DI and DPU were both 3.3% above the forecast due to higher finance income from deposits and favourable forex movements. The DPU of 1.69 US cents (2.20 Singapore cents) was for the period July 1 to Sept 30. According to the REIT’s press release, the annualised DPU yield for 1HFY2026 of 7.82% compared to a projection of 7.5% at IPO is on the basis of 79 days and annualised to 365 days. Distribution yields for both periods are calculated based on the market closing price of US$1.00 as at the last trading day of 1HFY2026.
Following a rather tepid debut, NTT DC REIT has recovered to its IPO price of US$1. “We have some new investors. JP Morgan is a substantial unitholder. I met them four times,” notes Masayuki Ozaki, CFO of NTT DC REIT’s manager. “The initial reaction was that hedge funds were selling. We had a hedge fund allocation and they began to sell. Once they were flushed out, we were stable at 95 US cents. The US rate cut was in mid-Sept and all the other REITs were trading ahead of that, and we have finally moved up. I was pro-active in investor engagement and I like to think my efforts helped,” Ozaki quips.
The FX impact
NTT DC REIT plans to pay out 100% of its FY2026 distribution income, which will be its first DPU payout. One of the reasons both DPU and annualised yield are ahead of the IPO forecasts was the impact of foreign exchange trends. The REIT reports in USD.
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Based on the IPO purchase consideration of US$1.5 billion for the REIT’s six assets, 51.3% is in Northern California, and 13.3% is in Northern Virginia (64.6% in total). The latter is the world’s largest data centre market and its second tightest by occupancy. A data centre in Vienna accounts for 18.1% of the portfolio, with Singapore at 17.3%. Singapore is the landing point for 26 subsea fibre-optic cables with another 13 in the pipeline, and data centre occupancy is very tight with vacancy rates at 0.2%.
NTT DC REIT’s Singapore property benefitted the portfolio from a revenue and NPI perspective since its WALE (or weighted average lease to expiry) tends to be shorter than US and Europe. Singapore contributed some 26% to NPI for the period, with NPI margin at 60%. This compared favourably to the US portfolio which contributed 51% to NPI with an NPI margin of 39%. Meanwhile the strong SGD boosted DI because of translation gains.
“Our broad policy is to hedge over 50% of interest rates. We have hedged 70%. We’re still in the process of building out our portfolio. The currency mix could also change,” Ozaki explains. The REIT adopts a natural hedge for its assets. However, he adds, the REIT manager is unlikely to hedge its FX income because it’s expensive and global currencies are somewhat volatile. “Things move around,” he says. “As we get closer to distribution payment, we will hedge [FX].”
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Based on the 32.5% aggregate leverage of NTT DC REIT, its debt profile comprises 30% USD (versus 64.6% of assets), 45% EUR (Europe accounts for 18.1% of assets) and 25% SGD. US rates are the highest among the three currencies. The European Central Bank’s refinancing rate is currently at 2.15%, the marginal lending rate is at 2.4%, and bank lending rates are around 3.64%-2.65%. Three-month compounded Sora is at 1.239% as at Nov 17.
“We want to be naturally hedged. Our asset base and our liability base should match on a currency basis. Our asset base is bigger [than our liabilities], and the Euro is 17% of that. We’re at 32.5% leverage, and we have 45% Euros out of 32.5% of leverage so our Euro assets and our debt in Euros match,” Ozaki explains.
Leasing strategy
Operationally, hyperscalers anchor the portfolio, accounting for 48.6% of monthly base rent, with the remaining by colocation tenants. “Hyperscalers might take 60% of an asset, with the rest filled with other customers,” Ozaki indicates.
“Going forward, we may acquire assets that could be one hyperscaler in one building. Our No. 4 tenant is a global digital platform — I can’t disclose the name, but this one is a customer in Singapore — and their WALE is a relatively short 1.3 years. The Singapore asset is an exception as it doesn’t have a true hyperscaler,” Ozaki says.
The portfolio WALE is 4.4 years, and annual expiries are in the teens, with 13.6% of the portfolio expiring in FY2027. The Singapore asset’s lease is based on a three-year renewal while NTT, the REIT’s second largest tenant by monthly base rent, tends to renew annually.
Some notable differences are evident between NTT DC REIT’s reporting and those of the other data centre S-REITs. NTT DC REIT reports occupancy based on IT load. “That’s the occupancy. There’s a utilisation, which is different. Utilisation is how much of that power (MW) the tenant uses,” Ozaki clarifies.
