Digital Core REIT 2.0: The US$315M Restructuring Explained- Good or Bad?

Hi Folks, welcome back to Investment Income for Life. Today I am doing a short post on the latest major portfolio reshuffling by Digital Core REIT ("DCREIT"). I must say that I am totally baffled by this move. It is basically selling North America mature data centres back to its sponsor Digital Realty and then buying Japan and Singapore data centres from its sponsor using the sales proceeds. I thought that DC REIT should have actually kept the existing North America data centres in order to have stable cashflow and at the same time, do a rights issue to purchase the Osaka data centres and also Loyang Singapore data centre to boost the growth story. 

Transaction Overview:

While the portfolio restructuring is expected to be DPU accretive and reduced aggregate leverage ratio (from 39.2% to 36.3%), I do not like the Asia Pacific growth story that has been marketed. Why would the sponsor want to buy over properties that it deemed as already matured? Out of kindness to Singapore investor of DCREIT and to make less money for its own unit-holders?

Anyway, looking forward to the lifting of the trading halt to see whether the market believes in the current storyline being sold. Its last traded price is US$0.475 as at 11 August 2026.

DigiCore DC REIT Not As Stable As It Seemed-Beware 3rd Crisis Since IPO.

Let me be clear on this, the announcement of Linton Hall going to be finally leased out end of 2026 on January 5th, 2026 announcement does not absolve the inherent challenges faced by unit-holders holding on to DigiCore DC REIT ("DCREIT"). I thought that DCREIT management has been rather misleading in their previous December 2025 results presentation. The occupancy rate as per above shows a 98% occupancy giving most stakeholders am extremely false impression of the true status of occupancy. There is a very tiny footnote at the bottom of this powerpoint that states that the actual occupancy rate of DCREIT is only 81% instead of 98%. They have excluded Linton Hall during the last presentation, that is undergoing refurbishment post the exit of a major tenant around mid-2025 that contributed around 10%-11% of rental income. I thought that DCREIT management ought to be more transparent in its dealing with unit-holders given that it had already underwent a few crisis post IPO such as the Sungard and Cyxtera bankruptcy/restructuring cases that led to a significant plunge in distribution to unit-holders.

Linton Hall Will Only Be Backfilled from December 1, 2026- (1.5 years vacant)

Back in 2023, I had taken up a position in DCREIT when its price plunged to below US$0.50 as I had taken a more optimistic view of its business. I had then bought and exited half of it with about +22% realised capital gain but keeping the other half was a mistake as its traded price remained in doldrum for the next few years and now, there a 3rd incident of another operational issue with a major tenant exiting in mid-2025 and DCREIT's team is only able to backfill the space from December 1, 2026  (as per the latest SGX announcement). Wow, this is almost a 1.5 years of vacancy! 

From DCREIT track record over the past 3 years, this REIT has proven that it is not stable at all. It has problem building up sufficient size for adequate diversification of key tenant exit risk as well as credit risk. 

Parting Thoughts

Over time, DCREIT’s market price has fallen significantly below its IPO level of US$0.88 per unit to the recent US$0.545 as at January 6, 2025 (Monday). This represents a whopping decline of around <-38%> relative to its IPO price. I have thus exited all my investment holdings in DCREIT back in December 2025 due to persistent under performance and bad management based on my personal view. Additionally, the AI craze maybe a bubble that will eventually pop and I am not sure whether DCREIT with its really bad track record can survive such crisis.

Keppel Data Centre REIT Remarkable Boost in H1 2025 Earnings and Distributions- Things to Watch Out For Before Jumping In.

Keppel Data Centre REIT ("KDC") just released a remarkable 1H FY2025 results with distribution income surging 57.2% year on year and delivering a super impressive 12.8% growth in distribution per unit ("DPU") of 5.133 cents. Annualised this and the current yield will be 4.43% per annum based on the S$2.32 per unit as at 25 July 2025. Market price of KDC has rallied 5.9% within 2 short weeks as many investors were awed by the spectualar results from KDC. Still, there may be a few potential downsides that retail investors need to be mindful on, especially for those who suddenly find KDC full of prospects, and want to ride the data centre AI wave.

1. Investing in KDC Is Not As a REIT But a Growth Stock.

Then again, if we look back at the announced acquistion of the Singapore data centres by KDC in November 2024, it is already clear that DPU will increase by around 8%. Also, the newly acquired Singapore data centres have very short tenure of 25 years and I thought that even with a 4.31% distribution yield, the current market price of KDC seems very much overvalued if we benchmark to the current risk free government bonds. The distribution yield of 4.31% is thus still extremely low as unit-holders need to prepare to plough back capital into KDC at the end of 25 years for additional extension. The only pausible explantion here is that many investors are treating KDC as a "growth" stock. 

2. Overhanging Issue at Guangdong Data Centres.

There has been no news suggesting that the tenant (Bluesea Data Development) has resumed rental payments or that it has settled its arrears. So question remains whether its Guangdong data centres are now white elephants. 

