Digital Core REIT (SGX:DCRU) is a pure-play data centre S-REIT sponsored by Digital Realty – the largest owner, operator, developer and acquirer of data centres globally. The IPO Portfolio has an appraised value of US$1.4 billion and comprises of 10 institutional quality data centres located in the United States and Canada, with 100% occupancy rates.
Digital Core REIT's Sponsor, Digital Realty, is the 6th largest US-listed REIT with a market cap of US$44 billion and over 290 data centres across 47 metros throughout 24 countries serving more than 4,000 customers.
A total of 26 cornerstone investors have subscribed for an aggregate of 414.8 million units, which represents 36.9% of the units in issue after the offering. Digital Core REIT has distribution yields of 4.75% for Forecast Year 2022 and 5.00% for Projection Year 2023 based on the offer price of US$0.88 per unit.
Digital Core REIT is an S-REIT established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally which are used primarily for data centre purposes, as well as assets necessary to support the digital economy. Its initial portfolio comprises 10 fully-occupied freehold institutional quality data centres in the United States (Silicon Valley, Los Angeles, and Northern Virginia) and Canada (Toronto) with an aggregate appraised value of US$1.4 billion.
Digital Core REIT's Key Investment Highlights (based on its IPO Prospectus)
Focused on highly attractive data centre industry driven by digital transformation
Robust demand driven by digital transformation – North America’s data centre market is expected to grow at a CAGR of approximately 15% from 2020 to 2024, with hyperscale demand projected to grow at a CAGR of approximately 23% driven by digitalisation, new technologies and digital trends.
‘Sticky’ customer relationships – Data centre infrastructure is a crucial component of a modern company’s operations and migrating this infrastructure to a different physical location presents switching costs and risks. The REIT has a portfolio occupancy of 100%, underpinned by high historical customer retention rate of 95.8% with significant customer investment further enhancing customer stickiness.
High-Quality, Mission-Critical portfolio across top data centre markets
Located in key strategic markets – In areas with long-term track record of stabilised portfolio occupancy and minimal customer churn. 73.5% of the IPO Portfolio situated in Northern Virginia and Northern California, the #1 and #2 largest data centre markets in the United States based on Base Rental Income for the month of June 2021.
Stable and resilient portfolio with blue-chip customer base – Top customers in portfolio consist of leading global cloud providers, global colocation and interconnection providers, social media platforms and IT solutions providers. Additionally, the REIT has a Weighted Average Lease Expiry (WALE) of 6.2 years as of June 2021.
Exclusive vehicle of Best-in-class Global Data Centre Sponsor
Industry-leading Sponsor – The Sponsor, Digital Realty, is one of the largest listed US REITs with a well-established track record and public market expertise. Sponsor provides a global right of first refusal (ROFR) to Digital Core REIT and is committed to the growth and success of the REIT.
Strong management team and board of directors – Digital Core REIT will be managed by longstanding Sponsor team members with extensive data centre experience, along with real estate and finance industry veterans serving as independent directors.
Balance sheet and initial scale positioned for substantial growth
Low gearing - As at the Listing Date, Digital Core REIT is expected to have an Aggregate Leverage of approximately 27.0%, which is significantly below S-REITs average of 37.4%.
Access to multiple capital sources – Leverage on its Sponsor’s track record in accessing diverse capital sources. Over the last 17 years, the Sponsor has accessed the full menu of capital, including both public and private equity sources as well as debt across numerous currencies.
Total return profile
Returns – Total return of 10.01% comprising distribution yield of 4.75% for Forecast Year 2022 and Dividend Per Unit (DPU) growth of 5.26% from Forecast Year 2022 to Projection Year 2023.
Digital Core REIT's Key Strategies
Proactive asset management and asset enhancement strategy to achieve growth in revenue and net property income, maintain occupancy levels and facilitate asset enhancement opportunities.
Investments and acquisition growth strategy to pursue opportunities with future income and capital growth. The Manager will endeavour to acquire data centre properties situated in growth markets that cater to population and infrastructure growth.
Capital management strategy to employ an appropriate mix of debt and equity in financing acquisitions and adopt financing policies to optimise risk-adjusted returns to Unitholders.
Digital Core REIT's Key Risks (page 57 of the IPO Prospectus for full list)
- Parent US REIT may lose its status as a US REIT.
- Digital Core REIT may face significant expenditures in order to re-let data centre space.
- Digital Core REIT and/or the Properties may face increased competition from other properties in the market especially when the REIT expects that subsequent acquired properties will be located in areas where other competing properties are present.
- Digital Core REIT is dependent upon the economic climates of the markets in which the Properties are located.
Digital Core REIT's Financials and Valuations
Revenue decreased by 1.4% to US$100.5 million in FY2020 due to a new lease executed in 2019 where the previous customer moved out and the Sponsor successfully re-leased the entire building to a new customer for 15 years with minimal additional capital invested, the decrease was offset by higher recovery income at another property. Net property income of decreased by US$2.1 million to US$65.2 million.
