Digital Core REIT IPO allocation outcome

The public tranche of Digital Core REIT (SGX:DCRU) IPO was 16.1x subscribed and as with oversubscribed IPOs in Singapore, the allocation is on a balloting basis. The table below shows the basis of allocation for the Singapore public offer:

Source: Digital Core REIT balloting announcement on 3 Dec 2021

I applied for 10,000 units and was allocated 2,600 units. A quick check showed that the cost for the unallocated portion was already refunded to my bank account on Saturday (4 Dec). I have expected the IPO to be oversubscribed and would not be allocated the full amount of units that I applied for, so I am prepared to top up for a more substantial holding position when the REIT begins trading on the 6 December 2021, 2pm should the price and yield still remain attractive.

What then makes the price attractive?

Currently, there is only one other pure data centre REIT on the SGX which is Keppel DC REIT. Mapletree Industrial Trust and Ascendas REIT also has substantial data centre assets but they are not pure-play data centre REITs per se.

Based on the IPO price of USD0.88 per unit, I have paid a slight premium for a 4.75% distribution yield. However this premium is still comparatively much lower to its peers which are trading at around 1.5x to 2.0x their book values.

I used the Price to Book Value or P/B ratio to determine whether the “price is right” or rather, a reasonable price to enter. The P/B ratio is a simple formula that divides the unit price of the share with its book value. The book value is also known as the net asset value per unit which refers to the net assets attributable to unitholders.

Extracting the net assets attributable to unitholders and number of units as at 30 June 2021 as provided in the IPO prospectus, the P/B ratio of Digital Core REIT at its IPO price is 1.04x.

Source: Digital Core REIT IPO prospectus on 29 Nov 2021

As a quick (but not foolproof) way to interpret this, any figure above 1 represents a premium and below 1 represents a discount. That being said, we cannot look at P/B ratio in isolation as there could be many reasons why a stock is trading at a premium or discount and some companies cannot or should not even be evaluated by this “sum of parts equals the value of the whole” indicator.

At a P/B ratio of 1.04x for Digital Core REIT, it is still quite acceptable for me and I am willing to purchase more and ride on the data centre wave. Though I shall observe for a little bit how the price moves when the REIT commences trading this afternoon. If the price increase it would be a good thing as that implies immediate capital gains for me (albeit a tiny one since the allocation is so small lol). But it also means the distribution yield will be compressed and I am not sure if it will be worth paying more for a lower yield.

Anyway, it should be quite interesting to see what the price stabilises at and I will assess again if it is worth adding more from there!

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