Top Stock Market Highlights of the Week: Digital Core REIT, Apple’s Vision Pro and Manulife US REIT

Welcome to this week’s edition of top stock market highlights.

Digital Core REIT (SGX: DCRU)

Singapore data centre REITs have been rocked by unpleasant news from the US.

Two years after launching an IPO and going public, Cyxtera Technologies (NASDAQ CYXT) has filed for bankruptcy protection.

Cyxtera is a data centre operator which runs more than 60 data centres and provides co-location services to its clients.

The bankruptcy filing has implications for three data centre REITs listed here as Cyxtera is a tenant in all three of them.

The REIT with the largest exposure is Digital Core REIT (SGX: DCRU).

Cyxtera is the REIT’s second-largest customer representing around 22.4% of annualised revenue.

The data centre owner currently occupies five data centres in the US and 4% of another data centre in Frankfurt, Germany.

This tenant has been current on all its rental obligations up till May but has yet to pay rent for this month.

Digital Core REIT estimates that if 100% of the rental became absent, its distribution per unit (DPU) will fall by approximately US$0.02.

Based on the REIT’s 2023’s first quarter (1Q 2023) distributable income of US$10.9 million, the DPU for the quarter is around US$0.0096.

The annualised DPU comes in at US$0.0384 and a US$0.02 decline will represent a nearly 52% plunge.

Digital Core REIT will also see its net asset value fall by around 6% with aggregate leverage rising from 34.4% to 36.5%.

The REIT manager has confirmed that market rents are above what the tenant has been paying and that vacancy rates are low, implying that the space can be backfilled should the tenant vacate the premises.

For Mapletree Industrial Trust (SGX: ME8U), or MIT, Cyxtera’s bankruptcy had a more limited impact.

This tenant took up just 3.2% of gross rental income (GRI) and was MIT’s third-largest tenant as of 31 March 2023.

When MIT completes its acquisition of a Japanese data centre, Cyxtera will become its fourth-largest tenant taking up 3% of GRI.

Keppel DC REIT (SGX: AJBU) also has Cyxtera as a tenant at a data centre in London which accounts for less than 2% of the REIT’s assets under management.

However, the REIT’s spokesperson has confirmed that there will be no DPU impact from this bankruptcy event.

Apple (NASDAQ: AAPL)

The buzz this week has surrounded Apple’s latest product launch, which the smartphone company described as its “first major hardware launch in nearly a decade” after the Apple Watch.

Apple ended up unveiling Vision Pro, its augmented reality headset, at the Worldwide Developers Conference in California.

Source: Apple’s website

The Cupertino-based company also debuted a new operating system called visionOS along with a slew of apps that work in tandem with Vision Pro at launch.

Apple took a bunch of people through the new product’s demo and most have been blown away by the product’s technical specifications.

It boasts an impressive display with more pixels than a 4k television to each eye, with cameras and microchips monitoring where each eye is looking.

These cameras give Vision Pro the ability to allow users to interact with graphical elements just by looking at them.

The headset can also receive gesture and voice commands and users can enjoy a type of 360-degree sound called spatial audio.

Vision Pro will cost an eye-watering US$3,499 when it is launched in the US next year, around six times more than the £499 Quest 3 headset released by Meta Platforms (NASDAQ: META).

It remains to be seen if Apple’s newest product can become the gold standard in a notoriously-tough head-mounted device market.

But knowing how the company has wowed us with cool products such as the iPhone, iPad and Apple Watch, expectations are high for the product to do well when it finally launches to the public in 2024.

Manulife US REIT (SGX: BTOU)

The REITs mentioned above are not the only ones facing tenant woes.

Manulife US REIT, or MUST, recently announced that its tenant, The Children’s Place, has terminated its lease early at 500 Plaza Drive in New Jersey and will vacate the 197,949 square feet of space it currently occupies by 31 May 2024.

This tenant has exercised its one-time early termination option and is, therefore, obliged to pay rent up till 31 May next year along with a termination fee of US$4 million.

The Children’s Place is MUST’s fifth-largest tenant and contributes 3.3% of GRI.

The REIT manager is looking to secure new leases to fill up the space left behind by this tenant, and the good news is that the tenant’s rental rate is around 21% below market rents.

These numbers imply that there could be some rental income upside for this space should the manager secure a new tenant at market rates.

At the moment, MUST estimates that DPU for 2022 will decline by around 7% from US$0.0497 to US$0.0462.

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Disclosure: Royston Yang owns shares of Keppel DC REIT, Mapletree Industrial Trust, Digital Core REIT, Meta Platforms and Apple.

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