NTT Data Centre REIT 7.5% Distribution Yield Sustainable Or Just A Dividend Trap?

I thought that it is quite interesting that folks on social media are having many different interpretations of the financials of NTT Data Centre REIT ("NTT REIT") and with some asserting that the NTA of this REIT will keeping dropping as it is making losses and paying out dividends from its capital. Others voiced similar concerns as me with regard to the high cocentration risk of over 30% in one single customer (suspected to be Tesla) as well as the ever weakening USD. Today we will delve deeper into the financial statements of NTT REIT to make sense of the sustainability of the high dividend yield committed by its management. From there, we will be better able to guage on the degree of margin of safety required- based on one's personal risk appetite- to start buying into NTT REIT. As at August 2, 2025, NTT REIT maekt price has dropped by <6%> from its IPO debuted price of S$1.00 per unit to S$0.94 per unit.

1. Financials Deep Dive.

First and foremost, let's address the elephant in the room. Is the financial performance signalling red-flag even before we consider the myriads of other business risks embedded in NTT REIT? For the latest year ending 31 March 2024 in the prospectus, NTT REIT is incurring a massive net loss of US$<30.8Mil>. The main reason for this reason seems to be a sudden spike in "Other Property Expenses" from US$5.8Mil in March 2023 to US$28.1Mil in March 2024. The strange part is that revenue has plummented by <21%> downwards from S$186Mil to S$146Mil despite the huge increase in "Other Property Expenses". 

2024 and 2023 Historical Profit and Loss

So is this only a one-off non-recurring loss for 2024 but in future, it will rise up from the ash? To answer this, we will need to go to take a look at the forecast provided:

Forecast FY2026 and FY2027

Well, the losses did go down from the mammoth <US$31Mil> to only <US$5.2Mil> and <US$4.9Mil> for  the forecasted FY2026 and FY2027 respectively but nevertheless, the forecasted results are not pretty and NTT REIT is apparently still in the red. This is shocking indeed as NTT REIT seems to be behaving like a Business Trust rather than a REIT. It is paying out distributions from capital and depleting its own net tangible asset over time.  

2.Revaluation of Investment Properties in The Financial Statements 

If you look at the forecast or historical financials, one will be able to see the substantial fair value revaluation for the data centres by NTT REIT. As the fair valuation accounting is subject to market conditions and I really wonder how someone can simply just forecast the future valuation for the next 2 years, we should just ignore this line item (highlighted in pink in above screenshot). Focus shall thus be on the recurring items which illustrates the routine operational Profit and Loss. So do not be misled by the abstract fair valuation which is just a non-cash item even if it looks fantastic.

Parting Thoughts-personal 

Originally, I thought that if NTT REIT corrected by 10%-20%, it may prove to be a good entry point. But based on its financial forecast for the next 2 years, its dismal financial performance will mean that NTT REIT NTA will still see losses at least for 2 more years and paying out distribution using capital. Unless there are clearer visibility on such enigmatic operating model for the data centres it manages, it maybe best to wait for the actual financial results post-IPO before accumulating some units.

Keppel Data Centre REIT Remarkable Boost in H1 2025 Earnings and Distributions- Things to Watch Out For Before Jumping In.

Keppel Data Centre REIT ("KDC") just released a remarkable 1H FY2025 results with distribution income surging 57.2% year on year and delivering a super impressive 12.8% growth in distribution per unit ("DPU") of 5.133 cents. Annualised this and the current yield will be 4.43% per annum based on the S$2.32 per unit as at 25 July 2025. Market price of KDC has rallied 5.9% within 2 short weeks as many investors were awed by the spectualar results from KDC. Still, there may be a few potential downsides that retail investors need to be mindful on, especially for those who suddenly find KDC full of prospects, and want to ride the data centre AI wave.

1. Investing in KDC Is Not As a REIT But a Growth Stock.

Then again, if we look back at the announced acquistion of the Singapore data centres by KDC in November 2024, it is already clear that DPU will increase by around 8%. Also, the newly acquired Singapore data centres have very short tenure of 25 years and I thought that even with a 4.31% distribution yield, the current market price of KDC seems very much overvalued if we benchmark to the current risk free government bonds. The distribution yield of 4.31% is thus still extremely low as unit-holders need to prepare to plough back capital into KDC at the end of 25 years for additional extension. The only pausible explantion here is that many investors are treating KDC as a "growth" stock. 

2. Overhanging Issue at Guangdong Data Centres.

There has been no news suggesting that the tenant (Bluesea Data Development) has resumed rental payments or that it has settled its arrears. So question remains whether its Guangdong data centres are now white elephants. 

The only reference I found was the AGM minutes on 15 May 2025 which only mention that 100% quarterly allowances has been made to zerorise income contributions from Guandgong DCs. Also, KDC management are adopting investment assets at fair value for its accounting treatment based on independt valuation reports. So, in event that the situation worsen, investors may have to repay loans relating to those China investments at a loss which will hit future distributions.  

Extract of AGM Minutes on Guangdong troubled DCs.

Parting Thoughts and Personal Thoughts

I am not sure whether one should keep chasing and accumlating KDC at its current sky high market valuation. Its market price is currently S$2.32 per unit as at 25 July 2025 while its NTA is only S$1.53 per unit (as at 31 December 2024) and this means that one is paying a jaw dropping premium of +51.2% over its NTA. Nevertheless, if I want to increase my investments into REITs with data centres exposure, I will probably choose Mapletree Industrial Trust followed by KDC rather than DigiCore REIT or the recently listed NTT Data Centre REIT.

NTT Data Centre REIT IPO Flop- Stuck at US$1 Per Unit On Debut

NTT Data Centre REIT (“NTT DCR”) IPO debut on July 14, 2025 was extremely disappointing. Its closing price on its first day of trading ended at a miserable US$1 per unit which was its IPO price. This is certainly unlike most of the SGX IPOs where prices usually surge by 10% on debut as many prospective investors are unable to get their hands on the shares during the IPO. 

Anyway, it maybe a blessing in disguise for many folks who are unable to get their hands on NTT DCR. I really have doubts on the sustainability of the 7.5% distribution yield as I do not think the management will maintain a 100% payout ratio for the longer term and it is getting too gimmicky.  Also, in my previous post, I have reiterated on the often forgotten point that the trust deed only permits not more than 9.8% shareholding by any investor (except for the sponsor 25% limit) which can have devastating consequences during crisis. 

Parting Thoughts- Personal View

Despite the risks as aforesaid mentioned, if the price of NTT DCR were to drop more than 10%-20%, it may serve as a good entry point (with additional safety buffer) to accumulate some units at an attractive distribution yield.