Digital Core REIT Review @ 13 February 2023

Basic Profile & Key Statistics

• Main Sector(s): Industrial
• Country(s) with Assets: United States & Canada
• No. of Properties (exclude development/associate/fund): 11

Key Indicators

Performance Highlight

Gross revenue and NPI are better than IPO forecast but distributable income and DPU are lower than the forecast mainly due to higher finance expenses, trust and other expenses as well as tax expenses.

Acquisition

On 13 Dec 2022, DCR Completed the acquisition of a 25% interest in Digital Frankfurt.

Distribution Breakdown

• Distributable Income Breakdown:
• 80.2% from Operation
• 19.8% from Fees Payable/Paid in Units
• Distribution = 100% of Distributable Income

Related Parties Shareholding

• REIT Sponsor's Shareholding: Above median for more than 20%
• REIT Manager's Shareholding: Above median for more than 20%
• Directors of REIT Manager's Shareholding: 0%

Lease Profile

• Occupancy: ± 5% from median
• WALE: Above median for more than 10%
• Highest Lease Expiry within 5 Years: Above median for more than 20%; Falls in 2025
• Weighted Average Land Lease Expiry: 100% Freehold Properties

Debt Profile

• Gearing Ratio: ± 10% from median
• Cost of Debt: Above median for more than 20%
• Fixed Rate Debt %: ± 10% from median
• Unsecured Debt %: 100%
• WADM: Above median for more than 20% 
• Highest Debt Maturity within 5 Years: Above median for more than 20%; Falls in 2026
• Interest Coverage Ratio: Above median for more than 20%

Diversification Profile

• Top Geographical Contribution: Below median for more than 20%
• Top Property Contribution: ± 10% from median
• Top 5 Properties' Contribution: Above median for more than 20%
• Top Tenant Contribution: Above median for more than 20% 
• Top 10 Tenants' Contribution: Above median for more than 20% 

Key Financial Metrics

• Property Yield: ± 10% from median
• Management Fees over Distribution: Above median for more than 20%; $5.05 distribution for every dollar paid 
• Distribution on Capital: ± 10% from median
• Distribution Margin: Below median for more than 10%

Trends

* DPU in 4Q 2021 is annualized to 3 months DPU.

• Flat - Occupancy
• Slight Downtrend: NAV per Unit, Property Yield
• Downtrend - DPU, Interest Coverage Ratio, Distribution on Capital, Distribution Margin

Relative Valuation

• P/NAV: Below average for 1y; Below -1SD for 3y
• Dividend Yield: Above average for 1y; Above +1SD for 3y

Author's Opinion

Favorable	Less Favorable
High REIT Sponsor's Shareholding	Low Directors of REIT Manager's Shareholding
High REIT Manager's Shareholding	Concentrated Lease Expiry
High Occupancy	High Cost of Debt
Long WALE	Concentrated Debt Maturity
100% Freehold Properties	High Top 5 Properties' Contribution
100% Unsecured Debt	High Top Tenant & Top 10 Tenants' Contributions
Long WADM	Non Competitive Management Fees
High Interest Coverage Ratio	Low Distribution Margin
Low Top Geographical Contribution	DPU Downtrend
	Interest Coverage Ratio Downtrend
	Distribution on Capital Downtrend
	Distribution Margin Downtrend

The performance has declined as compared to the previous quarter probably due to higher property expenses and finance expenses. The customer who filed for bankruptcy protection has vacated the Toronto DC effective 1 January 2023 while DCR executed a short-term lease agreement with a cloud service provider to cover half of the space. Moving forward, the contribution from the 25% interest in Digital Frankfurt should help to cushion the impact of the rising interest rate.

For more information, check out:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and details of Singapore REIT

REIT Review - List of previous REIT review posts

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*Disclaimer: The information presented on this blog is for educational and informational purposes only. The materials, including research and opinions, are based solely on my own findings and should not be considered as professional financial advice or a definitive statement of fact. I cannot guarantee the accuracy, completeness, or reliability of the information provided. I shall not be held liable for any errors, omissions, or losses that may occur as a result of using the information presented on this blog. It should be noted that the information presented on this blog does not constitute a buy, sell, or hold recommendation for any security. It is crucial to conduct your own thorough research and due diligence before making any investment decisions.