The only reference I found was the AGM minutes on 15 May 2025 which only mention that 100% quarterly allowances has been made to zerorise income contributions from Guandgong DCs. Also, KDC management are adopting investment assets at fair value for its accounting treatment based on independt valuation reports. So, in event that the situation worsen, investors may have to repay loans relating to those China investments at a loss which will hit future distributions.  

Extract of AGM Minutes on Guangdong troubled DCs.

Parting Thoughts and Personal Thoughts

I am not sure whether one should keep chasing and accumlating KDC at its current sky high market valuation. Its market price is currently S$2.32 per unit as at 25 July 2025 while its NTA is only S$1.53 per unit (as at 31 December 2024) and this means that one is paying a jaw dropping premium of +51.2% over its NTA. Nevertheless, if I want to increase my investments into REITs with data centres exposure, I will probably choose Mapletree Industrial Trust followed by KDC rather than DigiCore REIT or the recently listed NTT Data Centre REIT.

Will SREITs Crash Further This Week? Cut Exposure to SREITs Or Buy More At Current Lower Price?

The million dollar question this week is whether our Singapore REITs market will crash further after the 4.8% disastrous plunge last week. Well, so far so good as Monday today (23 October 2023), there is a slight rally. SREITs like Keppel Data Centre REIT (“KDC”) which has dropped -14.4% in a single week, from S$2.010 per unit to S$1.72 per unit, has since rebounded by +3.49%.  However, I don't think we are out of the woods yet with the gloomy macroeconomic situation.

1. Risk of Israel & Hamas War Spreading.
Besides Gaza, Israel has been conducting airstrikes against Syria and Lebanon. Iran has also been aggressive towards Israel. US, China and Russia have also been joining in the fray. There are heighten risk of disruption to global supply chain and oil prices may spiral upwards and worsen energy price. Sticky inflation might also rear its ugly head once again. 

2. Interest Rates Risk- Rates Maybe Raised Higher.

The Feds have mentioned that the inflation target is still way above their 2% target and that they may be raising the interest rates again in the future. For SREITs, the fear of higher borrowing costs leading to smaller distribution is certainly driving the market valuation down for most REITs.

3. Divesting DigiCore US REIT And Buying Keppel Corp Instead.

On 18 October 2023, I have disposed 13,000 units of DigiCore US REIT @ US$0.555 per unit and used the proceeds to buy into Keppel Corp when it dropped to S$6.36 per share in order to reduce my exposure to US REITs as well as to take advantage of the special dividend from the latter. This turned out to be a lucky move as DigiCore US REIT has since dropped to US$0.480 per unit as at 23 October 2023. 

Parting Thoughts

Strangely, the earlier morning rebound in price for SREITs on 23 October 2023 morning trading session fizzled out by afternoon. Overall, prices of SREITs continued to drop with only a handful exceptions such as Keppel DC REIT, Capitaland Ascendas REIT & Frasers L&C Trust. I am tempted to inject additional funds into SREITs purchases to take advantage of the significant lower market pricing but have decided to wait till Israel commences their ground offensive into the Gaza which may mark further carnages in SREIT pricing.

Investment Portfolios Updates (29 Sep 2023) - S$551K and Projected Annualised Passive Income of S$51K.

The stock market continued its horrendous game of Yo-yo with the US Federal Reserve threatening more interest rate hikes and the stock market tanked with the news earlier this week. Even the bond market is not spared. So buy equities or buy bonds one will still get whacked hard these days. September 2023 has been a good month as I finally received dividends payout of S$19K which I used to invest in Keppel Corp and also to purchase more balanced funds from Endowus platform. Overall, net asset value stands at S$551K and a projected passive income of S$51K as at 29 September 2023.

(Note: Please also refer to my other Family Portfolio which is projected to yield +S$20K of passive income per annum).

 1. Portfolio 1- Stocks held in SGX Central Depository 

(Note: This portfolio is designed to provide immediate dividends for use as it is under my own CDP account and the dividends credited goes directly to my bank account.)

I have continued investing into Keppel Corp when its prices fall to S$6.75 per share. The much anticipated EGM for Keppel Corp has been announced and it will be held in October 2023. Special dividends in the form of Keppel Office REIT units will be given to existing shareholders once it is approved by shareholders.

2. Portfolio 2- Margin purchased securities

(Note: My margin purchased securities has grown to a sufficient scale to sustain itself and can pay off annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

(a) I have earlier sold off all my investments in Manulife US REIT ("MUST") in late July 2023 and re-invested the proceeds into Keppel Oak US REIT. No choice but to bite the bullet as MUST is unable to pay out dividends due to a breach of bank covenant and it seems that MUST is entering into its final death spiral;

(b) Additional purchase of 5,000 units of Mapletree Industrial Trust at S$2.22 per unit on 7 August 2023;

(c) Also bought into additional 1,000 shares of OCBC at S$12.22 per share on 22 August 2023 as I think that its management strategy of focusing on growing its wealth management business will enable OCBC to do well for its future;

(d) I have also paid off S$8K of margin loan using dividends received in September 2023 to reduce interest expenses and also leverage ratio.

