Digital Core Reit is a pure-play data centre S-Reit sponsored by Digital Realty, one of the largest owners, operator, developer and acquirer of data centres globally. Digital Core Reit is expected to commence trading in Singapore on Monday, Dec 6.

The Reit has an initial portfolio (IPO Portfolio) of 10 institutional quality freehold data centres located in the United States (in Silicon Valley, Los Angeles, and Northern Virginia) and Canada (in Toronto) with an aggregate appraised value of approximately US$1.4 billion and with 100 per cent occupancy rates.

In addition to the public and placement offering of 267.0 million units, a total of 26 cornerstone investors, including Affin Hwang Asset Management, Blackrock, B&I Capital, Cohen & Steers Asia, DBS Bank, Eastpring Investments, FIL Investment, JP Morgan Asset Management, Kasikorn Asset Management, and Principal Global Investors, have subscribed for an aggregate of 414.8 million units, which represents 36.9 per cent of the units in issue after the offering.

Digital Core Reit is established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally which are primarily used for data centre purposes, as well as assets necessary to support the digital economy.

Its sponsor, Digital Realty, is also among the 10 largest US-listed Reits, with a market capitalisation of US$44 billion and over 290 data centre facilities in 47 metros throughout 24 countries. Digital Realty also provides Digital Core Reit with the growth opportunity to capitalise on its potential pipeline of over US$15 billion comprised of existing and under construction data centres that could fit the global right of first refusal (Global ROFR) mandate to support the Reit's growth post listing.

In its prospectus, Digital Core Reit cites that North America's data centre market is expected to grow at a compound annual growth rate (CAGR) of approximately 15 per cent from 2020 to 2024, with hyperscale demand projected to grow at a CAGR of approximately 23 per cent, driven by digitalisation, new technologies and digital trends such as social media, 5G, Internet of Things, and growth of online streaming.

The Reit has properties in 4 of North America's top 10 data centre markets and has 68.5 per cent of its IPO portfolio focused on hyperscale segment and 70 per cent of its portfolio certified for sustainability. According to the prospectus, the Reit has distribution yields of 4.75 per cent for forecast year 2022 and 5.00 per cent for projection year 2023 based on the offer price of US$0.88 per unit. As at the listing date, Digital Core Reit is expected to have an aggregate leverage of approximately 27.0 per cent, below S-Reits' average of 37.4 per cent.

As of Jun 30, 2021, the IPO portfolio is fully occupied with a blue-chip customer base including a Fortune 50 software company, a leading global colocation and interconnection provider, a social media platform and IT services companies. The aggregate weighted average lease expiry (WALE) for the IPO portfolio is 6.2 years as of Jun 30, 2021.

Following the listing of Digital Core Reit, the S-Reits and property trusts sector will consist of 44 listed trusts of which 11 are industrial and data centre Reits. The average distribution yield of the 11 Reits is approximately 5.8 per cent, including Digital Core Reit's forecasted distribution yield of 4.75 per cent for 2022.

REIT Watch is a weekly column on The Business Times, read the original version.