Thursday, April 24th, 2025

“Digital Core REIT Soars with Stock Buyback, Strong Leasing, AI-Driven Expansion & Market-Leading 6.9% Yield – 68% Upside Potential!” 🚀


Digital Core REIT is a Must-Buy with a 68% Upside Potential!”

2H24: Strong Leasing Performance and Positive Rental Reversion

Digital Core REIT (DCREIT) reported a solid performance for the second half of 2024, with new and renewal leases covering more than 90% of its portfolio. The company achieved a positive rental reversion of 4.3% during the year, with management expecting this figure to improve to double digits in 2025. Additionally, DCREIT recorded a significant revaluation gain of US$251.6 million. The REIT offers an attractive 2025 distribution yield of 6.9%, which compares favorably against its peers: KDCREIT (4.9%), MINT (6.6%), Digital Realty (3.0%), and Equinix (2.0%). The recommendation remains a BUY, with a target price of US$0.90.


2H24 Financial Results (Year ending Dec 31)

Financial Metric 2H24 (US$ million) YoY Change (%) Remarks
Gross Revenue 54.0 +9.8% Driven by positive rental reversion and leasing up of vacant space
Net Property Income (NPI) 31.4 +12.6%
Cash NPI 28.8 -3.3%
Distributable Income 23.4 +17.0% Contributions from Frankfurt and Osaka data centers
DPU (US cents) 1.80 +1.1% Decline in finance expenses (-5.5% YoY)

Key Highlights

  • High Leasing Activity: DCREIT successfully secured leases representing US$74 million in annualized rent, covering more than 90% of its portfolio. The portfolio’s Weighted Average Lease Expiry (WALE) was extended by two years to 4.8 years.
  • Toronto Data Center Backfilling: DCREIT signed a three-year lease with a next-generation AI computing developer for its Toronto data center, bringing occupancy from 66% to 100%. The lease will commence in 1Q25 and is expected to generate US$4.2 million in annualized rent, boosting the center’s revenue by 45%.
  • Los Angeles Data Centers Recovery: The two LA data centers were 80% leased by end-2024, generating US$8.6 million in annualized rent, a 75% increase. The facilities primarily serve 60 enterprise clients from the media and entertainment industry.
  • Unit Buybacks: DCREIT repurchased 4.8 million units in 4Q24, bringing its total 2024 buyback to 27 million units at an average price of US$0.576, resulting in a DPU accretion of 1.8%.

Future Growth and Redevelopment Plans

  • Linton Hall Road Data Center (Northern Virginia)
    • The tenant at 8217 Linton Hall Road opted not to renew their lease, expiring in June 2025. This facility accounts for 11% of DCREIT’s annualized rents.
    • DCREIT plans to re-lease the facility, which is currently 20% under-rented, with a six-month expected downtime.
    • The redevelopment option includes US$20-40 million capex to upgrade its electrical infrastructure to accommodate high-power-density AI workloads.
    • A potential expansion could add a 20MW annex, requiring an investment of US$200 million for completion by 2027.

Financial Forecasts and Valuation

Financial Metric 2023 2024 2025F 2026F 2027F
Net Turnover (US$m) 103 102 167 181 185
EBITDA (US$m) 52 52 76 83 85
Net Profit (US$m) (109) 205 37 42 43
DPU (US cents) 3.7 3.6 3.7 4.0 4.0
DPU Yield (%) 6.9 6.7 6.9 7.5 7.6
  • The BUY recommendation is maintained with a target price of US$0.90, based on a Dividend Discount Model (DDM) with a 6.75% cost of equity and 2.5% terminal growth rate.
  • DCREIT remains a pure-play data center REIT, with an all-freehold portfolio across North America, Europe, and Asia.

Investment Catalysts

  • Yield-accretive acquisitions leveraging Digital Realty’s extensive data center pipeline.
  • Organic rental escalations of 1-3% annually, with a weighted average of 2%.

Key Operating Metrics (4Q24)

Metric 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 YoY Change QoQ Change
DPU (US cents) n.a. 1.78 n.a. 1.80 n.a. 1.80 +1.1% 0.0%
Occupancy Rate 96.7% 96.6% 95.4% 96.6% 96.6% 97.0% +0.4ppt +0.4ppt
Aggregate Leverage 34.4% 33.5% 35.1% 34.4% 34.8% 34.0% +0.5ppt -0.8ppt
WALE by Annualized Rent (years) 3.6 2.8 2.8 2.8 5.0 4.8 +2 years -0.2 years

Portfolio Breakdown

Rental Income by Core Market

  • Frankfurt – 30%
  • Northern Virginia – 26%
  • Silicon Valley – 16%
  • Toronto – 12%
  • Los Angeles – 9%
  • Osaka – 7%

Debt Profile & Capital Management

  • Debt to Total Capital: 98.6% (2024), expected to rise to 107.4% by 2027.
  • Debt to Equity Ratio: 99.2% (2024), projected at 108.1% in 2027.
  • Net Debt to Equity Ratio: 75.4% (2024), expected to decline to 56.9% in 2027.
  • Interest Coverage Ratio: Expected to remain stable at 9.5x-11.1x.

Conclusion

Digital Core REIT demonstrated resilience in 2H24, securing long-term leases, successfully filling vacant spaces, and maintaining positive rental reversions. The REIT’s strong asset base, strategic expansion plans, and attractive distribution yield make it a compelling investment. The BUY recommendation is maintained with a target price of US$0.90, representing a 68.2% upside from the current US$0.535 share price​.

Thank you

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