3. Portfolio 3 (with Tiger Brokers)- Venture into higher risk as well as capital growth stocks here

(i) Sold off all my DigiCore REIT to take profit at US$0.575 per unit. Have bought back 13,000 units when its price began to drop;

(ii) Despite the Manulife US REIT financial woes due to downturn of US Commercial office sector, I have re-entered into this REIT for speculative purpose over 2 tranches at US$0.60 per unit and US$0.45 per unit. Anyway, this is just a tiny stake to earn some spare change for a buffet dinner in the event that MUST management managed to save it. This also reminds me of Barista Fire's recent rather interesting posting on gambling mindset "When Investing Becomes A Dangerous Mistake" ;

(iii) Have also purchased small stakes in US Utility provider Nextera Energy when its price dropped steeply. Also entered into Mercury Systems Inc in US market. Mercury is in the defence technology and equipment sector.

4. Portfolio 4 (Endowus & Other Investments)

(a) I have began investing into the Higher Income Endowus fund that seeks to pay out passive income of 5.5% to 6.5% per annum. This is a combined funds portfolio that is 20% equities and 80% into bonds and recommended by Endowus.

(b) Have also been adding on to the Balanced Fund that I self-created using PIMCO GIS Income Fund, Allianz Global High Yield and Fidelity Global Dividend Fund.  

Summary

I have began building up more exposure to bonds using Endowus balanced funds to further diversify away from my excessive exposure into equities. I believe that bond funds should benefit from capital appreciation next year once the interest rates are being cut by the US Federal Reserve. 

DigiCore REIT Price Rebound Again- 15% increase in 2 months.

DigiCore REIT (“DCR”) has a strong rally during September 2023. There was an announcement by DCR Management team that DCR will be included in the FTSE EPRA Nareit Global Developed Index from September 15, 2023. This may have sparked the recent rally in its unit pricing from US$0.505 as at August 1, 2023 to US$0.580 as at September 8, 2023. In addition, the risk of major tenant Cyxtera entering into default and bankruptcy seems to be fading. 

Will DCR Break the US$0.60 Barrier Soon?

I am optimistic that DCR will be able to hit above US$0.60 next year once the interest rate start coming down. Nevertheless, I have sold off part of my holdings (26,000 units being disposed) of DCR at US$0.575 to immediately realize an overall profit of +22.3% for these recently acquired units. I have acquired these units when DCR slumped to the US$0.43- US$0.48 range during the 1st half of FY2023. I do not like DCR as its financial performance has not been stable and as a matter of fact, giving unit-holders many heart-attacks since its IPO. 22.3% profit is equivalent to earning dividends over a 3 year period at 7% per annum. 

Parting Thoughts

On the risk of default of its major tenant Cyxtera, things are looking well from the Chapter 11 proceedings with no lack of suitors. Brookfield and Digital Realty are reported to be interested in acquiring the assets of Cyxtera. I am still holding on to 38,000 units of DCR as I think that there should still be further capital upsides despite the not so ideal performance of DCR since its IPO listing. 

DigiCore REIT Roared Back To Life- 17% Surge In A Single Week!

DigiCore REIT jumped 12% (and as high as 14%) in a single day today to US$0.56 per unit as at 20 July 2023. This is an impressive 17% upswing in its unit price performance within a single week given that DigiCore REIT was languishing at US$0.480 per unit last week. It looks like the market has assessed and decided that the default risk of its 2nd largest tenant, Cyxtera is over. I tried to google but could not find any latest updates on the bankruptcy case. But I think that most likely, the stalking horse bid has been successfully selected which thus gives rise to the re-rating. 

Please refer to my previous post: “US Digital Core REIT- Worst Maybe Over With Unraveling of Stalking Horse Bid by 16 July 2023”
 

DigiCore REIT response to SGX query on the sudden jump in unit price

Manager’s Response: The Manager is aware that a brokerage firm has circulated a client bulletin reporting that final bids for the REIT’s second-largest customer were due today and it had received at least six letters of intent for its business, which the brokerage firm hypothesized should be a good sign for providers with exposure to this customer, as the brokerage firm speculated any intention to reject its existing leases likely would have been done prior to today’s deadline – which may or may not be a faulty assumption, as the sale process is still underway.

In addition, the brokerage firm noted that the recent share price rally implies that the REIT is on track to be included in the FTSE NAREIT Developed Asia Index as early as the next review in September 2023.

Parting thoughts

I am keeping my fingers crossed that DigiCore REIT can break the US$0.60 per unit level within the next 2 months. I am currently in a dilemma over whether to sell off part of my holdings in DigiCore REIT acquired recently so as to take immediate profit or to hold on to it for a longer term view.

Investment Portfolios Updates (7 July 23) - S$538K and Projected Annualised Passive Income of S$53K.

