Digital Core REIT 1H26: Stable DPU and 7.3% yield offer a cushion while growth catalysts await

• DCRU’s DPU remained stable in 1H26, supported by strong rental reversions, Digital Osaka 3 contributions and 8 million unit buybacks.

• New and renewed leases secured 25% rental reversions, while portfolio occupancy improved to 97.3%, underscoring resilient data centre demand.

• Linton Hall’s redevelopment will lift sellable IT capacity by 13% and net rent by around 35%, setting the stage for double-digit DPU growth in FY2027.

• The 7.3% FY2026 forward yield remains attractive, but visibility on DPU growth beyond Linton Hall is limited, with less than 10% of the portfolio expiring in any given year through 2029.

• We maintain a Buy rating with a USD 0.70 target price, implying 43.3% upside from the 31 July closing price and an average dividend yield of around 8.3% over the next three years. Capital recycling or accretive acquisitions could serve as catalysts for the stock to rerate towards its fair value. 

Stable DPU despite temporary Linton Hall income loss, with leasing momentum remaining strong

Digital Core REIT (SGX: DCRU) reported 1H26 revenue that was broadly flat year-on-year, due to the temporary loss of rental income from its Linton Hall facility.

Although Net Property Income declined 5.7% YoY, primarily due to a 5.4% increase in property expenses, distributable income remained largely flat, supported by positive rental reversions, associate contributions from Digital Osaka 3 (acquired in March 2025), and prudent financing.

During the first half of the year, DCRU repurchased 8 million units at an average price just under USD 0.49, representing a 38% discount to Net Asset Value (NAV) and resulting in approximately 40 basis points of DPU accretion.

DCRU announced a distribution of USD 1.80 cents, in line with our expectations.

Table 1: 1H26 financial highlights

	1H26	1H25	YoY Change
Revenue	88,572	88,892	-0.4%
Net Property Income	43,671	46,300	-5.7%
Distributable Income	23,328	23,374	-0.2%
Source: Digital Core REIT 1H26 Presentation Deck Data as of 30 June 2026. Figures are in USD thousands except percentages

DCRU secured USD 5 million of new and renewal leases in the first half of the year, at a strong +25% rental reversion. In 2Q26, rental reversions were driven by its facilities in Los Angeles and Osaka.

Portfolio occupancy improved slightly from 97.1% in 1Q26 to 97.3% in 2Q26. Within Los Angeles, occupancy at 200 North Nash Street increased from 81.4% to 81.7%, while occupancy at 3015 Winona Avenue rose from 89.2% to 91.0%. Occupancy at Digital Osaka 2 also improved from 98.4% to 98.8%.

Table 2: Portfolio summary

Source: Digital Core REIT 1H26 Presentation Deck. Data as of 30 June 2026.

Aggregate leverage increased slightly from 39.0% in 1Q26 to 39.2% in 2Q26, driven by higher borrowings to fund capital expenditure at Linton Hall.

The completion of the Linton Hall project is expected to add approximately 100 basis points to aggregate leverage, bringing gearing to around 40.2%, assuming no change in asset values. While this would be slightly above DCRU’s 35–40% target range, gearing could remain within the target range if asset values increase, supported by strong data centre fundamentals and higher market rents. Regardless, we expect gearing to remain comfortably below the Monetary Authority of Singapore’s 50% regulatory limit.

The proportion of fixed-rate debt declined from 80% to 70% quarter-on-quarter (QoQ) but remained within DCRU’s 70–80% target range. Management attributed the temporary dip to the timing of capital expenditure and hedging, and expects the proportion of fixed-rate debt to recover to around 75% in the near term, providing greater protection against potential increases in interest rates.

Overall, management expects the average cost of debt to remain around 3.6% under the current interest rate environment.

Linton Hall to drive FY2027 growth, but visibility on further DPU growth remains limited

Looking ahead, we expect another USD 0.018 distribution in 2H26, keeping FY2026 DPU broadly stable at USD 0.036. The temporary income loss from Linton Hall should be offset by several factors, including a full-year contribution from DCRU’s 20% stake in Digital Osaka 3 (acquired in March 2025) and higher rental income following the lease renewal at Devin Shafron Drive. We also expect positive rental reversions at the 200 North Nash Street colocation facility, supported by high customer retention amid strong data centre demand, limited data centre availability in the Los Angeles market, and increasing barriers to new supply.

That said, management noted that much of the portfolio’s strongest near-term rental reversion potential has already been captured in 1H26. While rental reversions should remain positive in 2H26, we expect them to moderate from the levels seen in the first half.

DPU growth is likely to resume only in FY2027, following the refurbishment of Linton Hall, which remains on track and on budget for lease commencement in December 2026. The redevelopment will increase sellable IT capacity by approximately 13% while generating around 35% higher net rent than the previous lease, potentially setting the stage for double-digit DPU growth in FY2027.

Beyond Linton Hall, however, visibility on further DPU growth remains limited, with less than 10% of the portfolio expiring in any given year through 2029. The lack of a meaningful near-term catalyst beyond Linton Hall may explain why DCRU continues to trade at a steep discount to NAV, at just 0.62x price-to-NAV. While management outlined an ambition in its 2025 annual report to double its asset base over the next three to five years, there have been no acquisitions or capital recycling transactions to date.

Figure 1: Majority of leases expire after 2029

Nonetheless, DCRU offers an attractive FY2026 forward dividend yield of approximately 7.3% at current prices. While the REIT remains under pressure, we believe evidence of capital recycling or accretive acquisitions could provide a catalyst for rerating. Management indicated that it hopes to identify investment opportunities over the next six to 12 months, including divesting lower-yielding assets and recycling capital into higher-yielding properties.

We raise our price target slightly from USD 0.69 to USD 0.70, primarily due to rounding, implying 43.3% upside through end-2028 and an average dividend yield of approximately 8.3% over the next three years.

We reiterate our Buy recommendation, supported by DCRU’s compelling valuation and attractive income yield, with the potential for a meaningful rerating as capital recycling or accretive acquisition opportunities emerge.

Table 3: DCRU projections

DCRU	FY25A	FY26E	FY27E	FY28E
EPS (in USD)	0.037	0.034	0.039	0.040
P/E Ratio (X)	13.4	14.5	12.6	12.3
DPU (in USD)	0.036	0.036	0.043	0.044
DPU growth (%)	0.0%	-0.3%	18.9%	3.3%
Dividend Yield (%)	7.3%	7.3%	8.7%	9.0%
Current Price	USD 0.49
Target Price	USD 0.70
Upside Potential	43.3%
Source: Historical data is from Bloomberg Finance L.P., while forecasted data are based on iFAST Estimates. Computation of data used DCRU’s closing price as of 31 July 2026.

Figure 2: DCRU’s share price vs DPU

iFAST Research rating system

iFAST Research employs a five-tier rating system for stocks: Buy (material upside potential, favourable risk-return); Accumulate (moderate upside, selectively add on weakness); Hold (limited upside, maintain existing positions); Trim (upside insufficient to justify a full position, reduce exposure on strength); and Sell (material downside risk, exit position).

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report is produced under the Grant for Equity Market Singapore (“GEMS”) Scheme. iFAST Financial Pte Ltd receives financial compensation for the preparation and publication of this report. For more information regarding the GEMS scheme and its objectives, please refer to this infographic. iFAST Financial Pte Ltd maintains editorial independence regarding the analysis and conclusions presented herein.