Digital Core REIT DCRU has reported a distribution per unit (DPU) of 1.92 US cents for 1HFY2023 ended June 30, a 6.8% drop from the same period a year ago which was at 2.06 US cents.
Its gross revenue increased slightly, by 1.1% y-o-y to US$53.4 million, as utilities reimbursement was lower y-o-y, in line with lower utilities expenses, while recovery income was higher from higher recoverable property taxes and other expenses.
Property expenses increased by 4.7% y-o-y to US$18.2 million, largely due to higher property taxes and other property expenses, offset by lower utilities.
The REIT’s net property income increased marginally by 0.7% to US$35.1 million.
Meanwhile, its distributable income to unitholders decreased by 7.5% y-o-y to US$21.4 million.
The annualised distribution yield for the REIT for 1HFY2023 is 8.15%, up 276 basis points from 5.39% a year ago.
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The distribution will be paid on Sept 28, 2023 to unitholders of record as at Aug 4, 2023.
Digital Core REIT had US$506 million of total debt outstanding as at June 30, consisting primarily of unsecured term loans due FY2025-FY2027 and US$3 million outstanding on its unsecured revolving credit facility.
The REIT’s aggregate leverage was 34.2% and the weighted average cost of debt was approximately 4.4%, while the weighted average debt maturity was approximately 3.4 years and approximately 72% of total interest rate exposure was hedged as at June 30.
The REIT’s portfolio for this 1HFY2023 was 97% leased with a weighted average lease expiry of approximately 3.9 years.
It repurchased a total of 4,596,500 units under its existing unit buyback mandate at an average price of 46.2 US cents. The units were held as treasury units and were subsequently cancelled in April and July 2023.
Digital Core REIT’s lower rental income for 1HFY2023 can be attributed to its second-largest customer, Cyxtera, vacating its space on Jan 1. As at the date of announcement, approximately two-thirds of Cyxtera’s 2023 rental obligation has been backfilled by replacement tenants.
Digital Core REIT’s second-largest customer which represented about 22% of total annualised rent, Cyxtera, recently filed for chapter 11 bankruptcy protection in the United States. According to Digital Core REIT’s report dated July 27, Cyxtera announced that it has obtained a commitment for up to US$200 million of debtor-in-possession financing and stated that it intends to pay vendors and suppliers in full for goods and services provided on or after the filing date.
The REIT says that Cyxtera has remained current on its rental obligations through the month of May and has paid rent for the month of July, but has not yet paid for the month of June.
Digital Core REIT says it expects to collect in full the rental obligation for the month of June as an administrative expense claim through the bankruptcy process, but to date, Cyxtera has neither accepted nor rejected any of its lease agreements with Digital Core REIT.
Cyxtera has up to 120 days from the date of its bankruptcy filing on June 4 to determine whether to accept or reject its lease agreements.
John J. Stewart, chief executive officer of Digital CORE REIT says: “Data centre demand strengthened further in the first half of 2023, as sizable artificial intelligence requirements began to materialise faster than expected. Macroeconomic conditions remain challenging, as evidenced by the unfortunate bankruptcy of our second-largest customer in June. Nonetheless, we stand prepared to guard against any potential near-term disruption, reflecting the resiliency of our business along with our sponsor’s operational expertise. Our flexible balance sheet remains primed for growth, while our management team remains firmly focused on creating durable value for unitholders.”
Units in Digital Core REIT closed at 0.5 US cents higher, or 0.97% up at 5.2 US cents on July 27.
