NTT DC REIT IPO is the first REIT IPO since the year 2021 after Digital Core REIT. The REIT is sponsored by NTT Limited (Nippon Telegraph and Telephone Corporation), a Japanese telecommunications group headquartered in Tokyo, Japan. NTT DC REIT offering price is US$1.00 per unit while the Singapore offering price is S$1.276 per unit. In this post, I shall take a look at NTT DC REIT prospectus to identify whether it is worthy for me to invest into this REIT. What is NTT DC REIT dividend? I shall also look at the risks involved in investing into NTT DC RET.
What is NTT DC REIT’s investment strategy? NTT DC REIT was established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally which are used primarily for data centre purposes, as well as assets necessary to support the digital economy. The IPO is seeking to raise gross proceeds of approximately US$773 million.
What are the assets under NTT DC REIT’s portfolio? The initial portfolio of NTT DC REIT comprises of six data centres. Three data centres are located in California (United States), one in Virginia (United States), one located in Vienna (Austria) and one in Singapore. Based on the prospectus, the appraised value of the IPO portfolio is approximately US$1.6 billion.
NTT DC REIT Occupancy
NTT DC REIT’s overall portfolio occupancy stood high at 94.3%. The IPO Portfolio’s strategic balance of hyperscale and colocation customers enables it to achieve both high occupancy and stable income, as well as strong pricing and rental growth.
As you can see from the above chart, 51.0% of the IPO Portfolio’s total monthly base rent as of 31st December 2024 is contributed by hyperscale customers, comprising global cloud service providers and major international tech giants. The remaining 49.0% of monthly base rent is contributed by an extensive list of colocation customers across a broad range of industries.
What is the difference between colocation versus hyperscale? Colocation data centres provide space, power, and cooling for multiple customers’ servers, while hyperscale data centres are designed to scale efficiently and support large-scale cloud services and applications.
Colocation is suitable for businesses that want to maintain control over their hardware without investing in their own data centre. Hyperscale is best for companies that require rapid scaling and high availability, such as tech giants and cloud service providers.
Lease Expiry Profile
As you can see from the above chart, NTT DC REIT’s IPO portfolio has a well-balanced lease expiry profile with no single financial year seeing lease expiry in excess of 20% of monthly base rent in the next five financial years. The majority of the contracts expiring in FY24/25 are attributable to SG1 as its customer mix is predominantly retail colocation in nature, and its contract with NTT Singapore Pte Ltd under the SG1 Master Services Agreement is also contracted on a one-year renewal basis.
Debt
NTT DC REIT’s aggregate leverage is 35% when it gets listed on 14th July 2025. This will provide ample headroom for NTT DC REIT to take on further debt to make accretive acquisitions while remaining in compliance with the 50% gearing limit.
70% of NTT DC REIT’s borrowings will be on fixed rates or hedged-to-fixed rates to mitigate interest rate exposure. The manager’s interest rate hedging policy is to fix at least 50% of interest rates, with the remaining floating rate exposure potentially providing upside in the event of future interest rate cuts.
Debt Maturity Profile
NTT DC REIT has no debt maturities in the next three years, with facilities maturing in FY2028/2029. The REIT has the flexibility to extend its existing facilities’ maturities by a further two years via the in-built extension options which allow for two one-year extension options.
NTT DC REIT Dividend Yield
Based on the offering price of US$1.00 per unit, NTT DC REIT projected an annualised distribution yield of 7.50% for the period from 1 July 2025 to 31 March 2026. This means you get paid 7.50 US cents per unit of NTT DC REIT that you owned.
NTT DC REIT IPO Summary
Based on what was listed in the NTT DC REIT prospectus, the pros of investing NTT DC REIT are
- High occupancy rate of 94.3%.
- NTT DC REIT dividend yield of 7.5% is considered high.
- Acceptable aggregate leverage of 35% with room to take up more debt for acquisitions.
- No debt maturities in the next three years.
Now, let me share with you the risk or the cons involved in investing in NTT DC REIT.
- There are limitations on the ownership of Units in NTT DC REIT whereby Unitholders are prohibited from directly or indirectly owning in excess of 9.8% of the outstanding Units.
- NTT U.S. DC REIT may lose its status as a U.S. REIT. If NTT U.S. DC REIT fails to qualify as a U.S. REIT, it would have to pay significant income taxes, in amounts that cannot be calculated at this time, and would therefore have less money available for investments or to pay dividends and distributions to its shareholders.
- Changes in taxation legislation, administrative guidance, practice, regulations, any disagreement as to the interpretation thereof, and/or any tax ruling ceasing to apply, may adversely affect NTT DC REIT, its subsidiaries, Unitholders and/or the Manager (and its owners).
- There are risks relating to the data centre industry.
If you like to read into more details on the risks, they are listed in detail at Page 78 of NTT DC REIT prospectus.
In my opinion, investing in NTT DC REIT is risky as an IPO usually lacks data on historical performance. If you are keen to invest in a data centre REIT, go for Keppel DC REIT or other data centre REITs that have been listed for at least 5 years.
At this point of writing, the IPO is already closed as NTT DC REIT starts trading on the SGX on Monday, 14th July 2025.