Digital Core REIT Reports Progress on Key Initiatives, Shares Valuations Concerns
Digital Core REIT, a Singapore-based real estate investment trust, has addressed key concerns and provided updates on its initiatives in a recent announcement. The REIT’s management team responded to substantial and relevant questions from unitholders ahead of its annual general meeting on April 16, 2025.
Key Takeaways
The REIT has made progress in resolving the bankruptcy of its second-largest customer, which had a significant impact on its revenue. The company has effectively managed the resolution process and increased the annualized rental contribution from the affected properties.
Digital Core REIT has increased its stake in Digital Osaka 2 TMK to 20% and acquired a 20% stake in Digital Osaka 3 TMK, located within the same campus. The assets have similar characteristics, yield, and market positioning.
The REIT used a revolving credit facility as a bridging loan to fund the Digital Osaka 3 investment, which was later refinanced with long-term, fixed-rate, locally-denominated debt.
The manager repurchased 27 million units in 2024 at an average price of $0.576, representing a 14% discount to net asset value (NAV). The transactions generated accretion to both NAV and distribution per unit (DPU).
Valuation Concerns and Investor Confidence
The REIT is trading at a discount of approximately 40% to NAV, with a unit price in the high $0.40s range. The manager has acknowledged the valuation gap and intends to narrow it over time through consistent execution of economic leasing, accretive investing, and prudent financing.
Impact of Emerging Trends on Data Centre Demand
The emergence of cheaper and better AI models, such as DeepSeek and Alibaba, may require lesser capacity in data centres. However, the REIT’s management believes that advances in technology will translate to new use cases that ultimately drive greater demand for data centre capacity.
Short- and Long-term Plans to Improve Unitholder Returns
The manager aims to improve unitholder returns through unit price appreciation. The proportion of Digital Core REIT units held by hedge funds remains low, and there is no indication that range-trading by hedge funds is materially influencing the unit price.
Leverage and Distribution
The REIT’s target leverage range remains 35-40%. The higher capital distribution in 2H 2024 was driven by an audit and tax adjustment related to 2023, which temporarily skewed the distribution mix. The manager does not expect this trend to persist in 2025.
Expansion Plans
Digital Core REIT has a global investment mandate and will continue to invest in select core global data centre markets where it sees the best opportunity to create value for unitholders.
Disclaimer
This article is for information only and does not constitute or form part of an offer, invitation or solicitation of any offer to purchase or subscribe for units in Digital Core REIT in Singapore or any other jurisdiction. The value of the units and the income derived from them may fall as well as rise. An investment in the units is subject to investment risks, including the possible loss of the principal amount invested. Unitholders have no right to request the manager to redeem or purchase their units while the units are listed. It is intended that unitholders may only deal in their units through trading on the SGX-ST. Listing of the units on the SGX-ST does not guarantee a liquid market for the units.
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