DigiCo Infrastructure REIT

The Business

DigiCo runs Australia's largest single data centre campus, SYD1 in Sydney, which will hold 88 megawatts of power capacity once fully built and already accounts for 86% of FY26 revenue. The remaining book is a shrinking pair of US assets (KCM1, DAL1) being sold alongside two other US properties. The trust is externally managed by HMC Capital, which runs the asset and property functions for a fee tied to the value of assets under management, an arrangement common among newly listed REITs but one that creates a direct conflict between fee growth and securityholder returns.

Recent Performance

DGT listed at $5.00 and now trades at $2.55, a 49% decline that reflects both a difficult period for REIT valuations and company-specific setbacks, including underperformance of its US assets and three CEO-level changes inside two years. FY26 revenue of $239 million produced EBITDA of $127 million, a 53% margin, broadly in line with the operating platform's design economics even as the corporate narrative around the stock deteriorated.

Outlook

Revenue is set to dip in FY27 as the US asset sale removes a meaningful chunk of the current top line, a transient decline tied to portfolio simplification rather than demand weakness. From FY28, the Australian platform is expected to drive a recovery as SYD1 capacity is progressively leased, with earnings growth resuming over the following two years. EBITDA margin is expected to hold in the mid-50% range through the ramp before easing slightly as external management fees scale with the growing asset base.

Key Risks

A moderation in AI-driven hyperscaler demand would leave part of the 52-megawatt expansion vacant against a fixed cost base, since letters of intent have only two years of AI-driven demand history behind them to validate leasing assumptions. A construction delay beyond six months on any of the remaining five tranches would push back the earnings ramp and the associated distribution growth, a real risk given construction cost inflation running near 15% year-on-year across the sector even though the first tranche was delivered on time and on budget. Rising long-term rates, with the Australian 10-year yield already near a 15-year high, would raise refinancing costs and weigh on the capitalisation rate used to value the completed portfolio, though the existing facility is fully hedged and does not mature until December 2028.

What to Watch

The thesis-defining event is the conversion of signed leasing letters of intent into binding contracts, expected through FY27, which will confirm whether the Australian platform's stabilised earnings path is achievable. Two nearer-term catalysts matter more for the current price: completion of the US asset sale, and delivery of the first 10-megawatt SYD1 tranche.

• H1 FY27 (Feb 2027) CHI1/LAX US asset sale completion — removes remaining US drag and funds the Australian development program.
• Q2 FY27 (Mar 2027) SYD1 10MW delivery milestone — a second on-time, on-budget tranche would extend management's only clean execution track record.
• FY27 (Aug 2027) LOI-to-contract conversion announcements — the single biggest swing factor for stabilised earnings.

Company Description

DigiCo Infrastructure REIT is an ASX-listed trust holding data centre real estate, externally managed by HMC Capital. The core asset is SYD1, a Sydney campus being built out to 88 megawatts of power capacity, which generated $206 million of the group's $239 million FY26 revenue. The balance comes from four US data centres (KCM1, DAL1, CHI1, LAX), two of which are being sold to fund the Australian build. Revenue is earned through colocation and rack space, network interconnection fees, and power resale, mostly under long-term contracts with CPI-linked escalation to hyperscale cloud providers, sovereign and enterprise customers.

Where the Growth Is

The SYD1 expansion is the entire growth story. Deployed capacity rises from 36 megawatts today to 88 megawatts by FY29, lifting the Australian platform's revenue materially over that period. That ramp is expected to more than double funds from operations per security (a REIT cash earnings measure similar to EPS) over three years as capacity comes online and leases convert.

Competitive Position

DGT's advantage is physical, not commercial: a secured 88-megawatt grid connection at SYD1 in a Sydney market where vacancy sits below 3% and new entrants face two to three years to secure equivalent power allocation. That scarcity should hold for five to seven years before larger, better-capitalised competitors such as NEXTDC and AirTrunk secure comparable grid capacity elsewhere in the city. The advantage is narrow rather than wide: it rests on one campus rather than a network, and it does not extend to DGT's US assets, which face open competition and are being sold. Contracted revenue with CPI escalation and long-dated leases to Fortune 500 and sovereign tenants provides earnings visibility, but the moat itself is a function of the site, not of DGT's operating capability.

Management & Capital Discipline

Management is recycling underperforming US assets into a fully-funded Australian development program, a decision that will cut pro-forma net debt to EBITDA from 12.9 times to roughly 3.7 times once the sale settles. The clearest delivery evidence to date is the first 20-megawatt SYD1 tranche, completed on time and on budget. Set against that is a leadership record that most analysts would gloss over: this is the third CEO-level change in under two years, and the external management structure means the people running the assets are HMC Capital employees rather than DGT's own, with fees tied to the size of the asset base rather than to returns delivered to securityholders.

Financial Position

Gearing falls sharply once the US sale settles, from 12.9 times net debt to EBITDA down to roughly 3.7 times, with existing debt fully hedged against rate rises. The remaining Australian facility matures in December 2028, leaving a window before refinancing risk becomes pressing. Liquidity is expected to be ample following the asset sale, sufficient to fund the remaining SYD1 build without further equity raising under the base case. The balance sheet can comfortably absorb a moderate downturn, though a sustained rate spike or a stalled asset sale would tighten the position.