Linton Hall, a property that has found new tenant, remains “a meaningful embedded earnings catalyst ahead of its expected lease commencement in December 2026,” he adds.
Jonathan Koh of UOB Kay Hian expects this Linton Hall lease to generate annualised net property income of US$14.8 million, which means, US$13.3 million for the REIT, with its 90% share.
At this level, the net property income is an increase of 35%, which is derived from an increase in capacity of 13% to 10.8MW and a positive rental reversion of 20%. The new lease provides an annual rental escalation of 3%.
With Linton Hall back to full occupancy, Digital Core REIT’s WALE across its whole portfolio has been extended from 4.7 years to 5.7 years, thus enhancing resiliency.
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Lai believes that Digital Core REIT’s near-term earnings outlook looks stable with the bulk of lease that are expiring in FY2026 already renewed. While he expects rental reversions to remain positive, the pace of uplift in the coming quarters may moderate from the strong levels recorded this quarter.
With an eye that FY2027 DPU will increase by 12.5%, Lai rates Digital Core REIT “buy” with a 70 US cents target price.
Also, Digital Core REIT sees minimal impact from higher energy prices. It has locked in supply of electricity for the next 2-3 years and it also has the right to re-price its leases in the event that the electricity tariff increases by more than 5%.
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Digital Core REIT, according to Koh, has set its sights on growing through acquisitions going forward, with an ambition to double the size of its asset base to US$4 billion over the next 3-5 years. Koh believes that the REIT will likely to recycle assets by divesting one asset in North America and redeploying the capital to reinvest in data centres in Asia Pacific, especially Singapore and Japan.
Koh notes that the REIT’s sponsor, Digital Realty, owns three data centres in Singapore. The REIT will also look at raising its stake in its Frankfurt data centre, where it now holds a 65% stake, and two Osaka data centres, with a 20% stake.
For Koh, another positive for this counter is its ongoing buy back activities. In the first quarter, Digital Core REIT bought back 7.1 million units at an average of 48.6 US cents, which is at a steep discount of 38% to its NAV of 79 US cents, which has helped generate DPU accretion of 0.3%.
For now, Koh is keeping his “buy” call and target price of 93 US cents, with a DPU yield of 7% for 2026 and 8.2% for 2027.
Digital Core REIT units close at 52 cents, up 0.97% for the day, down 5.45% year to date.
