Digital Core REIT - UOB Kay Hian 2023-03-20: Rebalancing Towards Investment Grade Tenants

• Cyxtera, Digital Core REIT (SGX:DCRU)’s second-largest tenant accounting for 22.6% of annualised rent, was downgraded by Moody’s from B3 to Caa2 on 17 Feb 23. In the event that Cyxtera files for bankruptcy protection, our FY25 DPU forecast and target price for Digital Core REIT would be reduced by 15% and 14% respectively to US$0.035 and US$0.67 assuming Digital Core REIT backfills half of the vacant data centre spaces.
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The second shoe to drop.

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• Cyxtera, Digital Core REIT (SGX:DCRU)’s second-largest tenant accounting for 22.6% of annualised rent, was downgraded by Moody’s from B3 to Caa2 on 17 Feb 23. In the event that Cyxtera files for bankruptcy protection, our FY25 DPU forecast and target price for Digital Core REIT would be reduced by 15% and 14% respectively to US$0.035 and US$0.67 assuming Digital Core REIT backfills half of the vacant data centre spaces.
• Digital Core REIT provides FY25 distribution yield of 8.7% (vs Keppel DC REIT (SGX:AJBU): 5.3% and Mapletree Industrial Trust (SGX:ME8U): 5.7%). Maintain BUY. Target price: US$0.78.

The second shoe to drop.

• We expect Cyxtera Technologies, which was described as a global colocation and interconnection provider and rated B3 in Digital Core REIT’s IPO prospectus dated 29 Nov 21, to be under greater financial strain as financing for technology companies is tightened in the aftermath of the demise of Silicon Valley Bank.
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  Above is the excerpt from report by UOB Kay Hian Research.
  Clients of UOB Kay Hian may be the first to access the full report in PDF @ https://www.utrade.com.sg/.
  
  

  
  
  Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-03-20 SGinvestors.io
  
  

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  Read also UOB's most recent report:
  2023-09-07 Digital Core REIT - Overcoming Resistance As Cyxtera Is Rehabilitated.

  Previous report by UOB:
  2023-08-01 Digital Core REIT - Restructuring Of Cyxtera Well Underway.

  Price targets by other brokers at Digital Core REIT Target Prices.

  Listing of research reports at Digital Core REIT Analyst Reports.

  Relevant links:
  Digital Core REIT Share Price History,
  Digital Core REIT Announcements,
  Digital Core REIT Dividends & Corporate Actions,
  Digital Core REIT News Articles