of ~4.8 years. Some leases expire earlier. Some expire much longer.
Each month, NTT DC REIT collects ~US$12 million in rental income.
3. One thing I like about NTT DC REIT — Its sponsor
NTT DC REIT is backed by Nippon Telegraph and Telephone (NTT) Group.
Here’s why:
- It’s the world’s third-largest data centre provider
- It has a large market capitalization of ~US$90 billion
- It has been around since 1953, enduring multiple market cycles
After its listing, NTT Group still owns 25% of NTT DC REIT, which is a significant amount. Now, Sponsors are critical to a REIT. They not only provide the initial assets for the REIT to manage, it also creates a consistent pipeline of high-quality assets for future acquisitions.
In a way, this gives NTT DC REIT a “built-in” growth path, which provides long-term investors visibility of the REIT’s expansion.
4. The data centre market is booming
Global demand for data centres has grown at a compounded annual growth rate (CAGR) of over 25%. This growth is expected to continue.
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In fact, vacancy rates for data centres have also been steadily declining, reaching 3.2% in 2024. Here’s the thing. Building data centres is not easy. They require massive capital, expertise and more importantly huge amounts of energy requirements.
This is a concern as a country’s electricity bills go up. Governments, including Singapore, control how many data centres can be built due to power consumption concerns.
These supply constraints give data centre owners like NTT DC REIT strong bargaining power to increase rental reversions and sustain a high occupancy rate.
Today, work-from-home is a big trend. Since COVID, more and more people around the world are getting used to working from home. This benefits data centres.
Video conferencing platforms, such as Zoom or Microsoft Teams generate large amounts of data, further increasing the need for data centre infrastructure.
These data need to be stored and processed – driving even more demand for data centres. It makes sense data centres have outperformed other types of real estate classes.
I expect this trend to continue in the coming years.
5. NTT DC REIT’s has the highest asset efficiency
Let’s compare NTT DC REIT to Keppel DC REIT and Digital Core REIT, NTT DC REIT currently sits in the middle in terms of gross revenues.
But what’s interesting is if we look at all three of their total assets, NTT DC REIT has actually the smallest assets, with ~S$2 billion.
Where NTT DC REIT data stands out is efficiency, asset turnover ratio is the highest.
- NTT DC REIT: ~11.7%
- Digital Core REIT: ~5.1%
- Keppel DC REIT: ~5.6%
Asset turnover shows how much revenue a company generates per dollar of assets.
It tells me a company’s ability to generate rent from its assets. At this moment, NTT DC REIT is far more efficient, producing US$11.7 of revenues for every US$100 of assets.
The higher the asset turnover ratio, the better.
6. NTT DC REIT has healthy gearing ratio
NTT DC REIT has a healthy 35% gearing ratio. This much lower than MAS’s regulatory limit of 50%.
Furthermore, NTT DC REIT has no debt expiring over the next three years. This gives NTT DC REIT plenty of room to borrow more debt to acquire more data centre assets.
7. NTT DC REIT’s is projected to pay 7%+ distribution yield
NTT DC REIT distributions are looking to pay an annualized rate of 7.5% distribution yield the year 9M25/26, and 7.8% yield for the following year.
According to its distribution policy, it will be paid on a semi-annual basis, with the amount decided based on the financial performance every 31st March and 30th September. The first distribution will be made in June 2026.
Of course, these are projections – actually payout will change and depends on performance.
My final thoughts
NTT DC REIT is riding on a strong sponsor, efficient use of assets and on an industry tailwind. The data centre story is a growth story.
Despite NTT DC REIT shares trading at a discount of ~0.97x price to NAV ratio, it doesn’t have major debt refinancing risks, assets are almost fully occupied and there’s secular growth in cloud, AI and data demand. All of these are powered by NTT DC REIT assets.
Having said, I expect a much higher valuation for NTT DC REIT. At a net asset value of US$1, NTT DC REIT currently trades at ~0.97x price to NAV ratio. What’s more, Keppel DC REIT and Digital Core REIT pay between 4-6% distribution yield, which puts NTT DC REIT at a much higher distribution yield
Could you elaborate why the share price drop after listing? As it is oversubscribed during the IPO, one would assume that those who did not get their allocation will buy in the market after listing. Are the institutions or retail selling? Are the underwriters not buying the shares during the stabilisation period? When will the stabilisation period end? Thank you
Tesla contributing about 30%+ of its revenue and usd weakness could be some reasons for the weak. share price
Hey Amaryllis,
Well, you could be right, institution/retail might be selling.
Cheers,
Willie
Thank you for providing the insights into NTT DC REIT.
I am surprised that the asset turnover ratio of NTDU is more than double of the other 2 DC reits. Unfortunately, I am no expert and do not know more about NTT to understand what are it’s competitive advantages that allow it to charge such “high” rates. There’s the risk that if the asset turnover ratio decreases to be in line with the other 2 DC reits, the dividend yield will also drop accordingly.
Just be aware of US dollars weakening. Can be a big trap.
Yes, with these points, I think I’d be more cautious and not invest in this REIT for now. Recall Hutchinson was also very attractive but then it slipped into a downward spiral…
Why do you missed out the discussion of US$ ? It is more important than all the points you have raise. Very Strange indeed!
I wasn’t aware of any discussion about it. I read this post and I am just commenting based on it. I only brought up one point on the asset turnover ratio so what’s so strange about it?
If the asset turnover ratio reduces to be in line with the other 2 reits, then it is possible that income and dividend yield will drop by half. I am not sure if US$ will fall so much against the SGD that it will affect dividend yield by half… So is it more important? Very odd indeed.
the projected dividend is based on projected revaluation gains: the operational losses unable to support the projected dividend
IMO, the single major risk is ‘concentration’ risk with its single largest tenant (= 31.5% of total rental) being a renowned US EV player who is facing tremendous headwind, global sales dropped significantly past many quarters, losing market share driven by price war/stiff competition from the Chinese EV players (think BYD)….share price did not ‘pop’ after IPO but instead has tanked and dropped to as low as -6% to 0.94/share despite high DPU yield (potential value trap ?) ; BTW, will upcoming Centurion Reit IPO suffers the same fate as NTT DC Reit is anyone guess…comments ?.
Hey Ian,
I guess we only wait to find out for Centurion REIT IPO. For NTT DC REIT, concentration risk for data centres is usually there. Because unlike retail, offices and traditional industrial assets, data centres tend to have a handful of tenants. Investing in these assets mean you’ve to be comfortable with the fact it’s going to be concentrated. I’d look at whether these data centres can easily replace tenants if there’s ever a default.
Cheers,
Willie