Digital Core REIT started at Buy by DBS

Digital Core REIT's property at 1500 Space Park in Silicon Valley in California, U.S. Credit: Digital Core REITDigital Core REIT's property at 1500 Space Park in Silicon Valley in California, U.S. Credit: Digital Core REIT

DBS Group Research started coverage of Digital Core REIT at Buy with a target price of US$1.40, noting the pure-play data center REIT is backed by the largest global data center owner and operator Digital Realty Trust. 

“DCR offers an attractive opportunity to ride on the highly attractive and strong growth seen in the data center market fuelled by the digitisation of the economy,” DBS said in a note Friday. 

“DCR’s portfolio of data centres are strategically located across key markets in North America, where demand continues to be strong and market vacancy remains low,” DBS said.

The portfolio of 10 data centers, valued at around US$1.44 billion as of end-June, has a 100 percent occupancy rate, and leases have built-in annual rent escalations of around 2 percent, the note said.

Around US$250 million of debt-funded acquisitions are expected in 2022, with another US$500 million in acquisitions funded by a combination of debt and equity by 2023, DBS said. 

The bank forecast those deals would drive a three-year distribution per unit (DPU) compound annual growth rate (CAGR) of around 7 percent over 2021 to 2024, around 10 percent above the initial public offering (IPO) forecasts. 

The acquisition pipeline from its sponsor, Digital Realty Trust, could make Digital Core REIT one of the largest S-REITs, DBS said. The REIT has the right of first refusal (ROFR) to around US$15 billion of data centers globally — or 281 properties — and the sponsor has another US$5 billion worth of data-center developments which could be made available when they are completed, the bank said. 

Digital Realty Trust is the sixth-largest publicly traded REIT in the U.S., and is a constituent of the S&P 500 Index, DBS noted.

Units of Digital Core REIT closed Friday unchanged at US$1.18.


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