DigiCore REIT suddenly self-imploded today and crashed from US$0.495 on previous trading day (15 March 2023) to as low as US$0.420 per unit during the trading session on 16 March 2023 itself which represented a sharp decline of <15.2%> within a single day as well as a 52 weeks stunning low record. Its strong performance in Q1 2023 ended with a high of US$0.680 per unit on 3rd February 2023 and then collapsed spectacularly within a span of 1 month by a whopping <38.2%>. At this price, Digicore REIT will be trading at an impressive distribution yield of 8.85% per annum. Whatever happened to DigiCore REIT?
What happened to DigiCore REIT?
The strange thing is that nothing major has been announced by management of DigiCore REIT. I have also searched major forums but seems that everyone is also wondering what major calamity had transpired and is equally clueless. (*Updated 18th March 2023: The 2nd largest tenant Cyxtera maybe facing bankruptcy soon if it could not restructure its debt-there is thus grave uncertainty over the prospects of DigiCore REIT given that Cyxtera made up 22.6% of its revenue stream).
I can only conclude that the relentless rate hikes from the Federal Reserve plus the recent banking crisis in US have taken a toll on the resiliency of DigiCore REIT. Many investors greatest concern would be on the quality of the tenants in its portfolio. Given the various operational restructuring among tech companies, there maybe fear that rental default of data centres leases may become rampant.
Based on the previous major incident involving the default of its major tenant, Sungard Availability Services, many investors may have lost confidence in the REIT given the US banking crisis and detrimental effect of interest rate hike on the global macroeconomics condition in particularly, the tech sector.
Saying that, I think that DigiCore REIT has a wide enough diversified client base and is not too worried for now on further client default.
Parting thoughts
In the absence of any negative major announcement by the management of DigiCore REIT or other market information, I will continue to stay invested in DigiCore REIT. I have also accumulated additional 5,600 units @US$0.430 per unit today. Keeping my fingers crossed that no major calamity occurred. Will be adding on to more units in another 2 weeks time if the weakness prevail.
Please also note that I am actually not a major fan of DigiCore REIT- I do have my reservation on its fundamentals given that DigiCore REIT's performance has been nothing short of a disaster since its IPO and listed price of US$0.88 per unit in December 2021. Also, many investors who entered at US$1.20 per unit during its peak got burnt badly with the surprise default of a major tenant. Still, 8.85% forward distribution yield per annum is attractive enough for me to take on the risk and remain vested in it.
(Please also refer to my latest post on 18 March 2023 on my latest thoughts on DigiCore REIT)
Thanks for the update! I added more today at 0.43 as well. I do note the second largest tenant seems to be going to bankruptcy: see https://www.sharejunction.com/sharejunction/listMessage.htm?topicId=20793&searchString=&msgbdName=DigiCore%20Reit%20USD&topicTitle=%3CNo%20Title%3E
ReplyDeleteThanks Income Chaser for the update....appreciate! Strange that DBS Research is still very confident that the adverse potential impact will be minimal and still advocating for a target price of US$0.90 per unit. Anyway, if the crazy Fed finally realised that the relentless rate hike is causing many businesses to potentially collapse overnight, it will hopefully stop and reverse course before a major US economic depression.
DeleteWelcome. I believe it is good bargains at current price.
DeleteWhich brokerage do you use? Stanchart doesnt allow trading of this reit anymore as DCRU is categorized as PGP stock and transaction will be taxed at 10% from proceeds directly
DeleteI am using Interactive Brokers but I used DBS in the past. Both brokers seem to be fine with DCRU. FYI, DCRU published a qualified notice in Dec 2022 that it was not affected by the PTP rules.
DeleteHi Tony, I am using Tiger Brokers and DBS Vickers to trade in DigiCore REIT. Similar to Income chaser, my experiences with these brokers does not seemed to be affected by the "PTP rules" and they still allow trading.
DeleteHi Blade, I was wondering the same as well. It seems weird to me that today's price drop would be the result of pricing in weak tenant profile and harsh interest rate hikes, since it's just this day in particular. Worst case scenario is insider selling in anticipation of what's to come... Just that retail investors don't know yet...
ReplyDeleteHi Mate, thanks for sharing your thoughts. Yup, probably some bad news coming out from major tenant delinquency from the insiders.
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