Digital Core REIT *Official" (SGX: DCRU)

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Analysts retain 'buy' calls and estimates after Digital Core REIT's maiden acquisition​


https://www.theedgesingapore.com/ca...and-estimates-after-digital-core-reits-maiden
Analysts from UOB Kay Hian and DBS Group Research are positive on Digital Core REIT’s prospects after the REIT delivered on its acquisition promise.

On Sept 22, the manager of Digital Core REIT announced that it will be acquiring a data centre in Frankfurt, Germany, its first since its initial public offering (IPO). The German data centre is valued at about €558 million ($781.5 million) at 100% share.

The REIT also announced the proposed acquisition of a data centre in Dallas, Texas in the US valued at US$199 million ($281.4 million) at 100% share.

Both data centres were from the REIT’s sponsor Digital Realty.

In its statement, Digital Core REIT posited two scenarios. In the first scenario, the REIT manager said that it is looking at acquiring 25% of the Frankfurt facility, fully funded by debt. While this will increase the REIT’s portfolio by 10%, it will also increase its aggregate leverage by 7.3 percentage points to 33.0%.

The second scenario will see the REIT acquiring 89.9% of the Frankfurt data centre and 90.0% of the data centre in Dallas. This will be supported by an equity fund raising (EFR) exercise, with a mix of debt and equity funding at a ratio of 60:40. The move will grow the REIT’s portfolio size by 48%. Under this scenario, the REIT’s aggregate leverage will increase by 11.8 percentage points to 37.5%.

While the deal is expected to be accretive to the REIT’s distribution per unit (DPU), UOB Kay Hian analyst Jonathan Koh also notes that the current market conditions are not conducive for an EFR exercise.

The analyst has kept his “buy” call with an unchanged target price of 98 US cents.

“The spirit is willing but the market is weak,” the analyst quips cleverly in his Sept 23 report.

On this, the analyst believes scenario A will be the “most probable outcome” given the current volatile market conditions for Singapore REITs (S-REITs) and rising government bond yields.

As the steep rate hikes are expected to continue till end-2022, the analyst sees that the positive impact on Digital Core REIT’s Frankfurt acquisition may be neutralised by the steep rate hikes on Nov 2.

Despite his unchanged target price, Koh has trimmed his DPU forecast for the FY2023 by 1.5%. This comes after factoring in the REIT’s proposed acquisition under scenario A and a higher cost of debt at 3.9%.

“We expect the Fed Funds Rate to hit 4.25% by end-2022,” he writes. “Digital Core REIT’s cost of debt is expected to increase from 2.3% in 2Q22 to 3.9% in 2023.”

Like their peer, DBS Group Research analysts Dale Lai and Derek Tan have also kept their “buy” recommendation with an unchanged target price of US$1.15.

To the analysts, the REIT’s accretion levels came in slightly below their estimates.

“We have priced in an acquisition in our estimates (US$250 million, debt-funded acquisition)… The pro-forma accretion is slightly lower, largely due to the higher cost of debt of [an estimated] 3.5% (vs. 2.5% for Euro debt, in our assumptions),” they write.

“Given the expected completion is to be in end-November 2022 at the earliest, we believe there are near-term downside risks to our FY2022 earnings,” they add.

Despite the slight downside risks, the analysts say the REIT’s earnings are underpinned by solid fundamentals; the REIT’s portfolio consists of fully occupied data centres and has a long weighted average lease expiry (WALE) of 5.5 years ensuring income stability and visibility

In addition to the booming data centre industry, annual rental escalations of 2% of the REIT’s portfolio provide for organic growth in its earnings, note DBS’s Lai and Tan.

The analysts are also positive on the REIT’s strong commitment from its sponsor, which has granted the REIT a right of first refusal (ROFR) for US$15 billion worth of data centres globally.

Plus, the sponsor has data centre developments worth a further US$5 billion that could potentially be made available to Digital Core REIT when completed. Although the cap rate spreads in the US are in the negative territory currently, Digital Core REIT could look at pipelines in Europe and Japan, the analysts write.

Units in Digital Core REIT closed 2 US cents lower or 2.53% down at 77 US cents on Sept 23.
 
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$DigiCore Reit USD(DCRU.SI) https://www.businesstimes.com.sg/companies-markets/digital-core-reit-m... Digital Core Reit misses forecasts for distributable income for first 9 months of 2022 OCT 26, 2022 - 8:04 PM
DIGITAL Core real estate investment trust (Reit) has posted US$34.4 million in distributable income to its unit holders over the first three quarters ended on Sep 30 – 3.4 per cent lower than its forecast US$35.6 million.
Net property income came in at US$53 million, 5.7 per cent higher than its forecast of US$50.1 million, over the same period, according to a business update filed with the Singapore Exchange on Wednesday (Oct 26).
Revenue for Digital Core Reit, which holds only data centres in its portfolio of assets, came in at US$80.7 million, 1.6 per cent higher than the projected US$79.4 million......
 
