Digital Core REIT Rebalances Portfolio with Asia Expansion and North American Divestments

Digital Core REIT has unveiled a major portfolio restructuring, selling three North American data centres to its sponsor, Digital Realty, for approximately $316 million. The move is designed to enhance the trust’s presence in Asia while addressing recent declines in its unit price, which has fallen nearly 8 percent over the past year. The proceeds will be used to acquire a 2.5 percent stake in a Singapore data centre and an additional 25 percent interest in an Osaka facility, marking a strategic shift toward high-demand Asian markets. ## Shifting Focus to Asia The divestments include properties in Toronto, Los Angeles, and a 39 percent stake in a Virginia data centre, all originally purchased from Digital Realty. The trust will reinvest the proceeds, along with newly raised debt in Singapore dollars and Japanese yen, to fund the Asian acquisitions. The Osaka purchase will cost about $108.5 million, increasing Digital Core REIT’s stake to 45 percent, while the Singapore investment will total approximately $67.6 million. The deal also includes up to $20 million for unit buybacks and $117.4 million to repay higher-cost US dollar and euro debt. Chief Financial Officer Dave Kraft highlighted the financial benefits of the transaction, noting that the trust is selling older assets at comparable capitalization rates to the newer Asian properties. The new debt, secured at around 3 percent, replaces existing borrowings with higher interest rates of about 4.4 percent. This reduction in borrowing costs is expected to contribute to a 4 percent increase in distributions per unit, rising from 3.60 US cents to 4.16 US cents on a pro forma basis. ## Addressing Unit Price Decline The trust’s unit price has underperformed compared to peers like Keppel DC REIT and NTT DC REIT, prompting efforts to close the nearly 40 percent discount to net asset value. Chief Executive John Stewart emphasized that issuing new equity at current levels would be dilutive, making unit buybacks a more attractive option. The $20 million allocated for buybacks follows around $30 million repurchased since late 2022, reflecting the manager’s strategy to narrow the valuation gap. Stewart expressed optimism that the transaction will restore investor confidence and improve the trust’s financial position. “We aim to turn things around and re-rate, putting us in a position to go on offense,” he said. The deal is seen as a significant step toward achieving these goals, with the trust’s aggregate leverage expected to decrease from 39.2 percent to 36.3 percent post-transaction.