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High Yield Meets Growth: What Investors Should Know About NTT DC REIT's IPO？

Investors looking for attractive income opportunities on the Singapore Exchange (SGX) should note the upcoming debut of $NTT DC REIT USD(NTDU.SI)$  . 

Backed by Japan's Nippon Telegraph and Telephone (NTT) Group, this pure-play data-centre REIT is raising approximately US$773 million (S$988 million) and is set to commence trading on 14 July 2025 with a projected annualised distribution yield of 7.5%. This marks the largest S-REIT IPO on SGX in over a decade, combining a standout starting yield with clear growth drivers.

Why This IPO Has Captured Market Attention

The public offer for NTT DC REIT ran from July 7 to July 10, with a total fundraising target of approximately US$773 million (S$988 million). The IPO involves the issuance of nearly 600 million units at US$1 each, priced around S$1.276 for retail investors. 

Notably, Singapore's sovereign wealth fund GIC has committed to purchasing 100 million units, signaling strong institutional confidence and providing retail investors with the chance to “follow the smart money.” NTT itself retains a significant 25% stake, ensuring ongoing sponsor support.

This IPO comes at a time of exceptional growth in the global data centre market. According to the prospectus, global data centre commissioned power is forecast to rise at a 27.5% CAGR from 2024 to 2027, following double-digit growth over the past five years. The total global commissioned power is expected to more than double from 49.1 GW in 2024 to 101.9 GW in 2027. This surge is driven by the proliferation of cloud solutions, the rapid adoption of artificial intelligence, and ongoing digital transformation initiatives across industries. These powerful trends provide a robust macro backdrop, underpinning the long-term growth potential of NTT DC REIT's assets.

Yield Backed by Strong Operational Fundamentals

The promised 7.5% annualised distribution yield is not just eye-catching but grounded in solid operational metrics. 

$NTT DC REIT USD (NTDU.SG)$ owns six high-quality data centres valued at about US$1.57 billion, boasting an occupancy rate of 94.3% and an average lease term of 4.8 years. These figures indicate a stable and well-leased portfolio that supports reliable cash flow.

What makes the income stream even more attractive is the lease structure. Approximately 75% of leases include fixed annual rental escalations averaging 3.3%, while another 3% are linked to inflation indices. This means that investors can expect rental income to grow steadily over time, helping to protect distributions against inflationary pressures. The REIT manager has committed to distributing 100% of distributable income for the first two financial years post-listing and at least 90% thereafter, reinforcing the focus on delivering steady cash flow to investors.

Premium Assets in Strategic Global Locations

NTT DC REIT’s portfolio is geographically diversified across three key data centre hubs: the United States, Europe, and Asia-Pacific. Four data centres are located in the U.S.—three in Northern California and one in Ashburn, Virginia, the world’s largest data centre market. These locations are critical infrastructure nodes for cloud providers and hyperscalers, benefiting from robust demand driven by technology giants and enterprises alike.

The Vienna, Austria data centre adds European exposure, while the Serangoon facility in Singapore anchors the portfolio in Asia-Pacific's second-largest data centre market. Singapore's data centre vacancy rate is among the lowest globally at just 1%, supported by government initiatives promoting green data centres and planning for at least 300MW of new capacity in the coming years. This geographic spread provides investors with diversification and access to some of the world's most sought-after data centre markets.

Growth Prospects Fueled by NTT Group's Strategic Support

One of the most compelling aspects of NTT DC REIT is its growth runway, supported by its sponsor's strategic commitment. NTT Group has granted the REIT a right of first refusal on approximately 130MW of stabilised data centre assets identified for sale, along with access to a global development pipeline exceeding 2GW.

This “capital recycling” model allows NTT to sell mature assets to the REIT and reinvest proceeds into building new data centres, creating a virtuous cycle of growth. If fully exercised, this could double the REIT's IT load capacity from around 90MW today to approximately 200MW within five years, funded through a combination of debt capacity and future equity issuance. Additionally, asset enhancement initiatives such as improved cooling and electrical systems promise operational efficiencies and rental uplift.

Financial Discipline and Stability

$NTT DC REIT USD (NTDU.SG)$'s financial structure is conservative and designed to weather market volatility. With gearing at 35% upon listing, the REIT retains significant debt headroom below the 50% regulatory ceiling imposed by the Monetary Authority of Singapore. Around 70% of borrowings are fixed-rate or hedged, and there are no debt maturities due in the next three years, reducing refinancing risks amid rising interest rates.

This prudent balance sheet management ensures that the REIT can maintain its attractive distribution payout while pursuing growth opportunities without overleveraging.

Risks to Consider Before Investing

While the opportunity is compelling, investors should carefully weigh several risks. The U.S. data centre market, particularly in Ashburn, faces potential oversupply that could pressure rents if demand growth slows. Currency risk is also a factor, as approximately 83% of income is denominated in U.S. dollars and euros, exposing Singapore investors to exchange rate fluctuations.

Rising global interest rates may increase financing costs once fixed-rate hedges expire, and 30% of debt remains floating. Geopolitical tensions and evolving data localisation policies could also impact cross-border data flows and investment returns. 

Lastly, tenant concentration is a risk factor that warrants close monitoring. Although the REIT's tenant base is well-diversified between hyperscale cloud providers (51%) and colocation customers (49%)—both known for stable, long-term demand—the largest tenant accounts for a significant portion of rental income. Encouragingly, tenant retention has been strong, with a 98.3% renewal rate over the past three years, reflecting the high stickiness and reliability of data centre clients.

How NTT DC REIT Stands Out Among Peers

Compared to other data centre REITs listed on SGX, NTT DC REIT offers the highest projected initial yield at 7.5%, well above $Keppel DC Reit (AJBU.SG)$'s 4.3% and $DigiCore Reit USD (DCRU.SG)$'s 6.9%. While the higher yield partly reflects risk premiums, it also highlights the REIT's competitive positioning in a growing sector.

Geographically, $NTT DC REIT USD (NTDU.SG)$'s diversified footprint across North America, Europe, and Asia-Pacific provides investors with broader exposure than peers more concentrated in Asia. This diversification can help smooth income volatility and capture growth from multiple markets.

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