NTT DC REIT 9M FY25/26 Business Update: In-depth Analysis for Investors

Executive Summary

NTT DC REIT has released its 9M FY25/26 business update, detailing a period of stable financial performance, robust capital management, and promising operational developments. The REIT, backed by NTT Limited—one of the world’s largest data center providers—continues to demonstrate resilience and growth potential across its global portfolio. This report includes critical details that could impact share values and provides insights relevant for current and prospective shareholders.

Key Financial Performance Highlights

• Revenue: Actual gross revenue reached US\$106.0 million, outperforming the adjusted IPO forecast of US\$104.2 million by 1.7%. This was primarily driven by steady operating performance and positive FX impact.
• Net Property Income (NPI): US\$47.1 million, slightly below forecast by 0.6% due to lower occupancy and softer power revenue, partially offset by higher tenant fit-out revenue.
• Distributable Income: US\$36.3 million, in line with forecast (up 0.4%). This consistency reinforces the REIT’s ability to deliver stable returns.
• Profit/(Loss) Attributable to Unitholders: Significant improvement, with losses reduced to US\$1.3 million vs. forecasted US\$3.7 million.
• Aggregate Leverage: 32.5% (well below the 40% regulatory threshold), offering substantial headroom for future growth.
• Interest Coverage Ratio: 4.0x (above sector benchmarks) and 70% of debt at fixed rates, limiting exposure to interest rate volatility.
• Weighted Average All-in Interest Rate: 3.94%.
• Portfolio is 100% unencumbered, with all loans unsecured.

Operational Highlights

• Leasing Performance: Robust demand with rent reversion at +9.2% for 9M FY25/26. Occupancy rose to 97.3% (including committed leases yet to commence), up from 94.6%.
• Portfolio Occupancy: 94.6% as of 31 December 2025, reflecting a slight decrease from 95.1% at end-September, but occupancy is expected to increase once recently committed leases commence.
• Lease Expiry Profile: Well-staggered, with less than 12% of leases expiring in FY25/26. Weighted average lease expiry is 4.4 years, reducing near-term vacancy risks.
• Customer Concentration: Top 10 customers account for 75.5% of monthly base rent, including Fortune 100 companies and the NTT Group. Credit ratings among these clients remain strong, with average escalation clauses of 2.7% per annum.
• Renewable Energy and Sustainability: The SG1 asset in Singapore is fully powered by renewable energy as of 1 January 2026, supporting tenants’ sustainability targets. VIE1 in Vienna supplies waste heat to the district heating network, contributing to local decarbonization.

Capital Management

• Debt Profile: Total debt stands at US\$523 million, with a 2.5-year average tenor and no maturities in the next three financial years. Debt is diversified across USD, EUR, SGD.
• Headroom: US\$201 million headroom to 40% leverage, enabling flexibility for future acquisitions or asset enhancement initiatives.
• Debt/EBITDA ratio: 6.1x, considered healthy relative to sector standards.

Portfolio Overview

• Global Footprint: Six assets across the U.S., EMEA (Austria), and APAC (Singapore) with a purchase consideration of US\$1.5 billion.
• Design IT Load: 90.7 MW, with 82.7% of assets freehold.
• Largest Market Exposure: Northern California (51.3%), followed by Vienna (18.1%) and Singapore (17.3%).
• Tenant Mix: Balanced between hyperscale (50.8%) and colocation (49.2%) customers.

Sponsor Strength & Strategic Positioning

• NTT Limited: The sponsor is the global data center arm of NTT DATA, Inc., part of the NTT Group—a leading IT services and telecom conglomerate with a market cap of US\$93.9 billion and FY24/25 revenue of US\$91.6 billion.
• Global Data Center Platform: NTT Global Data Centers operates 92 sites with 2,300+ MW capacity, making it the third largest data center provider globally (excluding China).
• Technological Leadership: NTT Group’s advanced cooling solutions and next-generation optical networks (IOWN) underpin the operational efficiency and sustainability of the REIT’s assets.

Potential Price Sensitive Items & Shareholder Considerations

• Strong Leasing and Occupancy Momentum: Occupancy is expected to rise in 4Q FY25/26 as newly secured leases commence, potentially boosting future revenue and distributions.
• Discussions on Management Fee Structure: Ongoing negotiations with the Sponsor to enhance alignment with unitholders’ interests, with changes targeted by 1H FY26/27. Such changes may impact distributable income and could be price sensitive.
• New Leasing Incentive Scheme: Sponsor has implemented a new scheme expected to deliver strong leasing outcomes, which may further improve occupancy and revenue, positively affecting share value.
• Backfill Success: Meaningful backfill at CA1 and CA3 reduces vacancy risk and enhances revenue visibility.
• Renewable Energy Transition: SG1’s move to renewable power and VIE1’s decarbonization efforts may attract ESG-focused investors and tenants, enhancing asset value.
• Debt Profile and No Near-term Maturities: The lack of debt maturities over the next three years and substantial headroom for leverage are positive for financial stability and growth flexibility.
• Customer Concentration: While top clients are highly rated, any changes in tenancy or lease renewals among these key customers could materially affect revenue and share price.
• Regulatory and Structural Notes: Shareholders should note that preferred shares must be issued by NTT DC U.S. REIT by 30 January 2026 to non-sponsor parties, with an anticipated coupon of 12-12.5%. This structural requirement is to maintain REIT status and could influence distributions.
• No Guarantee of Liquidity: Units are traded on SGX-ST; there is no guarantee of a liquid market, and unitholders cannot request redemption while listed.

Conclusion

NTT DC REIT’s 9M FY25/26 update reveals a resilient and growing business, supported by strong sponsor backing, stable financial performance, robust capital management, and promising operational momentum. Key developments such as occupancy increases, sustainability initiatives, and ongoing discussions on management fee structures could be materially price sensitive and warrant close attention from shareholders. The REIT remains well-positioned to pursue growth, with substantial debt headroom and a strong global portfolio, but investors should monitor any changes in tenant concentration and regulatory requirements.

Disclaimer

This article is for informational purposes only and does not constitute investment advice. The information herein is based on the latest NTT DC REIT business update and may be subject to change. Investors should conduct their own due diligence and consult with a financial advisor before making investment decisions. Investing in REITs involves risks, including possible loss of principal. Past performance is not indicative of future results.

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