The stock markets had a good recovery over the last week. However, my portfolio remains in the doldrum-all additional capital injection over the past 6 months into the SGX seems to be sucked into a bottomless blackhole. I have made some adjustments to the dividend income yield projection listed on StocksCafe for US office REITs by taking a further haircut of 25% to reflect forward dividend returns. (Note: Please also refer to my other Family Portfolio which is projected to yield +S$20K per annum).

 1. Portfolio 1- Stocks held in SGX Central Depository 

(Note: This portfolio is designed to provide immediate dividends for use as it is under my own CDP account and the dividends credited goes directly to my bank account.)

The major change here was the selling off of Fu Yu Corp and switching to Keppel Corp  and OCBC over the past 1 month- please read more here: "SGX Listed Fu Yu Corporation No Longer A Cash Cow- 3 Things To Be Wary". I have been building up my position in Keppel Corp, which is similarly undergoing a business transformation, in both my Portfolio 1 and Portfolio 2.

I have also been busy building up additional stakes in Netlink Trust to ensure sufficient diversification away from REITs. 

2. Portfolio 2- Margin purchased securities

(Note: My margin purchased securities has grown to a sufficient scale to sustain itself and can pay off annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

(i) On 5th May 2023, I have sold off all my 16,000 units of holdings in Mapletree PanAsia Commercial Trust @S$1.72 per unit. All proceeds have been reinvested into Keppel Corp. Please read more here: " Saying Goodbye to Mapletree Pan Asia Commercial Trust".

(ii) Added 4,000 units of AIMS APAC REIT during its recent rights issue exercise to finance AEI initiatives. Please see "AIMS APAC REIT Announced Fund Raising For Asset Enhancement And Property Redevelopment- Important Timelines To Take Note".

3. Portfolio 3 (with Tiger Brokers)- Venture into higher risk as well as capital growth stocks here

Sold off whatever remains of Fu Yu Corp and partial disposal of Alibaba and switched to DigiCore REIT. Please refer to my previous post on rationale: "US Digital Core REIT- Worst Maybe Over With Unraveling of Stalking Horse Bid by 16 July 2023".

4. Portfolio 4 (Other Investments)- Non-listed Equities+ Endowus

(a) I have added PIMCO GIS Income Fund and Allianz Global High Yield Fund to my existing Fidelity Global Dividend Fund in Endowus to create a "Balanced Fund" portfolio that targets to return distribution of 5.5% yield per annum. This is a 20% equities and 80% fixed income portfolio- the equity component will allow one to still have some upsides in terms of long term capital appreciation from global equities on top of having a high distribution payout on a monthly basis. 

(b) The Endowus Secure Cash a money market fund that is offering a target of 3.7% to 3.9% annual return on cash placed. Withdrawal can be anytime and there is no lock in period. 

(c) The Endowus Enhanced Cash seeks to pay out higher distribution of 4.2% to 4.5% per annum. Have put some funds here also to test run. So far, the return has been worst than the Endowus Secure Cash with negative returns on some days.

Summary

I am extremely disappointed with my Alibaba holdings which seems to have become a value trap and incurring lots of opportunity cost. The only consolation is that I have stopped adding on to it and Alibaba forms only a small portion of my overall portfolios. Nevertheless, I will still be holding on to the remaining Alibaba shares and hope that with the upcoming IPO of the major business divisions, it can finally unlock value for the long debilitated share price.

US Digital Core REIT- Worst Maybe Over With Unraveling of Stalking Horse Bid by 16 July 2023.

The worst maybe over for Digital Core REIT ("DCR") with regard to the default risk from their 2nd largest tenant, Cyxtera, which is under chapter 11 bankruptcy proceedings. US Media has reported that 37 parties had expressed their keen interest in taking over some or all of Cyxtera's assets- out of these, 6 entities have submitted their non-binding Letter of Intent. Moreover, DCR management has stopped their daily Share Buy Back as at 27 June 2023 and the market price of DCR has been surprisingly resilient at US$0.470 to US$0.480 per unit range for the past few trading days in early July 2023. 

1. Cyxtera Expected to Reject Two Data Centres in Amsterdam and Moses to Save US$114Mil

The rather intriguing US Chapter 11 process allows DCR to reject any ongoing contract or unexpired lease with court approval which are underutilised. DCR is widely expected to be rejecting the above data centres to save operating expenses of US$114Mil. To address the elephant in the room, these 2 as aforesaid data centres do not belong to DCR. 

2. Revelation of Stalking Horse Bid by 16 July 2023

A stalking horse bid is an initial bid on the assets of a bankrupt company. The bankrupt company will choose an entity from a pool of bidders who will make the first bid on the firm’s remaining assets. The stalking horse sets the low-end bidding bar so that other bidders can’t underbid the purchase price.

Cyxtera is expected to reveal their chosen stalking horse by 16 July 2023. This should accelerate the recapitalisation and restructuring of the business with a new business owner. Personally, I thought that the probability of the 2nd largest tenant of DCR defaulting on their rental payment has just gone down significantly.