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Received letter to vote but never send back to vote. What will happen? Not compulsory to vote right? The letter can throw away?
 
Shion

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Citi resumes 'buy' on Digital Core REIT with TP of 82 US cents​


https://www.theedgesingapore.com/ca...-resumes-buy-digital-core-reit-tp-82-us-cents
Citi Research analyst Brandon Lee has resumed his “buy” call on Digital Core REIT following a “period of restriction”. The analyst has also given the REIT a target price of 82 US cents ($1.10), which is down by 18% from his previous report, with a higher risk-free rate of 3.5%.

Lee’s report, dated Dec 27, comes after the REIT’s completion of its inaugural acquisition of a 25% stake in a freehold 34MW data centre in Frankfurt, Germany. The acquisition was made at a consideration of US$146 million paid via 100% debt, and resulted in a 2% distribution per unit (DPU) accretion.

“Most importantly, the acquisition opens up a new market – Frankfurt, which is one of the fastest growing data centre markets in Europe, characterized by its status as a major financial hub, central location, and availability of land,” Lee points out.

“Post the acquisition, Digital Core REIT will enjoy a higher fixed/hedged debt proportion of 64%, with higher gearing (+7 percentage points) of 33%, still within its target 35%-40% and implying $0.2 billion of debt headroom before hitting 40%,” he adds. “Should capital markets’ volatility stabilize, we expect Digital Core REIT to continue tapping into [its] sponsor’s pipeline of [over] US$15 billion for external growth.”

Digital Core REIT’s share buyback mandate, which commenced from Dec 6, 2021, is also a “positive signal”. The mandate should end in April 2023 before the REIT’s next annual general meeting (AGM). Some 9.2 million of units representing 0.8% of the REIT’s total units worth US$5.5 million or 59 US cents per share or 0.7x P/B were bought back and cancelled in December.

This move was seen as “positive” by Lee as it shows that the REIT’s valuation is undemanding. The move was also accretive to the REIT’s 1HFY2022 DPU by 0.2% and to its 3QFY2022 net asset value by 0.8%.

The REIT is still able to buy back another 103.3 million shares worth around US$61 million before its maximum limit of 10% is breached. This will bring its gearing to around 36% versus its current gearing of 33%, notes Lee.

REIT ‘unfairly punished’​

With its unit price down by 54% year-to-date (ytd), Digital Core REIT has underperformed Singapore REITs (S-REITs) in general with its -15% performance, as well as its data centre peers, Keppel DC REIT and Mapletree Industrial Trust (MINT) and -28% and -18% respectively.

The share price underperformance has been attributed by Lee to several factors including its 100% US dollar (USD)-denominated debt structure and low fixed/hedged debt ratio, which has been raised to 64% from 50% previously. The REIT’s small market cap, poor liquidity, as well as uncertainty over US withholding tax pertaining to the sale/transfer of shares, which has since been clarified, were also factors that affected the REIT’s unit price.

In Lee’s view, the REIT has been “unfairly punished” despite its “solid execution”.

“We think Digital Core REIT’s purchase of [the] Frankfurt facility illustrates its ability to still able to execute DPU-accretive acquisitions in a tough environment, with its ongoing share buyback exercise providing a strong signal that stock is undervalued at 7.5/7.6% FY2022/FY2023 yield and 0.62x P/B,” he writes.

That said, he has cut his DPU estimates for the FY2022/FY2023/FY2024 by 3.7%/10.0%/7.4% to 3.97/4.01/4.17 US cents on higher US debt cost at 70 bps/240 bps/210 bps, mitigated by the Frankfurt acquisition.

As at 4.15pm, units in Digital Core REIT are trading 2 US cents lower or 3.77% down at 51 US cents.
 
Shion

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Digital Core REIT's FY2022 DPU 4.8% below forecast​


https://www.theedgesingapore.com/capital/results/digital-core-reits-fy2022-dpu-48-below-forecast
Digital Core REIT declared a distribution per unit (DPU) of 1.92 U.S. cents for the six months ended 31 December 2022, 8.1% below the forecast. For FY2022, DPU was 3.98 US cents, 4.8% below forecast. Net property income (NPI) of US$38.34 million was 3.8% above forecast as a result of controlled property expenses. However interest expense more than doubled for both 2HFY2022, and FY2022, with DPU unable to meet its forecast.

