Digital Core REIT's portfolio shift: More Asia, lower leverage, 4.1% DPU uplift

• Digital Core Reit is divesting USD 315.9 million of interests in three mature North American data centres to its sponsor Digital Realty, redeploying USD 176.0 million into a maiden Singapore stake and an increased stake in its Digital Osaka 3 data centre.

• The transaction is expected to be 4.1% accretive to DPU, with roughly 2.9 percentage points coming from financing cost savings and interest-rate arbitrage and 1.2 percentage points from incremental unit buybacks.

• Aggregate leverage should improve by around 290 basis points to 36.3%, giving management additional debt headroom for future acquisitions, while portfolio WALE lengthens slightly from 5.1 to 5.2 years.

• APAC's share of AUM doubles from 11% to 22% and North American exposure falls from 65% to 52%.

• We view the transaction favourably and maintain our Buy rating and USD 0.70 target price. Shares have already rallied more than 10% since the pre-announcement close, trimming upside to around 33%, with an average dividend yield of approximately 7.8% over the next three years.

Swapping select North American assets for greater Asia Pacific (APAC) exposure

Digital Core REIT (SGX: DCRU) has proposed a capital recycling exercise that would reshape its geographic footprint: divesting stakes in three North American data centres, more than doubling its ownership of Digital Osaka 3 from 20% to 45%, and marking its maiden entry into the Singapore market. The pure-play data centre real estate investment trust (REIT) announced the agreement on 12 August, with its sponsor, Digital Realty, on the other side of every transaction.

Table 1: Summary of proposed transaction

Divestment	Acquisition
- Proposed sale of 90% interest in 371 Gough in Toronto for USD 127 million - Proposed sale of 90% interest in 200 N. Nash in Los Angeles for USD 79 million - Proposed sale of 39% interest in 8217 Linton Hall in Northern Virginia for USD 110 million	- Proposed purchase of a 2.5% interest in 11 Loyang Close in Singapore for USD 68 million (to be funded by issuance of new, Singapore dollar-denominated debt) - Proposed purchase of an incremental 25% interest in Digital Osaka 3 for USD 108 million (to be funded by issuance of new, Yen-denominated debt)
Source: Digital Core REIT Enhancing Portfolio Quality Presentation Deck. Data as of August 2026.

Selling down the North American portfolio is set to bring in gross proceeds of roughly USD 316 million, against a total outlay of about USD 176 million to fund the Singapore and Osaka purchases — leaving DCRU with an estimated USD 140 million in net proceeds. Management intends to channel around USD 117 million of this toward paying off Euro- and US dollar-denominated borrowings, set aside up to USD 20 million for unit buybacks, and use the remaining roughly USD 2.5 million to cover transaction-related fees and expenses.

Notably, the divestment of the 90% interest in the Los Angeles facility and the 39% interest in the Northern Virginia facility will also allow DCRU to significantly reduce its near-term capital expenditure (CapEx) commitments. Management noted that these two assets had required significant capital funding over the past 12 to 18 months, so the transaction not only allows DCRU to take the proceeds and delever the balance sheet, but also to offload a meaningful portion of its near-term CapEx obligations.

Aggregate leverage is expected to improve by approximately 290 basis points, from 39.2% as at 30 June 2026 to 36.3% pro forma for the transaction, while the transaction is expected to be approximately 4.1% accretive to Distribution Per Unit (DPU). Portfolio Weighted Average Lease Expiry (WALE) will also lengthen slightly, from 5.1 to 5.2 years.

The DPU accretion is not being driven by DCRU buying properties that generate a higher rental yield than the assets it is selling. Chief Financial Officer Dave Craft indicated that the cap rates — the rental income a property generates relative to its purchase price — are broadly similar for the assets being bought and sold. Instead, the bulk of the DPU uplift comes from lower financing costs. Around 2.9 percentage points of the 4.1% accretion is expected to come from replacing higher-cost Euro- and US dollar-denominated debt, which carries interest rates of around 4.4%, with cheaper Yen- and Singapore dollar-denominated borrowings at around 3%. The remaining 1.2 percentage points is expected to come from the unit buybacks.

The transaction is subject to customary closing conditions, including unitholder approval, and is expected to close before year-end.

A bigger APAC footprint, with room for the Singapore stake to grow

We view the proposed transaction favourably for a couple of reasons.