3. Bad Point In That the Market Rental Rate Is Higher Than What Cyxtera is Paying to DCR

If Cyxtera survives the chapter 11 restructuring, this may not be necessary good for DCR. It has been reported that the market rental rate at these properties occupied by Cyxtera is way higher than what they are currently contracted. DCR would have missed out on the opportunity to market out the space to get higher rental reversion as well as to reduce concentration risk of a major tenant.

Parting Thoughts

I have re-allocated my capital with additional S$12K invested into DCR this week as I think that its bearish unit price has bottomed out and I think that many investors on the sideline will re-rate DCR upon confirmation that the bidders for the assets of Cyxtera are real (and not a fragment of one's imagination) on 16 July 2023. Anyway, investment is all about managing the risk & reward and I maybe wrong- DCR may turn into a value trap as disgruntled investors demand a huge risk premium to cushion against future similar "mishap" which has been happening rather frequently since DCR's IPO debut. 

(Note: It is interesting that DBS analyst is extremely optimistic on DCR and has a price target of US$0.90 per unit as at 23 June 2023.)

DigiCore REIT Share Price Surprisingly Sharp Rebound After Announcement of Major Tenant Bankruptcy.

Haiya…..why so many people bashing DigiCore REIT (“DCREIT”) on blogosphere for this week? The news on Cyxtera (2nd largest tenant making up 22.4% of DCREIT’s gross revenue) filing for bankruptcy protection on 5th June 2023 lead to many folks demonising it. But in a surprising twist, DCREIT (its price dropped to an all time low of US$0.37 per unit at one point in time after the announcment) rebounded sharply to USS$0.48 per unit as at 9th June 2023, which is an amazing +29% increase in just 3 days. 

1. Latest information release by DCREIT management better than expected

Apparently, the bad news of a total loss of 22.4% of gross rental income had already been fully priced in. The better than expected updates actually lead to huge rally in price of DCREIT by 29%. 

(i) Management has clarified that US$200Mil of “debtor in possession” financing has been obtained by Cyxtera which intends to fulfill all its financial obligation to its vendors. Debtor in possession refers to a special loan that is unique to companies undergoing chapter 11 in the US which is used to keep the company in operations during the re-organisation.

(ii) In addition, if Cyxtera really end up being liquidated, given Digital Realty's operating expertise as the largest global provider of data center, colocation and interconnection solutions, the Manager is well-positioned to step into agreements with the existing end-user colocation customers currently relying upon these facilities to support their digital infrastructure requirements, if Cyxtera were to reject any of its lease agreements with Digital Core REIT. 

(iii) Market conditions are tight in terms of supply of data centres in the properties that were leased to Cyxtera- vacancy rates in the low- to mid-single-digits for these areas.

2. Strange myth/thoughts by some bloggers that anybody can just build a data centre and lease it out hence there is no special "moat"

I find it weird that some folks are thinking that retail malls or Grade A office are better properties than data centres which are just "building with electrical and cooling systems". We need to understand that not everyone can build data centre technically.

Also, data centres form the foundation of our new age economies of digitalised and networked world. The exponential growth of data-driven technologies-such as cloud computing, Artificial Intelligence (AI), and the Internet of Things (IoT) – has led to huge demand for data centres to store, process, and manage this information. In Singapore, many proponents of data centres ("DC") lament at our local government restriction that has not been fully lifted for building more DCs to take advantage of Singapore location which is free from natural disaster and political stability.

In addition, once you have tenants in, they will most likely be in for a very long duration. It is not easy feat to just move all equipment to other data centres once the lease expires. Lots of planning and efforts need to be made by the tenant's IT team to prevent disruption to their services to their own clientele. 

Saying that, investing and holding Data Centre REITs are not risk free investment akin to holding government fixed income as the usual tenant default risk due to financial duress are all present as evident in the Cyxtera bankruptcy case that surfaced. One needs to be wary of the quality of assets and tenant being crafted out into a Data Centre REIT at IPO- this is the 2nd tenant default after IPO for DCREIT. 

Parting thoughts

It is quite funny that even Mapletree Industrial Trust (another REIT with data centres) got bashed by folks on top of DCREIT as it also counts Cyxtera as its tenant (albeit lesser concentration of only 3%). Anyway, I am happy to see the price of DCREIT rallying to US$0.48 per unit which means that I am sitting on on some paper profits for my recent purchases earlier this year in March and April. 

DigiCore REIT Potential 2nd Major Tenant Potential Bankruptcy Crisis Temporary Postponed to April 2024.

I do not want to be a busybody but I thought that it is rather interesting that Professor Mak Yuen Teen from NUS Business School, who specialises in corporate governance and ethics, wrote recently about Digital Core REIT ("DIGITAL CORE REIT: ANOTHER FOREIGN REIT ON A BUMPY RIDE") on 17 March 2023. So I should document it here for my personal future reference as well as to share with folks who are interested to read more about it. Then on 20 March 2023, John Stewart, Chief Executive officer, of Digital Core REIT ("DCR") subsequently responded to the various articles including from Prof Mak relating to the financial crisis of its 2nd largest customer, Cyxtera Technologies.

