Digital Core Reit Q1 distributable income slips 2.4% to US$10.6 million

DIGITAL Core real estate investment trust (Reit) on Wednesday (Apr 24) posted distributable income of US$10.6 million for its first quarter ended Mar 31, 2024, down 2.4 per cent from US$10.9 million a year ago.

Gross revenue was down 8.2 per cent to US$24.6 million for the quarter, from US$26.8 million a year ago, the manager said in a quarterly business update.

Net property income fell 9.5 per cent on year to US$15.8 million for the quarter, from US$17.5 million. This was even as property expenses dropped 5.7 per cent to US$8.8 million, from US$9.3 million a year ago.

The weighted average lease expiry for Digital Core stands at 2.8 years as at Mar 31, 2024, with occupancy rates at 95 per cent. The weighted average debt maturity is at 2.7 years while its aggregate leverage stood at 35.1 per cent.

As a dedicated core data centre Reit, Digital Core has a portfolio of data centres across the United States, Canada, Germany and Japan.

Among its key investments in Q1 include the acquisition of an additional 10 per cent interest in a data centre in Osaka, as well as the acquisition of an additional 24.9 per cent interest in a Frankfurt facility. From this, the manager expects the Reit to generate a combined 5.6 per cent distribution per unit (DPU) accretion.

John Stewart, chief executive of the manager, said during an earnings briefing on Wednesday that the Reit has the option to acquire more of the Frankfurt facility at the same valuation in the next six months.

“You could and should expect us to take down an additional stake in the Frankfurt asset,” he said. “The size that we take will ultimately be governed by whether we need to fund it entirely with debt, or whether there’s an opportunity to issue equity and work on a larger transaction.”

Stewart added that he is confident that the Reit can buy more in Japan, but it would not be as straightforward as in Frankfurt, as it would need to negotiate and execute a new contract.

He noted that Reits and rates are inversely correlated, and the current environment makes it more challenging to accretively raise equity, and Reits are more limited by the debt headroom.

As at Mar 31, 2024, Digital Core had aggregate leverage of 35.1 per cent, with US$115 million in debt headroom before gearing rises to 40 per cent.

In terms of divestments, Stewart noted that it is possible, and the manager would “certainly entertain offers”, but nothing is imminent, and it is not currently actively marketing anything.

The Reit repurchased 7.9 million units at an average price of US$0.579 per unit during the quarter, which delivered 0.6 per cent DPU accretion.

The manager said that it has repurchased some US$14 million worth of units at an average price of US$0.559 per unit since it started buybacks in Q4 2022. This would deliver around 220 basis points of DPU accretion.

Digital Core Reit’s net asset value as at Mar 31, 2024 stood at US$0.67 per unit, down 2.9 per cent from a year earlier.

Units of the Reit closed flat at S$0.61 on Wednesday, before the results were released.