DigiCo Deals Diminish Doubts

Small Caps | Oct 15 2025

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This story features DIGICO INFRASTRUCTURE REIT, and other companies.
For more info SHARE ANALYSIS: DGT
The company is included in ASX200, ASX300 and ALL-ORDS

Shares in DigiCo Infrastructure REIT have been re-invigorated following new contract wins and updated FY26 guidance by management.

• New contract wins for DigiCo Infrastructure REIT
• Inaugural FY26 guidance boosts market confidence
• Shares still trading at relative discounts to valuation and industry peers
• Debt levels high by infrastructure standards, highlights Ord Minnett

By Mark Woodruff

Data centres are currently the most attractive commercial property subset

After a challenging period since the December IPO last year, data centre real estate investment trust DigiCo Infrastructure REIT ((DGT)) has secured multiple new contracts, increasing its contracted Australian capacity well above the FY25 exit run-rate, and significantly ahead of the previous FY26 target.

While most analysts remain upbeat, some still harbour concerns around balance sheet risk, perhaps best reflected in heightened market short positioning in the company’s shares.

Capitalising on soaring demand for exposure to data centre assets, DigiCo stock was issued at $5.00 in the biggest float of 2024 but proceeded to fall to a low of $2.28 in April this year. Shares closed yesterday at $2.95, materially above trading levels prior to the good news. The REIT’s market capitalisation is $1.67bn.

Previously the market was hesitant around the timing of new contract commencements, renewals, and the remixing of existing capacity, Macquarie explains. The announcement removes this uncertainty and provided management with confidence to issue inaugural FY26 earnings guidance.

For FY25 results in August, DigiCo’s revenue came in 9% above consensus and earnings 3% above, though shares slid when management failed to provide specific earnings guidance. 

Bolstering the REIT’s appeal to government and defence clients, just prior to FY25 results the Sydney SYD1 data centre was granted “Certified Strategic” status in August, recognising it at the highest tier of secure hosting facilities. This status is the highest level of assurance under the Australian Government Hosting Certification Framework.

In Morgans’ view, the latest contract wins strongly validate DigiCo’s strategy to reposition SYD1 and demonstrate management’s capability to successfully lease the expanded high-density capacity.

While UBS acknowledges several positives, this broker also notes the REIT’s projected FY27 earnings remain broadly aligned with consensus, suggesting only modest upgrade potential despite materially higher activated capacity of 85MW versus the consensus average of 68MW (excluding LAX).

LAX refers to its Los Angeles data-centre sites. LAX1 in California is in advanced stages of obtaining approvals and is expected to begin construction in 2025 (completion by 2028), while LAX2 is planned in Monterey Park, near Los Angeles, with development approval processes expected to start in 2025.

The analysts suggest just achieving consensus may indicate either existing capacity has been recontracted at significantly lower rates, new contracts are delivering reduced earnings per megawatt and lower returns on development costs, or more likely, a combination of both.

Details of contract wins and new guidance

DigiCo secured 14MW of new customer contracts across its Australian data centres, mainly at the SYD1 flagship asset with additional deals in Brisbane and the upcoming Adelaide site.

The wins occurred across hyperscale, neocloud, enterprise and government contracts at SYD1, Adelaide and Brisbane, raising DigiCo’s projected contracted IT load to 41MW by June 2026, up from the 27MW run-rate target provided just two months earlier.

Previously, the FY25 exit run-rate and the FY26 exit target were respectively 21MW and 27MW.

DigiCo has now raised its planned installed capacity at SYD1 for FY26 to 13MW from 9MW previously. This Ultimo data centre is now effectively fully committed, observes Ord Minnett, based on expected billing capacity as of 30 June 2026.

To accommodate this demand, DigiCo fast-tracked expansion plans at SYD1, leveraging its large 120 megavolt amperes (MVA) power capacity; the ongoing 9MW build-out was “reshaped and materially expanded” to deliver additional high-density capacity by mid-2026.

MVA is essentially the total electrical capacity available to a facility like a data centre. Given power is the core constraint for data centre growth, the more MVA available, the more IT load (computing equipment) the facility can host.