Net property income for six-month period ended 30 Jun 2021 was US$32.2 million and US$66.9 million for Forecast Year 2022 and US$66.5 million for Projection Year 2023.
Distributable income to Unitholders for Forecast Period 2022 and Projection Year 2023 at US$53.5 million and US$56.8 million respectively. This would imply a distribution yield of 4.75% and 5.00% respectively based on an offer price of US$0.88.
According to the IPO prospectus, Digital Core REIT's price to net asset value ratio (P/NAV) is 1.05x based on an offer price of US$0.88 and net asset value per unit of US$0.84.
Cluster of SGX Listed Industrial and Data Centre REITs
With the listing of Digital Core REIT, there will be 11 Industrial and Data Centre REITs listed on SGX.
| Name | SGX Code |
Market Cap (S$mil) |
Total Return YTD % |
Dividend Yield % |
P/B |
|---|---|---|---|---|---|
| Ascendas REIT | A17U | 12,417.2 | 2.4 | 4.9 | 1.3 |
| Mapletree Logistics Trust | M44U | 8,736.9 | -2.3 | 4.2 | 1.4 |
| Mapletree Industrial Trust | ME8U | 7,023.2 | -3.9 | 4.9 | 1.4 |
| Keppel DC REIT | AJBU | 4,132.9 | -10.7 | 4.1 | 2.0 |
| ESR-REIT | J91U | 1,905.8 | 29.8 | 6.3 | 1.2 |
| ARA LOGOS Logistics Trust | K2LU | 1,277.9 | 55.6 | 5.7 | 1.3 |
| AIMS APAC REIT | O5RU | 994.9 | 19.9 | 6.7 | 0.7 |
| EC World REIT | BWCU | 659.0 | 20.7 | 7.6 | 0.9 |
| Daiwa House Logistics Trust * | DHLU | 550.1 | 1.9 | 6.3 | 1.1 |
| Sabana REIT | M1GU | 465.4 | 34.3 | 8.6 | 0.8 |
| Average | 14.8 | 5.9 | 1.2 |
Source: Dividend yields based on SGX REIT Chartbook November 2021, Bloomberg (Data as of 3 Dec 2021).
*Notes:
Total Return YTD as of IPO date.
Dividend Yield forecasted for 2021 as stated in Daiwa House Logistics Trust’s IPO Prospectus.
P/B based on P/NAV with reference to NAV/unit of S$0.76 in Daiwa House Logistics Trust’s IPO Prospectus.
Additional Information from Digital Core REIT's IPO Prospectus
Digital Core REIT's IPO details
- Offer price at US$0.88 per unit.
- Offered units 267.0 million units.
- 253.7 million units under Placement Tranche.
- 13.4 million units under Public Offer.
- Estimated IPO market capitalisation at US$990.3 million assuming the preference shares of the parent U.S. REIT are issued on the Listing date.
- Balloting results: The placement tranche was approximately 19.6 times subscribed while the public tranche was approximately 16.1 times subscribed.
- Use of total proceeds raised from Offering, Cornerstone Units and sponsor units (US$977 million) as well as Loans, Acquisition fee in units issued to manager and Preferred shares issuance (US$363.1):
- US$1,296.0 million – Acquisition of the Properties.
- US$44.0 million – Transaction costs.
Digital Core REIT's Cornerstone Investors
- The following Cornerstone Investors subscribed to 414.8 million Units at the Offer Price:
- AEW Asia Pte. Ltd.
- Affin Hwang Asset Management Berhad
- AIA Investment Management Private Limited
- AMP Capital Investors Limited
- B&I Capital AG
- Blackrock, Inc.
- Cohen & Steers Asia Limited
- DBS Bank Ltd.
- DBS Bank Ltd. (on behalf of certain wealth management clients)
- DWS Investments Australia Limited
- Eastspring Investments (Singapore) Limited
- FIL Investment Management (Hong Kong) Limited
- Fullerton Fund Management Company Ltd
- Ghisallo Master Fund LP
- Jane Street Financial Limited
- JPMorgan Asset Management (UK) Limited (for and on behalf of its clients)
- Kasikorn Asset Management Co., Ltd.
- Lion Global Investors Limited
- Nikko Asset Management Asia Limited
- Principal Global Investors (Singapore) Limited
- Resolution Capital Limited
- Schonfeld IR Master Fund Pte. Ltd. and Schonfeld Global Master Fund LP
- Stichting Depositary APG Tactical Real Estate Pool, As Depositary Of APG Tactical Real Estate Pool
- The Segantii Asia-Pacific Equity MultiStrategy Fund
- TMB Asset Management Company Limited
- Value Partners Hong Kong Limited
