Digital Core REIT Pivots to Asia With $316 Million Portfolio Shake-Up

Geographic Realignment

Digital Core REIT has unveiled a portfolio restructuring that will establish its first foothold in Singapore and deepen its presence in Japan's second-largest metro. The data center trust will divest partial interests in three North American facilities to sponsor Digital Realty for approximately US$315.9 million, then redeploy US$176 million of those proceeds into Asia-Pacific acquisitions.

The twin-track transaction shifts the REIT's asset mix substantially. Asia-Pacific will climb from 11 percent to 22 percent of assets under management, while North American exposure drops from 65 percent to 52 percent, according to Digital Core REIT. Osaka will become the trust's third-largest market at 18 percent of AUM once the deals close.

John Stewart, chief executive of the REIT's manager, framed the move as a strategic pivot toward supply-constrained Asian markets. The transaction allows unitholders to capture growth from stabilized investments while lowering near-term capital expenditure needs, he noted in a statement.

North American Exits

Digital Core REIT will sell a 90 percent interest in the 371 Gough Road facility in Toronto for C$180 million, or roughly US$126.9 million. The fully fitted property has been a mature contributor to cash flow.

In Los Angeles, the trust is divesting a 90 percent stake in the 200 North Nash Street co-location facility for US$78.6 million. Both assets were negotiated on a willing-buyer, willing-seller basis with Digital Realty.

The third divestment involves a 39 percent interest in 8217 Linton Hall Road in Northern Virginia, priced at US$110.4 million. Digital Core REIT will retain a 51 percent controlling stake in that property, which recently secured a new ten-year lease with a global cloud service provider. Management emphasized that keeping majority ownership preserves exposure to long-term development upside in the Northern Virginia corridor.

Asia-Pacific Expansion

The REIT will acquire a 2.5 percent interest in Digital Loyang 2, a five-story facility at 11 Loyang Close in Singapore, for S$87.4 million. Digital Core REIT described Singapore as one of the world's most supply-constrained data center markets, a reference to the city-state's moratorium on new data center construction that was only partially lifted in recent years.

In Osaka, the trust will buy an additional 25 percent interest in the freehold Osaka Data Centre, also known as Digital Osaka 3, for ¥17.6 billion or about US$108.5 million. That acquisition raises Digital Core REIT's ownership from 20 percent to 45 percent. Japan has emerged as a priority growth market for hyperscale and colocation operators, driven by strong cloud adoption and limited available land in key metro areas.

Balance Sheet and Buybacks

Net proceeds from the divestments are expected to reach approximately US$140 million after accounting for the Asia-Pacific acquisitions. The manager plans to allocate US$117.4 million toward repaying euro- and US dollar-denominated debt, according to Digital Core REIT.

Up to US$20 million will be earmarked for unit buybacks on the open market, a move the manager said reflects confidence in current valuations. Another US$2.5 million is set aside for professional and transaction fees.

The overall transaction is projected to be 4.1 percent accretive to distribution per unit and will reduce aggregate leverage by roughly 290 basis points to 36.3 percent, Digital Core REIT said. Gregory Wright, chief investment officer at Digital Realty, said the portfolio adjustments are designed to position the REIT for the ongoing investment cycle in data centers.

Approval Timeline

The proposed transactions are classified as interested person transactions under Singapore exchange rules because Digital Realty is both sponsor and counterparty. Unitholders will vote on the deals at an extraordinary general meeting. Management expects the transaction to close before year-end, subject to approval.

Units of Digital Core REIT closed flat at US$0.475 before the trust called a trading halt to announce the agreements. The stock has traded in a narrow band over the past quarter as investors weigh the REIT's exposure to higher financing costs against demand for data center capacity across core markets.