DigiCo Infrastructure REIT receives Hold rating from Jefferies

Jefferies initiated coverage on DigiCo Infrastructure REIT (ASX:DGT) with a Hold rating and a AUD3.70 price target. While acknowledging DigiCo's stable income from fully leased U.S. assets, the firm highlighted concerns regarding potentially slow leasing at its Sydney facility (SYD1) and 'very high' gearing, concluding that the current valuation is not compelling enough given these operational and financial risks.

Analysis

Jefferies has initiated coverage on DigiCo Infrastructure REIT (DGT) with a Hold rating and an AUD3.70 price target, presenting a balanced but cautious outlook. The firm acknowledges a stable foundation for the REIT, noting its U.S. assets are fully leased to blue-chip customers, which ensures a steady income stream with built-in rent escalations to fund further development. However, this stability is offset by significant risks. Operationally, Jefferies flags potential headwinds at the Sydney facility (SYD1), where leasing activities may progress more slowly than management anticipates. Financially, the report highlights a key vulnerability with the REIT's 'very high' gearing, a notable concern for its balance sheet health. Jefferies concludes that DGT's current valuation is not compelling enough to compensate investors for these specific operational and financial risks, justifying the neutral stance.

Key Decisions for Investors

• Given the Hold rating, investors should weigh the stable income from U.S. assets against the significant risks of high gearing and potential leasing delays at the SYD1 facility.
• Investors should closely monitor future quarterly reports for updates on leasing velocity in Sydney and any strategic initiatives from management to address the company's high leverage.
• As the current valuation is deemed not compelling enough given the risk profile, potential investors may consider waiting for a more attractive entry point or for tangible evidence that the highlighted risks are abating.