 

1. Updates on potential default of Cyxtera Technologies, 2nd largest tenant, making up 22.6% of DCR's rental income.
Basically, on 16 March 2023, Cyxtera has announced that it has entered into an agreement with its lender to extend the maturity date of its 2023 debt maturity to April 2024 and has not requested DCR for any rent deferments, rental reductions or contraction of the space it occupies. 

2. Prof Mak raised very good points but read it with a pinch of salt
From my perusal, the 3 main points raised by Prof Mak in his article are as follows:

(i) Conflict of interest between sponsor which is listed in US and DCR which is of a smaller scale listed in Singapore and the interest of US shareholders of sponsor will take precedence; 

(ii) One of the independent director was a former DBS equity market staff with strong ties to DBS which is the issuance manager of the IPO and

(iii) Poor quality tenants dumped into the DCR as evident from default of Sungard and another upcoming delinquency by Cyxtera.

My only comment here is that being in commercial and running a business has all kinds of risk. For example, it does not mean that with good and awesome "Corporate Governance", then this is the magic bullet that will ensure minimum risks to a business. Even long established banking institution like Credit Suisse almost suffered from a complete collapse just recently. If anyone wants minimum risk free investment and tenants that will never go bankrupt or default on rental, then go invest in treasury bills or government bonds and stay far away from equities.

Parting thoughts

Well, the saying goes that "hindsight is always 20/20" and I have not seen Prof Mak daring to make a bolder statement that DCR is destined for business failure due to its poor corporate governance. But I am very sure that if DCR really went under water in future, then Prof Mak and other "experts" will rush in to assert that their previous "warnings" were right on the spot as they spotted the early "warning signs".  

Anyway the key question I guess is whether DCR is on the verge of a complete collapse and that it is in fact worthless or is the current market price at US$0.420 per unit adequately reflecting its fair valuation after taking out the upcoming bankrutpcy of Cyxtera and other weak major tenants? 

DigiCore REIT- Disaster In The Making Or Potential Upsides?

I think I need to be very clear upfront to all folks here that my postings here is more for my own reference and documentation of my personal investment journey and thoughts. It is not a buy or sell recommendation or trying to influence folks to follow what I do. In any case, I am sure that all folks agree that everyone's own circumstances and investment philosophy is unique especially in the current climate filled with grave uncertainties. The only certainty is to diversify your investments and not to over-concentrate one's own investment portfolio such that a major disaster becomes a huge loss in capital that one can never recover from and then regret it for the rest of your life.  

1. DigiCore REIT- Disaster In The Making Or Potential Upsides?

Now back to the main topic on hand. Given that the dust over the plummeting share price of DigiCore REIT has more or less settled with many analysts and the senior management of DigiCore REIT coming out to comment on the root cause, I will just sum up the situation with the following flowchart:

So, it boils down to one's perception of whether DigiCore REIT will end up in scenario 1 or scenario 2 given the worsening economic conditions. 

2. Refinancing risk for DigiCore REIT given the recent banking crisis in US.

The major re-financing risk for DigiCore REIT is due in 2026 which is another 3 more years away.

Parting thoughts

Personally, I am keeping my investment exposure to DigiCore REIT to less than S$50K. As I mentioned in my previous post, I am not a major fan of DigiCore REIT given that there is already a major tenant default (Sungard) and another potential one coming within a short span of its IPO in December 2021. Really makes one wonder whether the sponsor Digital Realty is dumping low quality tenants into DigiCore REIT. However, at my various lower entry prices relative to IPO, I am contended to stay on course for now and will continue to monitor the latest development closely.

DigiCore REIT Sudden Plunge of Over 13% In A Single Day- Should Retail Investors Be Worried And Run For The Exit?

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)

The Hidden Danger Of Investing in US Based SREITs Due to Shareholding Restriction.

The recent US Manulife high aggregate leverage level crisis (within a whisker of the statutory breach at maximum of 50%) due to a sharp decline in valuation of its investment properties has brought up another key risk that many retail unit-holders did not consider in-depth previously. Even during the COVID-19 crisis with global lockdown, the valuation of investment properties of most REITS were not adversely impacted. It has also been more than a decade since the 2008/2009 global financial crisis. The key risk that I am talking about is the possible failure of a rights issue exercise to raise funds due to the peculiarity of the situation of SREITs with investment properties in the US.

Why rights issue exercise may fail for SREIT with properties in US?
This is because the Sponsor may not be willing to undertake the rights issue given that they need to maintain less than 10% stake to qualify from withholding tax exemption for dividends received. If not, US withholding tax of 30% will need to be applied for all future distribution. Nevertheless, it is not the end of the world. The sponsor could still form a private equity property trust to buyover some of the investment properties at the revised net book value to provide liquidity to the REIT for reduction of leverage.

The sad thing is that if a rights issue exercise is not conducted, the alternate option via sales of investment properties to its sponsor at this juncture would still be a lower price due to bad market timing and also lead to another vex issue of cherry picking the best assets out and leaving the worst properties in the REIT. While this is better than a fire-sales at depressed pricing to non related external parties, existing unit-holders may not be happy and there would be some unit-holders who still preferred a rights issue exercise instead. 