Occupancy remained high at 98% for the portfolio. With weighted average lease expiry of 4.5 years, the major expiries are in 2025. In April 2022, a customer who occupied approximately 37,000 net rentable square feet in Toronto filed for bankruptcy protection. The customer vacated the premises effective January 1, 2023. Adjusting for the customer move-out on 1 January 2023, portfolio occupancy would be 96%. Separately, Digital Core REIT executed a short-term lease agreement with an investment grade cloud service provider covering half the bankrupt customer’s rental obligation.

In December 2022, Digital Core REIT completed the acquisition of a 25.0% interest in a state-of-the-art freehold facility in Frankfurt for US$150 million. According to John Stewart, CEO of Digital Core REIT’s manager, the property capitalisation rate was 4.3% compared to the REIT’s cost of debt in 4Q2022 of 3.9%.

As at Dec 31, 2022, Digital Core REIT had US$500 million of total debt outstanding consisting entirely of unsecured term loans due 2025-2027. Aggregate leverage was 34.0% and the weighted average cost of debt was approximately 3.9%. As at Dec 31, 2022, 75% of total interest rate exposure was hedged, up from 50% as at June 30, 2022

In a move that provided a 1% accretion to DPU, Digital Core REIT repurchased 10,654,100 units under its existing unit buy-back mandate at an average price of $0.585, at a deep discount to NAV. Stewart says the move is opportunistic, and depends on a number of factors. “Our goal in repurchasing units is to create value. Our goal is not to chase the stock higher but buy it when it dips. We believed it was a good use of capital. Ideally, we would like to grow, not shrink.

“We remain focused on leasing up vacancy, proactively managing controllable costs and investing accretively to continue to create sustainable value for unitholders,” Stewart says.
 
Shion

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DBS keeps 'buy' call and 90 US cents target price on Digital Core REIT​


https://www.theedgesingapore.com/ca...nd-90-us-cents-target-price-digital-core-reit
DBS Group Research analysts have kept their “buy” call and 90 US cents target price for Digital Core REIT, even though FY2022 earnings came in short of forecasts made when it listed in late 2021.

Due to lower distributable income, distribution unit was below forecast too. Portfolio occupancy of this data centre REIT declined, and there was a slight valuation loss too.

Nonetheless, in their Feb 3 note, analysts Dale Tan and Derek Tan maintain that they are “positive” on Digital Core REIT, mainly because the REIT was able to replace the space vacated by previous tenant SunGard at a property at Toronto, at a faster pace than expected.

“Although only approximately half of the space has been backfilled, we understand that demand in Toronto remains firm, with rents still on an uptrend.

“Also, demand and rents in Frankfurt also continue to grow, and we expect the Frankfurt data centre to report improved occupancy in the coming quarters,” note the Tans, referring to another data centre held by the REIT.

Digital Core REIT owns 11 data centres worth US$1.5 billion.

For FY2022 ended Dec 2022, distributable income was US$44.8 million, which was 5.8% below what the REIT forecasted at time of its IPO.

The REIT reduced trust expenses but the dip could not fully offset higher borrowing costs of around US$5.4 million.

Distribution per unit for 2HFY2022 was 1.92 US cents, 8.1% lower than 2.09 US cents paid for 1HFY2022. Full year DPU of 3.98 US cents was 4.8% below forecast.

DPU was somewhat supported by share buyback of some 10.7 million units, leading to an accretion of 0.04 US cents.

The REIT’s manager, according to the DBS analysts, will continue to consider buybacks as a tool to generate accretion but such a move will be weighed relative to gearing and debt headroom.

“There is no denying that the higher interest rates will continue to put downward pressure on earnings in the coming year, but Digital Core REIT has proven that they are able to improve earnings and have some cost savings, which helps to partially buffer the higher financing costs,” the analysts note.

They estimate that Digital Core REIT will see a further 7% dip in its DPU for FY2023 because of higher financing costs, this forecast might change depending on whether there are further share buybacks made or if accretive acquisitions are executed.

“As such, we will be maintaining our ‘buy’ recommendation with a target price of 90 US cents,” write the Tans.

Digital Core REIT closed Feb 3 at 68 US cents, down 0.73% for the day, and down just over 40% since its listing last December.
 
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homer123

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Raynon said:
Can buy this? Hit its 1 year low yesterday
Click to expand...
I am not sure why this DC reit is going down even though its Sponsor is one of the largest DC operator in the world . Its sponsor also hold a high 35% stake of this reit. At current yield close to 10% and all other financial metrics, I think it is a much better buy than MIT or KDC. However, Spore investors tend to shun US centric reits given how much they have been screwed by EHT and all the US office reits in the past.

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