DIGITAL Core Real Estate Investment Trust’s (Reit) distributable income for the nine months ended Sep 30 rose 9.7 per cent to US$34.5 million, from US$31.5 million in the year-ago period, driven by the growth of the artificial intelligence sector.
The result, announced on Wednesday (Oct 23), was despite the bankruptcy of the data centre Reit’s second-largest customer, which led to it selling several Silicon Valley facilities for US$160 million to Brookfield Infrastructure Partners. The customer was previously reported to be Cyxtera Technologies, a global colocation and interconnection provider, which filed for bankruptcy protection last June.
To resolve the bankruptcy, Digital Core Reit also terminated the lease of a data centre in Frankfurt, Germany, and amended the leases for two properties in Los Angeles in the US. The Reit underwrote a 50 per cent drop in annualised rent for those properties as a result.
“We disclosed last quarter that we retained all the end-user customers in Frankfurt, significantly outperforming our underwriting. To put a finer point on the outperformance in Frankfurt, annualised rent increased by more than 85 per cent, compared to a projected 50 per cent decline,” the manager of the Reit said in a business update on Wednesday.
It added that for the Los Angeles facilities, rather than an expected 50 per cent decline in annualised rent, it signed customer contracts representing more than US$7 million in annualised rent – or 130 per cent of the in-place rent.
“The robust leasing momentum we have generated – with no downtime and no capital invested to date – is a strong testament to the viability of these facilities (and) the strength of core-market data centre fundamentals,” the manager said.
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The Reit’s revenue fell 9.7 per cent to US$72 million from US$79.7 million a year ago, while net property income dropped 11.3 per cent year on year to US$45.3 million in 9M 2024.
Digital Core Reit’s occupancy stood at 93 per cent across its 10 data centres.
On Wednesday, the manager of the Reit said it has renewed all the leases expiring across its portfolio over the next 12 months, except for a facility in Northern Virginia.
Its current customer there has an option to renew that expires on Dec 31, and the Reit is evaluating several options including “re-leasing the facility as-is, developing an annexe in the parking lot, or potentially demolishing the existing building and developing a larger facility on the site”.
The manager said: “If the customer elects not to exercise their renewal option, and if we elect to redevelop rather than immediately re-lease the property, there is potential for near-term DPU (distribution per unit) disruption.
“To frame the magnitude of the potential exposure, every one month of downtime corresponds to 0.06 cents of DPU.”
It added: “However, given the severe power constraints in a market with less than 1 per cent vacancy – in addition to the size of the parcel and the potential access to power – we believe the potential short-term DPU disruption is far outweighed by the opportunity for long-term value creation.”
Units of the Reit closed up 1.7 per cent or US$0.01 at US$0.595, before the announcement.
