There is a concerted effort by analysts to prove hedge fund manager Jim Chanos wrong about data centres.
Citi has initiated coverage on Digital Core REIT with a buy recommendation and a target of US$1. Citi says Digital Core REIT's portfolio of US$1.4 billion is valued at a historical capitalisation rate of 4.25% compared to a capitalisation rate of 4.7% based on NPI forecasts for FY2022.
On July 1, DBS Research had stated: "For Digital Core REIT, its long WALE of 5.5 years ensures long term occupancy and income. Its sponsor’s capability to operate data centres efficiently and deliver sufficient value to continuously entice and attract tenants was what helped Digital Realty establish itself as one of the world’s largest operators. As the data centre sector continues tothrive in this new digital age, and as DCREIT unceasingly works on improving its offering, we believe that demand for its properties will remain robust."
Digital Core REIT's unit price is likely to get a tailwind in the near term as risk-free rates in both Singapore and the US have retreated from their mid-June highs of 3.2% or so in the anticipation of a US recession. Digital Core REIT's unit price opened at 71.5 US cents on July 7, indicating a forward DPU yield of 5.8%. That could be an interesting valuation for a data centre REIT, according to market watchers.
