The IPO Portfolio has an appraised value of US$1,572.8 million with a design IT load of approximately 90.7 megawatts (MW). Based on the prospectus, 53.9% of the portfolio valuation is based in California, 13.5% in Northern Virginia, 16.5% in SIngapore, and 16.1% in Vienna. Of the total IT load of 90.7 MW, 66.7 MW is in the US.
Hyperscale customers, comprising global cloud service providers and major international tech giants, make up 51% of the IPO Portfolio’s total monthly base rent as at 31 December 2024. An extensive list of colocation customers across a broad range of industries contributes to the remaining 49%.
.As at Dec 31 2024, the occupancy of the IPO Portfolio stood at 94.3%, with a weighted average lease expiry of 4.8 years. The IPO Portfolio has a well-balanced lease expiry profile with no single financial year seeing lease expiries in excess of 20% of monthly base rent in the next five financial years.
The average retention rate over the last three years was 98.3%. However in May this year, one of the customers of the IPO Portfolio which has a contracted capacity of 8,000 KW in Northern Virginia (VA2) and 638 KW in California (at CA1) served a notice of termination in relation to its contracted
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capacity at CA1 with an effective date of Sept 30. This would cause occupancy to decline to 93.6%. The tenant was acquired by NTT DC REIT’s third largest tenant.
It is possible that the third largest tenant (including NTT) is Microsoft as it is AAA-rated by the ratings agencies.
“We're assuming a three month vacancy. This is actually good because that means that allows us to capture market rent as our portfolio is fairly under rented. Our colocation leases were about 20% under-rented. Our hyperscale leases were actually 40% under-rented. In this case, the tenants were a hyperscale lease. What our US sales team is saying is that they can convert this space to a colocation space and acquire colocation tenants, so we are able to charge a much higher rent than the hyperscale rent,” explains Masayuki Ozaki, CFO of NTT DC REIT’s manager.
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Based on the prospectus, the largest customer is an EV company based in California accounting for 31.5% of monthly base rent. No prizes for the guessing the name. Suffice to say the EV company’s share price is under some pressure after the largest shareholder announced he is starting a new political party in the US following disagreements with the US president over the latter's one big beautiful bill.
Ozaki says as the REIT grows, the tenant base will be diversified and the EV company will contribute a lower portion of monthly base rent.
Differentiator
According to Yutaka Torigoe, CEO of NTT DC REIT’s manager, what differentiates the REIT from the other data centre REITs listed on the SGX, is sponsor NTT, a global solution provider for services such as cloud, network, system integraton as well as data centres.
Torigoe-san is not new to Singapore. This is the second IPO he is involved in. NTT was a pre-IPO investor in Starhub and sold 81.7 million shares as part of Starhub’s IPO offering in 2004. “I remember we made a profit on Starhub,” he recalls fondly.
NTT has 133, buildings in 91 sites and capacity of 1.4 gigawatt in operation, with 858 megawatt under construction. “On top of that, NTT has three gigawatts of land in America (45%), Europe (30%) and Asia (25%). America is still the most attractive data centre market followed by Europe. APAC is more medium to long term," Torigoe-san says.
The six data centres in the IPO portfolio were chosen because of their stability. The minimum occupancy requirement for the REIT is 80%, and the six properties have occupancies well above this. Secondly, cash flow must be stable, so the assets should be well maintained, and no further significant capex in the near future. Geographicaly, the portfolio is likely to reflect the sponsor’s geographical preference.
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“Our data centres are generally very under-rented because the market price is rising sharply, therefore now we have very big opportunity for further revenue expansion,” Torigoe-san adds.
“I'll just maybe reiterate that our sponsor is quite unique, and it's not a financial services company, it's not a real estate company, and obviously it's not a REIT that's trying to set up a REIT. We are purely an IT services provider with a very strong data centre business that's establishing this REIT in order to have a perpetual source of capital, recycling vehicle, and we're going to use that capital to continue to fund the data centre development project, which is vast. There's 858 megawatts already under construction. The sponsor already has another almost three gigawatts of land as well,” Ozaki says.
NTT DC REIT has a couple of technical differentiators. Its occupancy rate is measured by contracted IT load divided by the total design IT load unlike its locally listed peers that often use net lettable area.
Additionally, unlike the S-REITs that revalue their investment properties, NTT DC REIT uses depreciation with a revaluation approach. “Our data centres are classified as PPE instead of the more typical Investment Properties,” Ozaki says. (PPE refers to property, plant, equipment)
When asked why the sponsor thinks NTT DC REIT will be different from other S-REITs with foreign assets that have not done well, Ozaki says diplomatically, “it's a function of who the sponsor was, and the motivation behind listing a REIT. It's probably also about some of the sectors that those REITs were involved in. There could be some idiosyncratic reasons. But I don't think it was because it was a foreign listing or a foreign asset listing. I think it was just more to do with each individual sponsor or the REIT itself.”
Units in NTT DC REIT start trading on July 14 (in USD), and it remains to be seen if it can break the spell that was cast on S-REITs with predominantly US assets.
