Over the past few years, Digital Core REIT (SGX: DCRU) has encountered countless challenges. From experiencing higher interest expenses that have whipsawed its DPU, to having a major tenant default, unit prices fell sharply and have plummeted below IPO levels.
However, all of these might be coming to an end, as the REIT is showing some signs of a financial turnaround, and is appearing on news headlines for more positive reasons.
Recently, the leading pure-play data centre REIT listed in Singapore and sponsored by Digital Realty (NYSE: DLR), announced that it has reached a 10-year agreement with an investment-grade global cloud service provider to occupy the entire facility at 8217 Linton Hall Road in Virginia.
Although the agreement will only commence on 1st of December 2026, it is expected to positively contribute to DigiCore REIT’s financials. Some also believe that the AI play and tailwind is finally starting to benefit data center REITs.
The latest feather in the cap
Zooming in on the latest agreement, which primarily revolves around the Linton Hall facility, the overall portfolio occupancy will improve significantly from 81% to 98%. Annualized rent contribution from investment grade customers will increase from 79% to 82%, while the total portfolio weighted average lease expiration (WALE) will be extended from 4.7 years to 5.7 years.
Why the big change?
The Linton Hall facility lease, as mentioned, is a 10-year agreement, which will significantly impact DigiCore REIT’s operating metrics positively. The property was reported to be empty as at 30th June 2025 when the previous tenant opted not to renew its lease.
With the latest lease kicking in, it is expected to generate approximately US$14.8 million of annualised net property income, or around US$13.3 million with DigiCore REIT’s 90% share.
That figure itself, already translates to roughly a 35% increase relative to previous net rent.
The figure also translates to roughly a 20% increase relative to DigiCore REIT’s 9M’25 net property income, or an expected 12-15% increase from forecasted FY 2025 NPI.
Potential additional tailwind?
DigiCore REIT’s niche focus and long-tenure lease is a double-edged sword. While long lease tenures ensures relatively high and sticky tenancy, it however does not absolve the REIT from sudden rent termination by tenants who may run aground, or who opt not to extend their leases.
There have been real life scenarios, and given the nature of such assets, it might not be easy to quickly secure another high-quality tenant to takeover sudden vacancies.
Going further into the REIT’s overall lease expiry profile, 19% of net rentable square feet worth of leases is expiring in 2026.
Assuming that the management remains prudent and proactive, these leases can either be renewed with positive rental reversion, which provides further additional tailwinds, and the Linton Hall facility might just be the start of a potential AI play trickling down to the data centres.
Debt expiry profile
I know over the last 2 years, talks of lower interest rates have already been the major catalyst to reignite a revival for REIT prices and performances.
Although rate cuts might not be going down as fast as everyone would like it, at least it is slowly heading to the right direction.
Zooming in on DigiCore REIT’s debt expiry profile, only a small portion of its debt is expected to be refinanced, with the earliest maturities coming in 2027. And with a weighted average interest expense of 3.50%, the lower weighted average cost of debt might only materialises when majority of its debt matures in 2029.
Theoretically, what would DigiCore REIT’s upcoming DPU look like?
Even looking at it cautiously, if net rental income were to increase by 15% from the Linton Hall agreement, coupled with improvement from positive rental reversion of the upcoming 19% net leasable square feet, DigiCore REIT’s DPU could potentially grow by roughly 10%, or roughly USD 0.0046 per share, giving it a potential dividend yield of at least 8%. This assumes that other operating expenses stay flat, without any nasty surprises.
Capitalisation rates of its portfolio would also see potential revaluation gains, which would boost its net asset value per unit. And with the unit currently trading at 0.67x price to NAV per unit, unit price have potential upside momentum as well.
The AI play that has been benefiting NVDA, AMD, ORCL and AVGO, might finally be opening its doors to the data centre REITs.
After all, it’s never too late to the party, so long as the party is just getting started? Food for thought!
Want more ways to pick high quality REITs and dividend stocks? Chris Ng reveals his strategy live, you can join him here. (p.s. he used the same strategy to retire successfully at 39)
