UOBKH initiates coverage on NTT DC Reit with ‘buy’, forecasts 41% upside
The analyst points out that the Reit has enjoyed a ‘steady rise’ in portfolio occupancy
[SINGAPORE] NTT DC Reit has the highest distribution yield among data centre real estate investment trusts (Reits), said UOB Kay Hian (UOBKH) on Thursday (Jan 8), as it initiated coverage with a US$1.42 target price.
The Reit’s potential acquisition of a hyperscale data centre in Germany could also enhance its presence in Tier 1 markets, said analyst Jonathan Koh. He forecast a 40.6 per cent upside from its US$1.01 closing unit price on Wednesday.
Despite being Singapore’s biggest initial public offering (IPO) in four years, NTT DC Reit’s units ended their first week of trading 5 per cent below the IPO price of US$1 in July.
Still, Koh pointed out that it has enjoyed a “steady rise” in portfolio occupancy, which was up 0.8 percentage point quarter on quarter at 95.1 per cent as at September.
The Reit is “evaluating the potential acquisition of a Frankfurt hyperscale data centre with net property income yield of 6 per cent and weighted average lease expiry (Wale) of 10 years in the first half of 2026”.
Tesla-driven positivity ahead
NTT DC Reit’s largest tenant is a “technology powerhouse” – a Fortune 100 US electric vehicle (EV) company widely believed to be Tesla – which could be a key driver of its 2026 fortunes, said Koh. It accounted for 29.9 per cent of base rent as at September, with leases having Wale of eight years and rental escalation at 3 per cent.
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“The EV company is expanding its autonomous taxi service to new geographical areas,” he said. “It has recently unveiled a new product, an autonomous humanoid robot, which could create more demand for NTT DC Reit’s data centre capacity.”
He noted that the Reit has a global right of first refusal over its sponsor’s stabilised data centres, covering 123 properties with a capacity of 2,000 megawatts (MW), of which 130 MW are prioritised targets for execution over the next three to five years.
Meanwhile, three of its data centres expanded net leased capacity due to scheduled ramp-ups by existing tenants and the addition of new tenants. As a result, their occupancies proved 0.6 percentage point, 0.8 percentage point and 3.4 percentage points to 95.7 per cent, 98.1 per cent and 93.4 per cent.
That increase is set to continue in the remainder of FY2026 and into 2027, said Koh.
“Overall, portfolio occupancy could improve by as much as 2.5 percentage points to 97.7 per cent in H2 FY2026.”
The Reit also posted positive rental reversion of 5.1 per cent in Q2 FY2026.
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