Digital Core REIT 1Q26 Business & Operational Update: Detailed Investor Report

Key Highlights

• Consistent Performance: Digital Core REIT reported flat distributable income for 1Q26, both sequentially and year-over-year. This stability was achieved despite lost rental income from the Linton Hall facility, thanks to proactive leasing, accretive investments, and prudent financing.
• Linton Hall Refurbishment: The refurbishment of the Linton Hall facility remains the company’s top near-term priority. Progress has been solid, with the project on track and on budget for completion and lease commencement in December 2026. The facility is fully leased to an investment-grade cloud service provider on a 10-year contract, expected to deliver a 35% uplift in net rent compared to the previous lease.
• Unit Repurchase: During 1Q26, Digital Core REIT repurchased 7 million units at an average price below \$0.49, representing a 39% discount to NAV. This move generated 30 basis points of accretion with only a marginal increase in leverage (less than 20 basis points).
• Leverage Position: The REIT ended the quarter with leverage at 39%, within its targeted range of 35%-40%. Notably, 80% of the debt is hedged against rising interest rates, aligning with the target mix of fixed versus floating rate debt.

Market & Portfolio Update

• Leasing Activity: \$3 million of new and renewal leases were signed in 1Q26, with a positive 44% cash rental reversion, mainly driven by Northern Virginia. The largest near-term lease expiration was successfully addressed, reducing lease expirations to less than 10% annually through 2029.
• Occupancy and Absorption: The portfolio saw positive net absorption in Osaka (10 basis points) driven by local enterprise demand. In El Segundo, occupancy declined slightly due to enterprise customer churn, partially offset by new connectivity customers.
• Community Engagement: The REIT hosted local high school students at the El Segundo facility for International Data Center Day, strengthening community ties and promoting industry awareness.

Linton Hall Progress Report

• Project Status: Roof replacement and installation of a new high-security perimeter fence are substantially complete. The demolition and removal of old electrical equipment sets the stage for the installation of modern systems in Q2 and Q3.
• Supply Chain Management: Although supply chains remain stretched, Digital Realty’s global procurement platform has provided significant leverage, ensuring the project remains on schedule and budget.
• Lease Commencement & Financial Impact: The new lease starts in December 2026 at a 35% rent uplift. A full year’s rental contribution is expected in 2027, setting the stage for double-digit distribution per unit (DPU) growth in 2027. This is a critical potential catalyst for share price appreciation.

Built for Resilience: Portfolio & Balance Sheet Strength

• Leasing Accomplishments: Over the past 24 months, 90% of the rent roll has been leased or re-leased, nearly doubling the weighted average lease expiry (WALE) to 5.3 years. Vacancy has been substantially absorbed.
• Customer Expansion: Customer count increased from 12 at IPO to over 120 currently. Investment-grade customers now contribute nearly 80% of annualised rental revenue, rising to 82% after Linton Hall lease-up.
• Lease Expiries and Occupancy: The portfolio is 97% occupied, with less than 10% expiring annually through 2029. All assets are freehold, insulating the REIT from rising ground rents.
• Energy Cost Protection: Over 85% of rental revenue is on pass-through leases, shielding the REIT from energy price increases. Where exposure exists, multi-year fixed utility pricing is used and contracts can be repriced if costs rise over 5%.

Balance Sheet and Valuation

• Debt Maturity & Liquidity: Weighted average debt maturity is 3.5 years, with no debt due before December 2027. 80% of debt is hedged against variable rates. Liquidity is robust, with over \$190 million available (\$150 million in undrawn credit lines and \$40 million in cash).
• Valuation: Digital Core REIT units trade at a deep discount to NAV and relative to peers. The current indicated yield does not include the anticipated rental uplift from Linton Hall, which should drive double-digit DPU growth in 2027—a potentially price-sensitive catalyst for investors.
• Strategic Focus: The management is committed to narrowing the valuation gap through proactive leasing, accretive investments, and prudent financing.

Sustainable Growth & Path Forward

• Strategic Progress: Over 24 months, the REIT has enhanced scale, diversification, and portfolio quality via sustained leasing and diligent investment. The business and balance sheet are positioned for resilience.
• Sponsor Support: Digital Realty provides access to an acquisition pipeline, enables digestible stakes in sizable assets, and supports value creation through leasing and asset repositioning.
• Industry Fundamentals: Data centre demand and long-term digital trends remain highly supportive. Management is focused on value creation for unitholders through consistent execution of its strategic pillars.

Potential Price-Sensitive Information for Shareholders

• Linton Hall Refurbishment: The completion and lease commencement of Linton Hall in December 2026, with a 35% rent uplift and full-year contribution in 2027, is expected to drive double-digit DPU growth. This is a major positive catalyst for share price.
• Unit Repurchase: Buying back units at a significant discount to NAV demonstrates management’s commitment to value creation and may positively affect share valuation.
• Discounted Valuation: The current deep discount to NAV and peer group valuations, paired with strong fundamentals and future rental contributions, offer potential for upward re-rating of the units, especially as geopolitical and macro headwinds abate.

Conclusion

Digital Core REIT’s 1Q26 update signals robust operational execution, resilient financial positioning, and a clear path to substantial rental and DPU growth in 2027. The Linton Hall refurbishment and lease-up represent a significant price-sensitive event for shareholders, with management’s actions on unit repurchase and strategic execution further supporting the case for share price appreciation. Investors should closely monitor progress on Linton Hall and continued leasing momentum, as these are likely to impact the REIT’s future valuation.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investors should consult their own advisors and conduct independent research before making investment decisions. All information is based on the latest available report and may be subject to change.

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