The manager of Digital Core REIT has responded to the query by Singapore Exchange Securities Trading Limited (SGX-ST) stating that it was not aware of any information that may have caused the surge in its unit price.
The SGX-ST, on July 20, issued a query to the REIT after its unit price spiked to 57 US cents (75.5 cents), which was 14% higher than its last-closed price of 50 US cents apiece.
On further possible explanations for the “unusual price movements”, the REIT manager pointed out that it is “aware” that a brokerage firm has circulated a bulletin noting that the final bids for Cyxtera, the REIT’s second largest customer, were due to be submitted by July 19.
According to the media reports from the US, Cyxtera had received six letters of intent (LOI) to acquire its entire business.
DBS Group Research, on July 20, had issued a bulletin stating that Cyxtera is only seeking to reject two of its leases – the one of a Serverfarm-owned data centre in Washington and a CyrusOne-owned facility in Amsterdam – and is likely to affirm all the other leases with its landlords.
“[This is] positive news for the likes of Digital Core REIT, Mapletree Industrial Trust (MINT), and Keppel DC REIT as they had several properties leased to Cyxtera which were at risk of being vacated,” says DBS.
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“Following the news that Cyxtera has filed for a Chapter 11 filing on June 6, Digital Core REIT which has [about] 23% of its revenue exposed, saw a steady increase in its trading unit price. Compared to the lows prior to that, Digital Core REIT’s share price is currently trading [some] 35% higher. Despite this, we believe the rally in Digital Core REIT’s share price is far from over as the continuation of all of Cyxtera’s leases in Digital Core REIT’s portfolio will reaffirm our earnings projections going forward,” it adds.
Further to its note, the brokerage noted that another catalyst in the REIT’s unit price could be the potential of an index inclusion to the FTSE NAREIT Developed Asia Index.
“Based on our estimates, Digital Core REIT will have to trade at a market cap of US$400 million to be considered for an inclusion by the cut-off date on Aug 21 (for the September review),” says DBS. “Digital Core REIT will have to trade at a price range of between 57 US cents to 58 US cents per unit to stand a good chance for the index inclusion. Following the price rally in the past few days, and the 10% increase [on July 20], we believe Digital Core REIT is on track for the index inclusion by the September review.”
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“As we await for more news on the restructuring of Cyxtera and the affirmation/rejection of its leases, this is a case of ‘no news is good news’. Given that Cyxtera has not indicated their intentions to reject any other leases (other than the two already announced), we believe that there is a good chance they will affirm their leases at its other facilities. With this, it reaffirms our earnings projections for Digital Core REIT, implying a still very attractive forward dividend yield of more than 6.7% currently,” adds the brokerage.
The manager has also confirmed that it is in compliance with the SGX-ST listing rules.
As at 4.33pm, units in Digital Core REIT is trading 1 US cent lower or 1.79% down at 55 US cents. Units in the REIT rose to an intraday high of 58.5 US cents.
