With books set to close on July 4, the value of the base offering is between US$772 million and US$812 million, while the overallotment option would add another US$51.5 million.
Cornerstone investors in the IPO include Singapore’s sovereign wealth fund GIC with a US$101 million investment, according to the term sheet.
The term sheet also states that “at least 90.0%” of annual distributable income will be distributed semi-annually, with the first distribution for the period from the listing date to March 31, 2026 to be paid on or before June 29, 2026.
NTT DC REIT is being marketed at an indicative forecast distribution yield of 7%–7.5% for this period, on an annualised basis, and 7.29%–7.8% for the next financial year ending March 31, 2027.
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Distributions, along with the listing and reporting currency, will be in US dollars.
While bookbuilding is only set to close on July 4, the offering is so far two times covered excluding cornerstone investors, according to sources familiar with the matter.
Acquisition opportunities
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NTT DC REIT will list with a “low” day one gearing of 35%, which “provides ample headroom” for the REIT to take on further debt and make accretive acquisitions while remaining in compliance with the 50% gearing limit, according to a prospectus lodged with the Monetary Authority of Singapore on June 27.
However, the REIT’s acquisition opportunities “hinge on how the stock trades post-listing”, say CLSA analysts, given the limited debt headroom of between US$131 million and US$155 million, and the “high dollar quantum” for data centres. The figures exclude revolving credit facilities.
The REIT sponsor is NTT Limited, which is a part of the NTT Group as a wholly-owned subsidiary of NTT Data. NTT Data Group Corporation holds a 55% interest in NTT Data, and the remaining 45% is held by Nippon Telegraph and Telephone Corporation.
The NTT Group, through NTT Global Data Centers, is the third-largest data centre provider globally (excluding China), with a footprint of over 2,200 megawatts (MW).
The sponsor will be the largest unitholder of NTT DC REIT, with an ownership stake of approximately 25% if the overallotment option is not exercised, or a lower 20% if the option is fully exercised when bookbuilding ends on July 4.
IPO assets
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All six of NTT DC REIT’s portfolio assets are carrier-neutral and Tier III or Tier III-equivalent. According to the prospectus, the carrier-neutrality of the initial public offering (IPO) portfolio “gives customers the flexibility to choose the best connectivity provider for their needs”.
The four-tier system by the Uptime Institute ranks data centres on increasing levels of reliability. The IPO assets are equipped with “at least N+1 redundancy across the critical elements of power and cooling, allowing them to be concurrently maintainable without the need to shut down during upgrades and maintenance”, reads the prospectus.
The appraised value of the IPO portfolio is approximately US$1.6 billion. All six assets are held on a freehold basis, except for the Singapore asset, which is on leasehold land expiring in 2070.
The initial lease term runs until August 2040, and a covenant with JTC grants a further 30-year term until 2070, subject to certain conditions stipulated in the lease.
The conditions for a further 30- year term until 2070 include the tenant making a fixed investment of at least $35 million during the initial lease term; the gross plot ratio of the site being not less than 2.47 but not more than 2.50; and at the expiry of the initial lease term there being no existing breach or non-observance of any of the tenant’s obligations.
JTC have confirmed in writing that the first two conditions have been satisfied and there are currently no known breaches, satisfying the latter condition.
According to the prospectus, 51% of the IPO portfolio’s total monthly base rent as at end-2024 is contributed by hyperscale customers, comprising global cloud service providers and major international tech giants. The remaining 49% of monthly base rent is contributed by colocation customers across a range of industries.
The hyperscale customers “typically take larger capacity contracts of several megawatts per contract, for longer contract durations of several years at a time”, according to the prospectus. This boosts the REIT’s occupancy and lengthens the lease expiry profile.
Meanwhile, the colocation customers support the REIT’s cash flows, as they typically pay higher prices than hyperscale customers in the same facility.
Asset depreciation
According to the unaudited pro forma financial information provided in the prospectus, depreciation of NTT DC REIT’s properties was US$72.4 million in FY2024 ended March 31, 2024, US$66.6 million in FY2023 and US$49.1 million in FY2022.
According to the projected income statements provided in the prospectus, NTT DC REIT forecasts depreciation of US$56.3 million in the nine months ending March 31, 2026 and US$76.8 million for the full year ending March 31, 2027.
According to the prospectus, depreciation on data centre properties is added as a distribution adjustment, as this is a non-cash expense incurred.
Valuing NTT DC REIT’s data centre properties includes not only the buildings but also the freehold or leasehold land they sit on.
Depreciation is calculated using the straightline method to allocate the revalued amounts of the data centre properties (other than freehold land), net of their residual values, over their estimated useful lives.
This varies for different assets. The value of the sole Singapore asset is calculated over its remaining lease term until August 2040; the data centre buildings on freehold land have estimated useful lives of 38 to 50 years, while the integral data centre equipment have estimated useful lives of two to 20 years. Freehold land is not depreciated.
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, where the NTT Group considers the asset condition, wearand-tear, technology changes and expected use.
Chart: NTT DC REIT prospectus
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