Dale Lai of DBS Group Research has kept his "buy" call and US$1.20 target price on NTT DC REIT after the lease renewal of one of its data centres, SG1, at a higher rate, "marking a highly positive development".
While the contracted capacity has been modestly reduced by around 10%, from 3.0MW to 2.7MW, this has been more than offset by a significant uplift in rental rates, up by "an impressive" 23% to $474 per kW.
As a result, the REIT is expected to enjoy an estimated increase of $1.5 million in rental income in the first year alone, translating to a 1.5% upside to distributable income for FY2025 to FY2026.
"Given the sustained and robust demand for data centres in Singapore, NTT DC REIT is well-positioned to swiftly backfill the available capacity, potentially at even higher rental rates, providing additional upside," says Lai.
From Lai's perspective, this latest development is "slightly ahead" of his earlier expectations, further reinforcing the strength of its operational execution.
Lai views this as another key milestone delivered by NTT DC REIT since listing, which follows the successful backfilling of capacity at the CA1 and CA3 assets, as well as the introduction of a new leasing incentive scheme aimed at driving stronger leasing outcomes across the portfolio.
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"Together, these initiatives highlight management’s proactive approach and consistent ability to execute on its stated strategies, further strengthening our confidence in the REIT’s ability to deliver on its
commitments," he adds.
Lai expects the next key catalyst will be the anticipated enhancement to the management fee structure, which is targeted to be implemented over the next two quarters.
NTT DC REIT is currently expected to generate an attractive forward yield of around 8.2%, the highest among data centre-focused S-REITs.
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"This is underpinned by solid fundamentals, healthy leasing momentum, and positive rental reversions, with further upside potential as these trends continue to play out," says Lai, who is reiterating this counter as his top pick among data centre focused REITs.
NTT DC REIT, as at 9.24am, traded at 93 US cents. Its July 2025 IPO was offered at US$1 per unit.