Parting thoughts

Will a good and reputable sponsor be able to save their listed REIT from financial challenges given unit-holding consideration that hampers the prospect of the usual rights issue? The upcoming corporate action from Manulife US REIT will be a good case study on what will happen to the rest of the US SREITs like Keppel Pacific Oak REIT, Prime REIT and US Hampshire REIT in the event that they faced the same aggregate level crisis due to plunging valuation of their investment properties from higher discount rate and lower future cashflow projection. 

(P.S: Please also see my previous post: "Manulife US REIT Spectacular Self Implosion- Risk of Firesales of Office Properties Or Dilutive Rights Issue".)

Investment Portfolios Updates- S$536k (30 Dec'22)- Investing During Bear Market Turmoil.

While the stock market conditions have improved slightly, December 2022 remains in the doldrum and the expected year-end huge rally mentioned by many analysts did not materialize at all. Based on StocksCafe, my year to date unrealised losses (including historical dividends received) is <-7.17%> as at 30 December 2022. The income investing strategy is still working well for me and getting realised investments in the form of recurring dividends helps to cushion against economic turmoil and mitigate the vagaries of exploiting the most opportune market timing to take profits.

1. Portfolio 1- Stocks held in SGX Central Depository 

(Note: This portfolio is designed to provide immediate dividends for use (if required) as it is under my own CDP account and the dividends credited goes directly to my bank account.)

I have invested my excess fund of approximately SGD10K over 2 tranches of 7,000 units each at prices of US$0.540 and US$0.520 respectively during the last week of December 2022 into DigiCore REIT. In fact, I have been gradually building back my stakes in DigiCore REIT since I sold off all my DigiCore REIT units at US$0.865 per unit to take profit during the mini-rally in August 2022. Please see "Is DigiCore REIT a Good Buy Now Since its 41% Decline in Unit Price From IPO?".

2. Portfolio 2- Margin purchased securities

(Note: My margin purchased securities has grown to a sufficient scale to sustain itself and also to repay annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

2.1 Additional investments were made into Capitaland China Trust. The devastating frequent shut down and rental rebate to its retail shopping malls will soon be a thing of the past going forward into 2023. China has done a sudden reversal of its zero COVID strategy. 

2.2 Manulife US REIT is in trouble as its fair valuation has dropped substantially which caused its leverage ratio to hit 49% (1% short of Monetary Authority of Singapore maximum ceiling of 50%). There is a high probability that Manulife US REIT may be blacklisted by Maybank Securities in its allowable margin programme. Nevertheless, Manulife US REIT has now dwindle to become a small part of my entire margin portfolio such that even if it became non-marginable or zero in value, I will not be caught in a margin call. I have also applied the stress test on my Portfolio 2 in the event that the other 2 US office REITs (Keppel Pacific Oak and Prime) also ended up in the same predicament and overall, I would still be able to escape unscathed. 

2.3 If push comes to shove and the recession worsen, I still have an alternative backup plan in place to ensure my margin portfolio held up for the longer term. 

3. Portfolio 3 (with Tiger Brokers)- Venture into higher risk as well as capital growth stocks here

3.1 I have increased my stake in DigiCore REIT for capital growth as its price has declined 41% to its IPO debut which I personally think is being oversold. 

3.2 I have also took profit on my short term investment into Global Investment Limited with a small 7.1% capital gain within 2 months. 

4. Portfolio 4 (Other Investments)- Non-listed equities and DBS DigiPortfolio

I have invested S$1K into DBS DigiPortfolio to test out their new category of digital portfolio. This product is an income focused portfolio which has 55% in equities, 40% in bonds and 5% in cash holdings and seeks to pay out 4% dividends per annum. So far, I do not really like it as visibility to its components needs quite a bit of mental acrobatics. 

In future, I will also be opening up a pre-funded brokerage accounts with DBS Vickers for investing in index ETF that has a focus on income distribution. The brokerage fees starts from a minimum of S$10 per trade (or up to 0.12% of any transaction) for such an account. Portfolio 4 is being opened also to diversify away from the use of Tiger Brokers. 

Is DigiCore REIT a Good Buy Now Since its 41% Decline in Unit Price From IPO?

This will be a short post with regard to DigiCore REIT. The last week of December 2022 has not been a pretty sight for DigiCore REIT unit prices. Its price sank to U$0.515 per unit at one point in time. I have invested my excess fund of approximately SGD10K over 2 tranches of 7,000 units each at prices of US$0.540 and US$0.520 respectively during this last week of December 2022. In fact, I have been gradually building back my stakes in DigiCore REIT since I sold off all my DigiCore REIT units at US$0.865 per unit to take profit during the mini-rally in August 2022.

