Digital Core REIT Delivers Strong 3Q25 Update: Expansion, AI-Driven Demand, and Regulatory Shifts Signal Price-Impacting Growth Ahead

Key Highlights for Investors

• 98% Occupancy Rate (ex-refurbishment), with a robust 4.7-year WALE across 11 data centers and \$1.7 billion in assets under management.
• Aggregate leverage stands at 38.5%, with \$431 million debt headroom and no debt maturities until December 2027.
• AI and digital economy trends are accelerating data center demand, directly impacting portfolio growth and rental rates.
• Buybacks of 1.8 million units YTD at an average price of \$0.565, delivering 0.1% DPU accretion.
• Strategic APAC expansion through a 20% stake acquisition in a second Osaka campus data center.
• Distributable income up 1.9% YoY for 9M25, reaching US\$35.2 million.

Potentially Price-Sensitive Developments

• Discounted Valuation: Digital Core REIT trades at a significant discount to NAV, with a 2025 DPU yield of 7.5%—higher than several peers. This discount could narrow as fundamentals strengthen.
• Regulatory Action in Key U.S. Markets:
  • Northern Virginia: Loudoun County’s Phase 2 data center standards and PJM’s upcoming “bring your own power” grid rules may restrict supply and drive up rents. This could boost asset values but also slow hyperscale supply growth.
  • California: New legislation (AB 93, SB 57) pushes data center developers to shoulder grid upgrade costs and focus on water conservation, increasing barriers to entry and likely driving up prices and rental rates for existing facilities.
• AI and Hyperscale Cloud Demand: North American data center power demand forecast to triple by 2030, with AI workloads growing fastest. REIT’s top tenants include global hyperscalers and social media platforms, ensuring stable, growing cash flows.
• Major Leasing and Investment Activity: Recent large-scale lease-ups in Frankfurt, Toronto, and Los Angeles, plus facility acquisitions, set the stage for DPU growth and higher full-year run-rate distributions.
• Debt Structure and Flexibility: 86% of debt is fixed-rate, and all is unsecured, minimizing refinancing risks as rates rise. The REIT has a 3.4x interest coverage ratio, with significant undrawn credit facilities to fuel further expansion.

Detailed Portfolio and Market Update

The portfolio comprises 11 high-quality, mission-critical data centers concentrated in major metros: Northern Virginia, Silicon Valley, Toronto, Los Angeles, Frankfurt, and Osaka. All assets are freehold, supporting long-term value growth. Portfolio occupancy is 98% excluding the Linton Hall redevelopment (otherwise 81%). WALE is 4.7 years, with lease expiries well staggered—no cliff risk.

Tenant quality remains strong: 79% of rent is from investment-grade or equivalent clients, with top customers including Fortune 50/25 tech giants, global cloud providers, and social media platforms. The top 10 tenants provide 70%+ of rental income, with diversified sector exposure.

Financials show solid growth: Consolidated revenue for the first nine months of 2025 surged 83.9% YoY, driven by portfolio expansion, with net property income up nearly 50%. Distributable income edged up 1.9% YoY despite higher property and finance expenses, reflecting operational resilience.

Balance sheet strength is underscored by \$1.95 billion investment properties and \$169 million in associates. Aggregate leverage is healthy at 38.5%, well below the regulatory cap, offering \$431 million in debt headroom for accretive acquisitions. NAV per unit is \$0.78, while the unit price as of October stands at a marked discount (\$0.475), suggesting upside potential should fundamentals re-rate.

Global Data Center Market Trends—What Investors Need to Know

Digital Core REIT is poised to benefit from record low vacancies and robust rent growth in core global markets. Northern Virginia, Frankfurt, Silicon Valley, and Osaka are seeing strong absorption rates, limited new supply, and rising pricing (\$130–\$225/kW/month for hyperscale deployments in top U.S. markets; \$251/kW/month in Frankfurt; \$162/kW/month in Osaka). Regulatory, grid, and utility constraints are now the main bottleneck, favoring incumbent players and potentially driving up asset values.

Strategic land banks and expansion capability—particularly in Northern Virginia and Osaka—position the REIT for further growth as AI and cloud workloads drive unprecedented demand. Recent regulatory moves in Virginia (special status, “bring your own power” PJM proposals) and California (water/power bills) may limit new supply and boost rents for existing facilities.

Frankfurt is seeing multi-billion dollar new investments (e.g., Data4’s €2 billion Hanau campus), while Toronto’s hyperscale and HPC market is accelerating with major private capital infusions. Osaka is evolving into a twin pole with Tokyo for AI and cloud, and new floating data center platforms are being considered to bypass land/power constraints.

Growth Drivers and Risks for DPU

• Recent APAC acquisitions (Osaka), Frankfurt lease-up, and Toronto/LA investments substantially bridge the DPU gap heading into 2026.
• Credit facility recast and strategic buybacks support distribution per unit (DPU) growth. Pro forma analysis suggests cumulative DPU uplift of up to 4% from investment activity, though there is a potential (10%) drag from the Linton Hall renewal roll.
• Regulatory risk (U.S./Europe/Asia) could impact supply dynamics, but current positioning with long-term leases and blue-chip tenants mitigates exposure.

What Could Move the Share Price?

• Discount to NAV and High Yield: Digital Core REIT’s unit price trades at a deep discount to NAV with an above-peer yield, presenting re-rating potential as earnings and distributions grow and regulatory supply constraints bite.
• Regulatory and Grid Bottlenecks: New “bring your own power” rules and water/power regulations in the U.S. and Japan could make existing assets more valuable and drive up rental rates.
• AI-Driven Demand: With North America data center workloads set to triple and AI the fastest-growing segment, REIT’s exposure to hyperscale and blue-chip tenants is a key catalyst.
• Operational Expansion and Buybacks: APAC growth, strategic buybacks, and DPU accretion are supportive of unit price upside.

Conclusion

Digital Core REIT is positioned at the intersection of global data center demand, AI-driven digital transformation, and tightening regulatory supply. With strong financials, strategic expansion, and a robust tenant base, the REIT offers compelling value and growth prospects. Investors should closely monitor regulatory developments in Northern Virginia and California, as well as APAC power dynamics, as these could materially impact supply, pricing, and asset values—potentially catalyzing a share price re-rating.

Disclaimer

This article is for informational purposes only and does not constitute investment advice. All forward-looking statements are subject to risks and uncertainties. Investors should conduct their own due diligence and consult professional advisors before making investment decisions.

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