- We see Digital Core REIT (SGX:DCRU) as an attractive re-entry at 0.9x P/B, FY25-26F yield of 6.0%, higher than peers listed on the SGX, which are largely trading at premiums of 1.2-1.4x P/B.
- - Read this at SGinvestors.io -
More stability than market is fearing.
- We believe that the discount is largely due to investors’ uncertainty surrounding the distribution growth outlook for Digital Core REIT, especially from the recent major non-renewal at Linton Hall Datacenter (DC), where it will have a significant impact to earnings and distributions, if the property is left vacant over an extended period of time.
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- With market rents as much as 20%-30% higher than the expiring lease, Digital Core REIT has the potential to achieve significant rental uplifts. addition, we believe that investors have largely ignored the various initiatives (i.e. financial management, leasing up of existing assets and acquisitions) that was completed in recent months which could contribute positively, and limit the fall off in distributions to just ~-4.0% in FY25F. This is on the assumption of a six-month vacancy, with possible lower downside if the re-let of Linton Hall data-center is achieved ahead of time.
- Assuming the re-let of the space by end of FY25F, we see Digital Core REIT's DPUs jumping by ~11% y-o-y in FY26F, bringing DPUs to the highest level in 4-years.
Some impact to FY25 earnings, but a strong rebound expected in FY26.
- Read more at SGinvestors.io.
