Most undervalued S-REIT
Data Center- probabaly is the most sought-after asset class in real estate industry.
Digital Realty- the largest data center operator/sponsor
yet Digital Core REIT is still trading at less than 0.5* NAV vs Keppel DC trading at 1.5* NAV, simply because of the 2nd largest tenant is facing financial difficulty???
How inefficient the market is? It’s way too much oversold and investors are way too pessimistic. I think this might be a once-in-a-decade investment opportunity to buy and hold a quality and pure data centre REIT.
75% of its debt is on fixed rate with its first loan maturity in 2025. There is no liquidity risk at all even if the 2nd largest tenant (22% rental contribution) really default their lease, which indeed may cause a blow to the revenue top line, and incurs CPAEX i.e. down time and tenant incentives to re-lease out the data center space to new tenants.
But look at how strong the market fundamentals are for US data center. Supply hits record high year after year yet market keeps absorbing the new data centre space, pushing down vacancy rate to record low year after year. Market rent only started increasing since 2022 as demand outpaced supply by too much and US data centre vacancy rate is at historical low of 3% now. Digital Core REIT will be able to achieve double digit rental reversion if its 2nd largest tenant really default the lease.
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Aganwei OP : Cyxtrra’s risks are limited to its own equity shareholders. Cloud service providers in US market is a very profitable business, but those highly levered service providers (in order to lease or own more Data Center space) are having difficulties to refinance their cheap loans obtained in the last few years. Corporate M&As within the cloud service industry have been happening since 2022, but acquirers all take over the existing leases (cheaper rent) given the strong data Center market fundamental and rising rent.