To be honest, I do not really like Digicore REIT since its IPO days as it does not have a strong sponsor affiliated with Temasek Holdings and also due to the fact that one of its major tenant started to sink into bankruptcy soon after its IPO debut (not exactly helpful with building up trust and confidence in the sponsor when such "bad news" suddenly materialised after IPO). Nevertheless, its current unit price performance has been in the doldrum- despite its management commencing share buyback from 1st December 2022- and thus gives one a golden opportunity to be vested in new economy assets.

My recent additional investment of DigiCore REIT at an average entry price of US$0.530 per unit gives around an attractive distribution yield of +7.78% (some more this is before the recent M&A completion). As long as its fair valuation of investment properties do not decline to the poignant state of Manulife US REIT to affect the MAS imposed aggregate leverage level (maximum 50% for SREIT), I shall be able to wait till its price recovery before selling it off again.

Manulife US REIT Spectacular Self Implosion- Risk of Firesales of Office Properties Or Dilutive Rights Issue.

Manulife US REIT ("MUST") just dropped a bomb shell this morning (30 Dec 2022, 6.48am) on SGX that its fair valuation of investment properties dropped by a whopping <10.9%> (US$237.4Mil) and that its leverage level went up to 49% which is just 1% shy of Monetary Authority of Singapore ("MAS") aggregate leverage limit of 50%. It is fortunate that back in April 2020, MAS had announced that it had raised the leverage limit for S-REITs from 45% to 50%, else MUST would have been in blatant default of regulatory limit already and this may lead to further breaches of financial covenants. Still the current 1% buffer is not at all reassuring. No wonder its unit price has plunged <20%> since 1st December 2022 from US$0.375 to as low as US$0.300 per unit despite no news being announced publicly beforehand- I reckon that some insider news got leaked out way beforehand. What ever lead to this sudden self-implosion that has an ominous and potentially fatal consequence?

1. MUST Own Disaster in the Making?

Note that I am vested in MUST and I was shocked by this announcement as the REIT itself is now hanging by a cliff in terms of its survival. In previous years, MUST had embarked on a path of rapid M&A to build up its properties portfolio and income for distribution. Personally, I do not like the numerous occasions that MUST proceed to issue rights in private placement tranche at a discounted price without making such rights available to existing unit-holders by pointing to the need for urgent completion of the M&A deal. Another consequence of the rapid and aggressive pursuance of M&A deals resulted in its aggregate leverage level becoming one of the highest among US Office REITs at over 40%, thus leaving it with little leeway in the event of major economic downturn which can lead to a drastic fall in the fair valuation of its investment properties. 

2. Potential Red Flag of the US Office REIT Managers

I thought that Choon Yuan who runs the Investmoolah blog summed it up beautifully in his posting on US REITs (Why buying US Reits like PRIME and ManuLife Could Be Dangerous) on 29th December 2022, just one day before the disastrous announcement by MUST, on this:

"One thing that worries me is how both managements are not doing a share buyback when they are valued at a 50% discount to their property valuations. The REITs are afterall a portfoilo of properties and at such a discount, REIT managers would have deemed it attractive to be a good buy.

The lack of action by the management shows that either the REITs are short on cash or that they are anticipating a large writedown in property value of a magnitude greater than 20%. These would be terrible situations that the managers are not revealing. For context, a smilar US REIT called Digital Core is buying back its shares during this sell down at the 0.6-0.7 Price book value. Hence, it is no surprise this particular REIT has outperformed the other 2."

3. Why Did the Fair Value of MUST Properties Plunged So Drastically?

The bulk of the decline in fair valuation actually come from Figueroa which dropped US$104Mil (or -33% from prior year). The reason cited by MUST is that in the case of Figueroa, , the valuation as at year end 2022 is reflective of the occupancy plans of the property’s two largest tenants, Quinn Emmanuel and TCW Group, with the former executing a renewal and downsize while the latter plans to vacate at the end of their lease term (31 December 2023). Figueroa makes up 44% of the portfolio valuation decline as at year end 2022.

Personally, I thought that the valuer may have been too conservative in their projection on the replacement of vacated space after the exit of major tenants of Figueroa in 2023.

Parting thoughts

While I was initially optimistic on the future prospect of MUST given that their management is rather pro-active and has commenced its strategic review in early December 2022, the current development is extremely worrying. MUST is coming close to a breach of statutory requirement as well as breaches of banking covenants. We thus cannot rule out a fire sales of its properties or a dilutive rights issuance coming up for MUST. I thought that there is some similarities to the 2008 and 2009 Global Financial Crisis in terms of plunging property valuation of REITs and possible credit squeeze if the US economy continues to spiral downwards.

Choon Yuan (Investmoolah) put up another insightful thoughts of his regarding the current predicament faced by US REITs of risks arising from (i) higher discount rates and capitalisation rates of properties as well as (ii) high vacancy rates. Before ending this post, I will just put up some food for thoughts-I have extracted and placed here his exact words in the comments section of his post during our interaction at his blog:

"The first risk mentioned will affect all US reits from Digicore, Utdhampshire, PRIME, Keppelpac, Manulife; while the second risk has varying degree, I expect all 5 REITs leverage ratio to increase in 2023 and it depends on who will bust the 50% limit first".