08-07-2025
Investors should be excited about Singapore's biggest Reit IPO in a decade – but not too excited
[SINGAPORE] Japanese telco Nippon Telegraph and Telephone's (NTT) NTT DC Reit is stirring up some excitement in Singapore's floundering equities market.
The real estate investment trust (Reit), which launched its initial public offering (IPO) on Monday (Jul 7), is checking all the right boxes that make for great headlines – and attract investor interest.
It is set to be the biggest Singapore-listed real estate investment trust (S-Reit) listing in over a decade. It is a pure-play data centre Reit, a sector which has demonstrated sizeable growth underpinned by scalable, long-term demand drivers, and is offering higher distribution yields than its peers.
And, above all, it will have Singapore sovereign wealth fund GIC in its corner as its second-largest unitholder.
But investors should perhaps slightly temper their excitement.
Following the offering, NTT DC Reit will have some 1.03 billion issued units, including those held by public and institutional investors, cornerstone investors and its sponsor, NTT Limited.
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At US$1 apiece, NTT DC Reit will come to market with a theoretical market capitalisation of US$1.03 billion (about S$1.3 billion).
Putting things in perspective, this places NTT DC Reit at around the middle of the pack among its S-Reit peers.
Singapore-listed Reits and business trusts on average have a market cap of about S$2.4 billion, according to Bloomberg data. The largest – CapitaLand Integrated Commercial Trust – boasts a market cap of around S$15.9 billion.
Even among its pure-play data centre peers, NTT DC Reit will also be middling in terms of market size. Keppel DC Reit has a market cap of S$5 billion, and Digital Core Reit has a market cap of US$681.7 million.
Other S-Reits with exposure to data centre assets include CapitaLand Ascendas Reit and Mapletree Industrial Trust, the market values of which stand at S$12.3 billion and S$5.7 billion, respectively.
Bigger is better
For investors both retail and institutional, there is no doubt that bigger is better. For example, it helps the listed company to be included in indices.
Notably, NTT DC Reit's data centre peers Keppel DC Reit, CapitaLand Ascendas Reit and Mapletree Industrial Trust are constituents of Singapore's blue-chip Straits Times Index.
'There are merits to having a larger size,' said Masayuki Ozaki, chief financial officer of NTT DC Reit manager, at a briefing on Monday.
'There're a lot of conversations around that and the group ultimately decided on this US$1 billion market cap as a good bite size so that it's not too big for the market to absorb.'
'We're very cognisant of that as well, so we'll balance all that and make sure that this Reit is well managed and that it continues to grow,' he added.
For better or worse, NTT DC Reit shares some similarities with the smallest of the S-Reit data centre plays, Digital Core Reit – at least on the surface.
For one, both are owned by foreign companies with major data centre footprints.
The sponsor of Digital Core Reit is New York-listed Digital Realty, the world's largest owner, operator and developer of data centres; the sponsor of NTT DC Reit, NTT Limited, is part of the NTT Group. The NTT Group, through its global data centre business NTT GDC, is the third-largest data centre provider globally, excluding China.
Digital Core Reit's portfolio comprises 11 data centres in North America (US and Canada), Europe (Germany) and Asia (Japan), with assets under management worth about US$1.7 billion.
NTT DC Reit's IPO portfolio comprises six data centres in North America (US), Europe (Austria) and Asia (Singapore), with an appraised value of around US$1.6 billion.
The US makes up the largest geographical segment for both Reits.
Both NTT DC Reit and Digital Core Reit will look attractive to yield hunters.
NTT is forecasting an annualised distribution yield of 7.5 per cent for the nine months ended Mar 31, 2026, and projecting a distribution yield of 7.8 per cent for the following full year ended March 2027.
This is higher than Digital Core Reit's indicative yield of 6.9 per cent, which is already higher than most S-Reit peers.
Payout ratio may drop
However, NTT DC Reit's yield might fall after the second year, as the forecast for 9M FY2025/26 and the projection for FY2026/27 are based on a 100 per cent payout of the income available for distribution.
The Reit manager at the briefing indicated that the payout ratio could fall to the required 'at least 90 per cent' level after this period.
Nonetheless, NTT DC Reit will be hoping to fare better than Digital Core Reit has in the market.
Year to date, units of Digital Core Reit have fallen 9.5 per cent amid uncertainties in the US; since its IPO on the Singapore Exchange in December 2021, the counter has come down by 54.3 per cent.
The NTT DC Reit manager believes that, backed by its strong sponsor, it has the potential to become among the largest Reits in the world.
If fully acted upon, the sponsor right-of-first-refusal pipeline could contribute over 2,000 megawatts of additional IT capacity, potentially allowing NTT DC Reit to become the largest listed data centre Reit in the Asia-Pacific, the manager said.
For now, it will be interesting to see how it gets there – if at all.
