In a Dec 7 report, Koh writes that the REIT, most notably, derives 68.5% of its base rental income from what is known as “hyperscalers”.
He explains that “hyperscalers” are technology giants, such as Amazon, Facebook, Google, IBM and Microsoft, dominating the cloud services industry.
They utilise data centres built on a massive scale with sizeable commissioned power of 20-100MW to support hundreds of millions of users.
Demand for hyperscale data centres is projected to grow at a compound annual growth rate (CAGR) of 23% in 2020-24, outpacing a CAGR of 15% for the broader North America data centre market.
See also: Points to note for Digital Realty Trust, Digital Core REIT and the IPO portfolio
He also observes that DCREIT has enduring customer relationships, noting that its top six tenants are sponsor Digital Realty’s long-standing customers of more than 15 years, and it benefits from sticky customer relationships with a high tenant retention rate of 95.8%.
Furthermore, tenants are entrenched due to high capex incurred and high switching costs.
The REIT is also able to scale up rapidly due to its sizeable sponsor pipeline, supported by its low aggregate leverage of 27% and competitive cost of debt at 1%.
See also: Digital Core REIT sees public offer 16.1x subscribed in Singapore's largest IPO of 2021
Sponsor Digital Realty is the largest global provider of cloud- and carrier-neutral data centres, colocation and interconnection solutions. It has a network of 291 data centres with net rental square feet (NRSF) of 35.8 million sq ft across 47 metropolitans in 24 countries on six continents.
In addition, DCREIT is the exclusive S-REIT vehicle of Digital Realty. Digital Realty has granted DCREIT a global right of first refusal (ROFR) on its growing data centre pipeline worth over US$15 billion.
As of 2.45 pm, shares of DCREIT are trading at $1.10, with a FY2022 price to book ratio of 1.2 and dividend yield of 4.2%.
