Digital Core REIT - UOB Kay Hian 2023-08-01: Restructuring Of Cyxtera Well Underway

• Digital Core REIT’s 1H23 results were in line with our expectations. Cyxtera has resumed payment of rents in July. Investors bidding to acquire Cyxtera could potentially take over the company by September.
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• Digital Core REIT provides a distribution yield of 6.9% for 2023F. Maintain BUY. Target price: US$0.62.

Digital Core REIT's 1H23 Results

• Digital Core REIT (SGX:DCRU) reported 1H23 DPU of US$0.0192 (-6.8% y-o-y), which is in line with our expectations.
• Maintaining stable occupancy. Portfolio occupancy was stable at 97% as of Jun 23. Weighted average lease expiry (WALE) is 3.9 years. All its leases contain cash rental escalation of 1-3% (weighted average: 2%).
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• Affected by higher cost of debts. Cost of debt increased 0.6ppt q-o-q to 4.7% due to expiry of interest rate swap and entry into new interest rate swap. Finance expenses surged to US$12.3m. Cost of debt is expected to reach the higher end of previous guidance of 4.5- 5.0% by end-23.
• Creating value by buying back units. Digital Core REIT has repurchased 4.6m units at an average price of US$0.462 in 1H23, which delivered DPU accretion of 0.4%. The units were held as treasury units and were subsequently cancelled in Apr 23 and Jul 23. It has preserved balance sheet flexibility with aggregate leverage stable at 34.2% as of Jun 23.
• AI boosts demand for data centre space. Artificial intelligence (AI) is expected to contribute to continued growth in digital spending as a % of global GDP. Sizeable artificial intelligence requirements have begun to materialise faster than expected in 2Q23.

Cyxtera resumed payment of rents in July.

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Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-08-01 SGinvestors.io

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