Is Digital Core REIT A Good Buy In 2026? [Fundamental Analysis]

Daniel Lee
12 minutes ago
2 min read

In this article, we'll conduct a fundamental analysis and review of Digital Core REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Business Description

Digital Core REIT is an industrial REIT that was listed in 2021 and owns data centers mainly located in the Western Hemisphere.

What I Like About Digital Core:

85% of their rental revenue is structured on pass-through agreements, with customers responsible for energy costs, and they own the freehold to 100% of our assets.
Most lease agreements generally contain annual contractual rent rate escalations ranging from 1% - 3%.

What I Do Not Like About

Potential conflict of interest arising from REIT’s sponsor – Digital Realty – which is one of the 10 largest US-listed REITs, as the sponsor may use Digital Core REIT as a capital recycling avenue.
The portfolio is "Tier 1 generic”, not next-gen AI infrastructure. Most assets were built between 1976 – 2007 and retrofitted. IT loads are in single-digit MW per facility. Modern. They serve the established hyperscaler cloud workload, not the speculative AI training/inference build-out (which requires 100MW+).

Updates From Recent Performance (FY 2025)

General Comments:

Top line performances were strong with revenue (+70.2%) and net property income (+43.5%) growing at the back of contributions from acquisitions. This was offset by the 6 months of downtime at the Linton Hall in Northern Virginia, which is taken and will commence on 1 December 2026.
DPU from operations fell by 10.42% at the back of higher management fees and finance costs due to higher AUM. Reported DPU remained flat due to higher management fees paid in units.
While the cost of borrowing decreased by 0.4%, the total finance cost increased by 17% as the total borrowing increased by 21.70% for the acquisitions of Digital Osaka 3 and Asset enhancements.

Positive Headwinds:

Income contribution from Linton Hall will contribute to DPU growth in FY2027 (3-4% uplift from FY2025 DPU)

Negative Headwinds:

11 months of downtime from Linton Hall will result in negative pressure in FY2026 DPU (versus 6 months of downtime in FY2025)

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