Digital Core REIT unitholders are set to receive distribution per unit of 2.37 US cents.
The distribution consists of 0.31 US cents for the Dec 6 to Dec 31 period, plus 2.06 US cents for 1HFY2022 ended June 30, which is 1.4% lower than forecasted.
The distribution will go ex on Aug 4 and be paid on Sept 28.
The REIT which owns ten data centres, was listed on the SGX on Dec 6.
On July 28, the REIT's manager announced that Digital Core REIT has an existing unit buy-back mandate in place allowing for the repurchase of up to 10% of total units outstanding. In July 2022, the Board of Directors approved a resolution authorising implementation of the existing unit buy-back mandate.
John Stewart, CEO of Digital Core REIT's manager said that the buyback would only take place under certain conditions. "First we must have ample liquidity to fund the business; all material information must be in the market; and our units must be traded at less than the unlevered book value."
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Net property income for the Jan to June 2022 period was US$35.4 million, up 5.9% over what was forecasted. Gross revenue on the other hand was US$52.9 million, 0.3% lower than was forecasted.
“Data centre fundamentals continued to improve throughout the first half of the year,” says Stewart.
“Our high-quality portfolio of mission critical facilities in top-tier data centre markets is well positioned to deliver resilient performance in the current environment.
“Our flexible balance sheet remains primed for growth, while our management team remains firmly focused on creating durable value for Unitholders,” he adds.
Digital Core REIT’s share price has been pretty volatile recently, when it dropped to as low as 71 US cents on July 14, before rebounding to 83 US cents at end of July 28. The REIT’s IPO was offered at 88 US cents each.
Investors were reportedly wary about the impact of rising interest rates on the financing burden of the REIT.
As at June 30, Digital Core REIT had US$350 million of total debt outstanding, consisting entirely of an unsecured term loan due December 2026.
Aggregate leverage was 25.7% and the weighted average cost of debt was approximately 2.3% (for the three months ended 30 June 2022, not including amortisation of upfront fees). The weighted average debt maturity was approximately 4.4 years.
In April 2022, Digital Core REIT entered into floating-to-fixed interest rate swaps to hedge a portion of its floating rate exposure.
Consequently, 50% of total interest rate exposure was hedged as at 30 June 2022, while the remaining 50% was unhedged.
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Investors also noted that the REIT’s fifth largest customer, representing some 7.1% of its total revenue, filed for bankruptcy protection in April.
According to Digital Core REIT in its earnings announcement on July 28, this customer remains “current on its rental obligations” through July.
The REIT’s manager has executed a cash flow support agreement with its sponsor Digital Realty, which will make whole any cash flow shortfall related to this customer bankruptcy through December 2023.
In turn, Digital Core REIT will repay any cash flow support received from the sponsor, interest-free, at any time and in any amount at the manager’s discretion, from January 2024 through December 2028.
Digital Core REIT will also have the right to settle any repayment in cash or units, subject to unitholder approval, at the manager’s option.
In a results briefing, Stewart said that Digital Core REIT plans to make acquisitions - conditions permitting.
The data centres, which are mixture of core and shell, and fully fitted data centres are located in Frankfurt, Chicago and Dallas. Usually, core and shell data centres command higher values and have lower capitalisation rates while fully fitted data centres have higher capitalisation rates.
The acquisition size is likely to be in the range of US$150 million to US$600 million.
"We started this year with a big pipeline. We think the opportunity is there to grow but we won’t grow just for the sake of growing. You’ve seen our unit price, we want to give ourselves time to execute," Stewart says, adding that the transactions need to be DPU accretive.
According to Stewart, 60% of the acquisition portfolio is in Frankfurt, and 20% each from Chicago and Dallas. Digital Core REIT would take on additional debt for part of the transaction. Stewart says the REIT aims to maintain flexibility in the funding structure.
"We also look at staggering the expiry. When we went public we were very small but as we grow we want to stagger the debt maturity profile," says Dan Tith, CFO of the manager.
Based on the announcement on July 28, since the assets are from sponsor Digital Realty, an EGM is scheduled for 3Q2022.