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“Tenants contract based on power usage, and we get a rent on that contracted power. That’s the colocation revenue and this does not change,” Ozaki further explains. For instance, if NTT DC REIT’s largest tenant, an automotive company, has 10MW of contracted power, it pays rent based on that power although it may not use all of that 10MW of contracted power.
Some of the US customers ask for an additional fit-out for more capacity. Although [the additional power usage] adds to the REIT’s cost base, it is a “pass-through” and that would add to its power revenue.
The data centre S-REITs usually define occupancy based on a percentage of net lettable area that is tenanted. Sometimes, not all the NLA is occupied, as a data centre could have a higher IT load occupancy.
Power usage depends on rack density. The higher the density of the rack, the more power is used, and the higher-density racks can be installed in a smaller footprint. “A lot of these high-density racks could occupy only a certain portion of your floor area, but then they are using all of your power. You’re 100% occupied from a power perspective, but you may have 20% vacancy on your floor area,” Ozaki elaborates.
In the data centre world, it’s typically mainly about power availability and power usage. “That’s why we want to be true to the industry as much as possible,” Ozaki says.
During the IPO process, Ozaki explained that there is a difference between installed IT capacity and utilisation in relation to the Vienna asset. The Vienna asset’s occupancy has fallen by 20 basis points since the IPO disclosure. The 91.6% occupancy at IPO is roughly the maximum in terms of IT load. There was a “bit of a churn” in the asset’s retail clients, which is why the IT load occupancy fell, Ozaki points out.
Most of the 5.1% positive rental reversion for the portfolio during the reporting period probably came from the Singapore asset. “Naturally, because of the shorter-term leases, a lot of this did come from Singapore. We had some good leasing in Vienna, although the percentage, in terms of contribution, was not that big but Vienna had some examples of good reversion,” Ozaki says.
Some negative reversions were from the US, but they were cancelled out by the positive reversions. “There were more ups than downs,” Ozaki confirms.
Capex reserve
NTT DC REIT’s sponsor is NTT Group, the world’s third-largest data centre provider. The REIT holds rights of first refusal (ROFR) over the sponsor’s 2,000MW portfolio. Several stabilised assets with a combined capacity of 130MW, mainly across Europe and Asia Pacific, have been identified as near-term acquisition opportunities.
“The REIT’s portfolio comprises recently built or upgraded assets with an average design PUE [power usage efficiency] of 1.34, indicating strong power efficiency and minimal future capex requirements beyond the planned US$32 million over the next two years,” says a DBS Group Research report.
Nonetheless, as equipment ages, colocation data centre landlords have capex requirements to upgrade equipment. As an example of how capex and equipment-heavy a data centre is, look no further than Keppel DC REIT’s announcement in November 2024 when it announced the acquisition of KDC SGP 7 and 8.
For a 10-year extension to 2050 for KDC SGP 7 and 8, the REIT will be paying an additional $350.0 million to the sellers for the data centre, $9.9 million to JTC for the JTC Land premium and $3.5 million imposed by JTC relating to the upgrade of the buildings KDC SGP 7 and KDC SGP 8.
Different parts of a data centre have different lifespans. A battery could last for seven or eight years, while back-up generators may have a lifespan of 40 years.
“We’ve been upfront communicating to the market that we do need to start reserving for replacement capex. Our board has asked what we are going to do about replacement capex. One of the useful aspects of being a part of the No. 3 data centre operator is that we have plenty of assets, we have plenty of data, and we’re in the process of analysing the data and coming up with a sensible approach,” Ozaki reveals.
“NTT DC REIT’s results validate its defensive, globally diversified data-centre platform backed by its sponsor’s operational expertise. While short-term income growth will largely be driven by rental step-ups and occupancy improvements, longer-term upside could emerge from sponsor-led acquisitions in Tier-1 markets such as Frankfurt, London, and
Tokyo,” says a post-results update by DBS.
The REIT’s low gearing and fully unencumbered assets provide capacity for inorganic growth. Key catalysts include optimisation of portfolio occupancies, yield-accretive acquisitions, and savings in overall financing costs. With no near-term refinancing risk and healthy cash flow visibility, NTT DC REIT is positioned for steady earnings momentum as hyperscale and AI-driven data demand accelerates globally, the DBS report adds.
DBS has a target of US$1.20 and a “buy” recommendation.
