NTT DC REIT

[weijian]

NTT DC REIT is going to be the largest REIT (and probably also the largest mainboard) listing in SGX for the past decade. Does this listing heralds the end of SGX's lost decade?

Considering its size on the local bourse, the public and placement tranches show really good demand. I guess getting GIC to subscribe for the maximum 9.8% stake helped a lot.

NTT DC REIT IPO - A closer look at the balloting results

A total of 599.89 million units were offered. This included approximately 569.9 million units under the placement tranche to institutional and international investors, and 30 million units offered to the public in Singapore.

The public tranche received 14,166 valid applications for the 30 million units available. In total, applicants applied for approximately 294.8 million units, resulting in the public offer being about 9.8 times subscribed.

The placement tranche also saw healthy demand, with orders exceeding US$2.2 billion, around four times the number of units available for allocation.

Overall, the IPO was approximately 4.6 times subscribed.

https://growbeansprout.com/ntt-dc-reit-ipo-allotment

[swakoo]

Tesla's headwinds are probably something to bear in mind, given the history of DCR's trauma:

Key risks for NTT DC REIT

#1 - Significant exposure to one automotive company (likely Tesla)

NTT DC REIT faces tenant concentration risk, as its top 10 customers collectively contribute 62.6% of total rental income.

Notably, its single largest tenant, a Fortune 100 U.S. automotive company, accounts for 31.5% of total rent.

This automotive company which has a credit rating of ‘BBB’ by S&P and ‘Baa3’ by Moody’s is likely to be Tesla, in our view. Hence, any adverse developments or negative news relating to Tesla may weigh on sentiment towards NTT DC REIT, given its significant revenue exposure to a single tenant.

Digital Core REIT (DCR) has experienced tenant bankruptcies, specifically with Sungard Availability Services and Cyxtera Technologies. 

[weijian]

Tesla's headwinds are probably something to bear in mind, given the history of DCR's trauma:

Key risks for NTT DC REIT

#1 - Significant exposure to one automotive company (likely Tesla)

NTT DC REIT faces tenant concentration risk, as its top 10 customers collectively contribute 62.6% of total rental income.

Notably, its single largest tenant, a Fortune 100 U.S. automotive company, accounts for 31.5% of total rent.

This automotive company which has a credit rating of ‘BBB’ by S&P and ‘Baa3’ by Moody’s is likely to be Tesla, in our view. Hence, any adverse developments or negative news relating to Tesla may weigh on sentiment towards NTT DC REIT, given its significant revenue exposure to a single tenant.

Digital Core REIT (DCR) has experienced tenant bankruptcies, specifically with Sungard Availability Services and Cyxtera Technologies. 

hi swakoo,

We have to differentiate between public sentiment vs market sentiment. When new agencies (especially the less conservative ones, or maybe both sides now!) talk about Tesla, it is largely public sentiment. As investors, we have to drown out such noises - After all, we are buying a piece of the business, not stock counters. If Tesla's share price changes as a result of market sentiment after an earnings call, it is more relevant.

Now for the connection to DCR. DCR's bankruptcies came from customers (Sungard Availability Services and Cyxtera Technologies) who signed up master leases to provide co-location/IT services to 3rd parties. If NTT DC REIT's top customer is Tesla, then we have to ask ourselves how is Tesla utilizing that data center space? Are they providing co-location services to 3rd parties like what Sungard Availability Services and Cyxtera Technologies does? If not, then is Tesla utilizing those data center space for their own over-the-air software upgrades, data collection from their car autopilot sensors to improve their autopilot/robotaxis, their eventual humanoid robots and all other future <<fill in the blanks>> that Musk will conjure up? If the answer is YES, then it is probably reasonable to assume that as Tesla makes breakthroughs, they will only use more data center capacity, not less.

Finally on the ‘BBB’ by S&P and ‘Baa3’ by Moody’s, I have to confess that I have no idea on the methodologies that both agencies use to carry out their work. But I reckon it doesn't matter because I can just use some (un)common sense...First a quick search shows that Tesla has total debt of ~13bil, which is ~1.3% of its 1 trillion market cap. If at any time, Tesla decides to replace that debt with equity funding, let's say at a 50% discount, they will just only need to issue ~3% of shares (or a 3 for 100 rights issue). I suspect this can be very easily executed. Many years ago, Netflix was actually losing the DVD rental wars to Blockbuster Online but the equity markets were more tolerant of Netflix's losses than Blockbuster's dwindling profits (Netflix had never made a profit but Blockbuster seldom made losses). Somehow, I suspect equity markets are also much kinder to Tesla than other carmakers.

P.S. not making any investment call on NTT DC REIT 

[swakoo]

hi weijian, thanks for your comments.

We have to differentiate between public sentiment vs market sentiment. When new agencies (especially the less conservative ones, or maybe both sides now!) talk about Tesla, it is largely public sentiment. As investors, we have to drown out such noises - After all, we are buying a piece of the business, not stock counters. If Tesla's share price changes as a result of market sentiment after an earnings call, it is more relevant.

Think public sentiment has already significantly affected Tesla sales eg. in a large part of Europe and parts of north America.

Admittedly have not followed Tesla closely and don't know what their earnings call look like but think market sentiment vis a vis share price can sometimes be wrong too in either direction until the actual results come out sustainably.

Now for the connection to DCR. DCR's bankruptcies came from customers (Sungard Availability Services and Cyxtera Technologies) who signed up master leases to provide co-location/IT services to 3rd parties. If NTT DC REIT's top customer is Tesla, then we have to ask ourselves how is Tesla utilizing that data center space? Are they providing co-location services to 3rd parties like what Sungard Availability Services and Cyxtera Technologies does? If not, then is Tesla utilizing those data center space for their own over-the-air software upgrades, data collection from their car autopilot sensors to improve their autopilot/robotaxis, their eventual humanoid robots and all other future <<fill in the blanks>> that Musk will conjure up? If the answer is YES, then it is probably reasonable to assume that as Tesla makes breakthroughs, they will only use more data center capacity, not less.

Yes, u have listed some potential Tesla tailwinds. But there are also potential headwinds eg. getting on wrong side of Potus (who can out regulate Tesla based on whims, etc), competing with China EV vendors, side effect of past DOGE actions, etc. 

Finally on the ‘BBB’ by S&P and ‘Baa3’ by Moody’s.....

Think maybe the writer cited this to try to identify Tesla, not so much as something to the detriment of top tenant?

Somehow, I suspect equity markets are also much kinder to Tesla than other carmakers.

Yup, with trailing PE of 156. Company founded and run by a genius who is the richest man on Earth.

P.S. not making any investment call on NTT DC REIT 

Ya, neither am I. Was just personally turned off when i discovered who the top tenant accounting for 31.5% of rentals likely is.