First, it showcases the greater sponsor support that investors have long been calling for.

Second, it meaningfully increases DCRU’s exposure to APAC, better aligning the Singapore-listed REIT with investor preference for regional assets — a shift that could help narrow its persistent discount to net asset value (NAV). Importantly, APAC has robust data centre fundamentals, with supply constraints supporting strong market rental growth over time. The transaction would double DCRU’s Asia-Pacific concentration from 11% of AUM to 22%, while reducing North American exposure from 65% to 52%.

Table 2: Change in geographical exposure

	Current AUM	Pro forma AUM
Northern Virginia	37%	34%
Frankfurt	24%	26%
Silicon Valley	13%	14%
Osaka	11%	18%
Toronto	7%	0%
Los Angeles	8%	4%
Singapore	0%	4%
Source: Digital Core REIT Enhancing Portfolio Quality Presentation Deck. Data as of 30 June 2026.

Beyond the improved portfolio mix, we also like the quality of the incoming Singapore asset. 11 Loyang Close sits within Singapore’s tightly supply-constrained data centre market — one of the region’s most sought-after connectivity and interconnection hubs, and a key gateway for cloud, network and enterprise customers. In-place leases are structured to deliver contractual double-digit net property income (NPI) growth over the next two years, with further embedded upside once current agreements roll off in roughly three-and-a-half years. This is supported by a backdrop of persistently tight supply, which should continue to underpin rental growth. The site does carry a 23-year JTC (Singapore’s government land agency) leasehold rather than the freehold titles typical of DCRU’s other assets, though management indicated that it has already engaged JTC on renewal options and remains confident of extending the lease. And while a 2.5% initial stake may look modest on paper, it represents a meaningful commitment given the scale of the underlying asset — 11 Loyang Close is valued at roughly USD 2.7 billion, dwarfing the USD 434 million agreed value of Digital Osaka 3.

Another key positive is the improvement in financial flexibility. Pro forma aggregate leverage of 36% sits comfortably below DCRU’s internal ceiling of 40%, leaving roughly USD 490 million of debt headroom before it reaches the Monetary Authority of Singapore’s (MAS) 50% aggregate leverage limit. This gives management greater capacity to pursue future acquisitions. Management could arguably have deployed more capital into 11 Loyang Close, but opted to remain conservative given the capital expenditure still required for Linton Hall, preferring not to push too close to the upper end of its leverage comfort zone. This leaves DCRU well positioned to act on future opportunities within the wider Digital Realty portfolio. We would also not rule out a larger stake in 11 Loyang Close down the line. DCRU’s track record shows that every prior inaugural investment has been followed by successive stake increases, and management expects the same playbook to apply here.

Overall, we view the transaction positively. It is DPU accretive, strengthens balance sheet flexibility and reduces near-term CapEx funding requirements, while preserving long-term upside through DCRU’s retained 51% stake in Linton Hall. At the same time, the transaction broadens DCRU’s geographic diversification by increasing its exposure to APAC.

Looking ahead, management reiterated its longer-term ambition to double DCRU’s roughly USD 1.8 billion asset base and market capitalisation over the next three years, with APAC assets eventually forming the majority of the portfolio. Japan and Singapore have been identified as priority markets for future growth, given the more challenging tax regimes in other parts of the region.

Reiterate Buy with an unchanged USD 0.70 target price

The market has taken the announcement positively, with DCRU units rallying approximately 10% since the pre-announcement close on 11 August. Even after this re-rating, however, we believe the stock remains undervalued, trading at a price-to-NAV of around 0.67 times. We maintain our target price of USD 0.70, which still implies an attractive upside potential of approximately 33%, alongside an average dividend yield of around 7.8% over the next three years.

We reiterate our Buy recommendation and see room for re-rating to continue as the REIT increases its asset base and APAC exposure.

Table 3: DCRU projections

DCRU	FY25A	FY26E	FY27E	FY28E
EPS (in USD)	0.037	0.034	0.039	0.040
P/E Ratio (X)	14.3	15.6	13.5	13.1
DPU (in USD)	0.036	0.036	0.043	0.044
DPU growth (%)	0.0%	-0.3%	18.9%	3.3%
Dividend Yield (%)	6.9%	6.8%	8.1%	8.4%
Current Price	USD 0.53
Target Price	USD 0.70
Upside Potential	33.8%
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 18 August 2026.

Figure 1: 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:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

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.