Attractive valuations and near-term catalysts
- 1H23 DPU of 1.92 UScts was flat h-o-h; in line with our FY23 DPU forecasts
- Healthy gearing of only 34.2%; ample debt headroom for future acquisitions and further share buybacks
- Trading at a very attractive yield of more than 7.1%, with potential index inclusion as an additional catalyst
- Maintain BUY with a TP of US$0.90
1H23 revenues were slightly lower h-o-h, but NPI increased 3.5%
- 1H23 revenues were c.2.7% lower as compared to 2H22
- However, property expenses were also lower, leading to the c.3.5% increase in NPI h-o-h
- Although occupancy at the Toronto DC is currently at 67.4%, two-thirds of the absence in income from the previous Sungard lease has already been backfilled
1H23 DPU of 1.92 UScts in line with previous six months
- 1H23 DPU of 1.92 UScts is similar to DPU of 2H22
- It is in line with our projections, forming c.52% of our FY23 DPU projections
- Despite the higher financing costs, income contribution from the acquisition of the 25% stake in the Frankfurt DC helped to maintain Distributable Income (DI) and DPU
Leasing activity slowed in Toronto, but picked up in Frankfurt
- Overall portfolio occupancy declined marginally from 96.9% to 96.7% q-o-q
- This was due to the slight decline of 2.1% in occupancy at the Toronto DC
- Although rents continue to rise in Toronto and supply remains tight, leasing activity seems to have slowed down
- Leasing activity in Frankfurt remains robust and we hope to see an improvement in the Frankfurt DC’s occupancy rate in the next quarter
- There were no new leases signed or leases renewed in 2Q23
- 2% of DCREIT’s portfolio leases (by rent) remains to expire in FY23
Cap rates of data centres have widened across markets and property types
- Transactions involving data centres remained limited in the past six months
- Based on the few transactions done, cap rates range between c.3% to 7%
- It depends on the market in which the transaction took place, as well as the data centre type (i.e., fully fitted, shell & core, etc.)
- The weighted average cap rate is c.4.3%
- As the bulk of DCREIT’s assets are shell & core data centres located in North America, the cap rates of the recent transactions are in line with DCREIT’s portfolio cap rates
- These are around 4.5%
- As interest rates remain high and continue to creep up, DCREIT’s portfolio cap rates could see a marginal expansion by the year-end