By leveraging this capacity, DigiCo can expand incrementally. The current 9MW expansion project uses only a fraction of its total 120MVA allocation, leaving room for significant future buildouts without needing new grid connections.

New guidance

On the back of these contract wins, DigiCo issued inaugural FY26 guidance, forecasting underlying earnings (EBITDA) of $120-125m, still -14% below the consensus estimate and – 21% below Morgans’ forecast. The difference is largely attributed to remixing of existing and new tenants, explains the broker.

Management is now forecasting group contracted IT capacity to increase 30% to 85MW, delivering annualised group earnings of at least $180m (run-rate).

For context, Morgans explains management was targeting proforma EBITDA of $163m on 67MW of contracted capacity ($2.4m/MW) in December last year. The latest announcement sees that increase to greater than or equal to $180m on 85MW of contracted capacity ($2.1m/MW).

FY26 capex guidance is in the range of -$160-180m, funded from existing cash and debt facilities, compared to prior guidance of between -$100-120m.

Bell Potter explains Australian platform capacity growth is being driven by the accelerated expansion of SYD1, which will deliver additional capacity by mid-2026, with preparations already underway to bring forward further capacity additions in FY27.

The new contracts are scheduled to commence revenue in the second half of FY26, which would lift the group’s billed capacity to at least 85MW by July 2026 and drive an annualised EBITDA run-rate of circa $180m beyond that point.

More on the DigiCo business and shareholder returns

HMC Capital ((HMC)), which holds a 19.7% stake, formally launched DigiCo Infrastructure REIT in November 2024, establishing an initial $4.3bn portfolio of data centre assets spanning Australia and the US.

Around 40%-50% of DigiCo’s portfolio is spread across three data centres generating revenue with average contracted rental increases of 3%, in combination with 15-year leases.

Morgans likes the blend of stabilised, mature assets such as DigiCo’s Chicago hyperscale data centre asset CHI1, along with more value-add (SYD1 and iseek) and development properties, noting the data centre sub-sector is one of the most attractive amongst the wider commercial real estate industry.

iseek is an Australian co-location data centre operating platform which DigiCo acquired via HMC Capital. At acquisition, iseek had seven operating facilities across Queensland, South Australia, and New South Wales.

DigiCo aims to pay out 90-100% of its funds from operations as distributions. For FY26, management has guided to a 12 cents per security distribution, balancing investor income with reinvestment for growth.

While distributions are expected to decline relative to the prior period, this is likely to be largely offset by the stronger forward outlook, suggests Morgans.

Gearing

Ord Minnett notes DigiCo’s debt levels are elevated by infrastructure standards, with gearing the highest in the REIT sector, contributing to market concerns around a potential capital raise.

As per FNArena’s weekly Short Report https://fnarena.com/index.php/2025/10/09/the-short-report-09-oct-2025/ short interest for DigiCo stands at around 7.9%, which may have contributed to the share price bounce following the contract announcement as shorters bought back shares.

Elevated borrowing could be addressed through the partial sell-down of equity stakes in key assets, suggests Ord Minnett.

Based on this analyst’s FY26 forecast net debt to underlying operating earnings (ND/EBITDA) multiple of 12.7x, selling -50% interests in both SYD1 and the US portfolio would reduce the ratio to around 6.7x.

Management continues to engage with potential capital partners and has stated it is “well placed to advance these discussions” as it relates to SYD1.

Outlook

Despite the above-mentioned gearing concerns, Ord Minnett maintains a positive investment view on DigiCo and expects both net asset value (NAV) and funds from operations (FFO) to deliver low double-digit growth over the coming years.

Macquarie sees further upside, noting the stock continues to trade at a -20% discount to net tangible assets (NTA) and around -13% below peers on a comparable enterprise value (EV)/EBITDA multiple.

Of the five daily covered brokers in the FNArena database, four have Buy (or equivalent) ratings and Bell Potter sits on Hold.

The average target price eased by -10 cents to $4.09 following the contract wins, implying 41% upside to the $2.91 share price at the close of trade on October 14.

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