DigiCo Infrastructure REIT (DGT) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the DigiCo Infrastructure REIT FY '26 Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Michael Juniper, DigiCo's CEO. Please go ahead.

Good morning, and thank you for joining DigiCo's First Half Year 2026 Results Call today. I am Michael Juniper, the CEO of DigiCo, and joining me on the call this morning is DigiCo's Chief Financial Officer, Simon Mitchell; and DigiCo's Chief Development Officer, Ralph Goninan. Today's presentation demonstrates that DigiCo has clear operating momentum, disciplined execution, and has made tangible progress in realizing the embedded growth within our data center business. On the agenda today, we'll take you through our results, the execution of our strategic initiatives, and our strong outlook for the business. First of all, an acknowledgment of the country. Before we commence today's presentation, I'd like to acknowledge the traditional custodians of country throughout Australia and celebrate their diverse culture and connections to land, sea, and community. We pay our respects to their elders, past and present, and extend that respect to all Aboriginal and Torres Strait Islander peoples. I started my role as CEO of DigiCo only 2 months ago after spending almost 20 years in the data center industry. Since joining, I have committed myself to evaluating our strategy and to listening to our customers, our partners, our stakeholders, and our internal teams. My message today is very clear. Our business has an incredibly strong underlying platform. And I have no doubt that we'll be able to unlock the embedded value through a disciplined approach to growth and, importantly, close the gap between our market valuation and the net asset value. Our data center asset base is high quality, strategically located, and underpinned by hundreds of customer relationships, providing stable and diversified recurring revenues. Our most compelling and exciting of these opportunities is the highly accretive SD1 development, which I'll talk about shortly. At the same time, I've identified clear opportunities to sharpen our focus and further enhance performance. These include redesigning the organization to lift accountability and deliver cost efficiencies for which we're expecting to achieve $5 million in OpEx savings per annum. We have also strengthened our operating model, making selective operational, technical, and engineering hires to deliver for our customers and to grow exponentially. These new team members not only know the industry and the segment, but they have customer relationships, and they really understand customer demands. We are also taking a disciplined approach to capital management and capital recycling where it creates value, prioritizing deploying capital only where returns are compelling and where we can leverage our existing power infrastructure and development approvals. Our primary capital focus will initially be on SYD1, where we have extremely high confidence that every dollar we spend will contribute to higher returns on tangible assets. Finally, we are building a pathway to long-term growth. We are securing strategic greenfield sites where we have high visibility to the end customer, but also the power, water, and planning approvals so critical now for our business. We will only execute on any greenfield opportunity when we have a very high conviction about the end customer and when we have the right approach to funding to derisk the project. These early actions are about unlocking value, building momentum, and setting a clear path to disciplined and sustainable earnings growth. Moving on to our strategic update. We acknowledge that the share price performance since the IPO has been disappointing, and our Board and management team have been intensely focused on strategic initiatives to close the discount to net asset value. Since our IPO, the fundamentals of our business have continued to strengthen. Having now spent time with the business, it is clear to me that Sydney1 is our most significant growth opportunity. It really is the jewel in the crown. Our expansion pathway is extremely strong and has been validated by inbound demand from AI, cloud, hyperscale customers, and enterprise and government customers, all with demand well in excess of our expectations at the time of our IPO. As a result, existing capacity at Sydney1, including our next 20-megawatt tranche, is now 100% contracted. There is no doubt that the 88-megawatt project represents our most attractive near-term value creation opportunity, and we are confident it will unlock meaningful earnings and NAV growth. The 88-megawatt project at Sydney1 is expected to deliver a 15% yield on cost and at least $1.50 of additional NAV per security. For this reason, under our new strategy, the management team is focusing on growing out that site to 88 megawatts as quickly as possible. We are pleased to announce that the initial tranche of the Sydney1 development is well underway, with 20 megawatts -- with the 20-megawatt expansion on track for delivery in Q2 this calendar year. Importantly, the broader expansion program for the 88-megawatt project is now materially derisked. We have state-significant development approval, and our 120 MVA power approval has been secured. Design is progressing very well, and a head contractor is expected to be appointed by Q3 this calendar year. The full 88 megawatts is expected to be delivered progressively over the next 3 years, which is a full 2 years ahead of the original IPO plan. In relation to funding, we currently have approximately $650 million in cash and undrawn debt lines, providing immediate liquidity to fund a significant part of the Sydney1 development project. In parallel, we are actively progressing capital partnering and recycling initiatives across the Australian portfolio with advisers already appointed and multiple discussions underway. These conversations are focused on introducing long-term partners at the platform level. On the U.S. assets, we will continue to opportunistically look to partner and recycle capital to fund higher-returning projects. Importantly, any capital partnering or recycling will only occur where it develops compelling value for our security holders while preserving a sustainable level of gearing. Turning now to our first half performance. I'd like to take you through a few highlights. In half 1 of financial year 2026, we signed 22 megawatts of new customer contracts in the Australian business, taking total Australian contracted capacity to 41 megawatts, a 95% increase from June 2025. We have sequentially grown revenue by 12% and EBITDA by 15%, demonstrating that our strategy is delivering real operating momentum. Our balance sheet remains resilient with sufficient liquidity and gearing of 35.8%, which is at the low end of our target range. Finally, we have declared a first-half distribution of $0.06 per security, equating to a 5.3% annualized yield on yesterday's closing share price. Building on those observations and actions, I'd like to highlight what the business has already been able to achieve in the first half of the year. First, we have secured meaningful customer wins with 22 megawatts across the Australian business, including 2 megawatts in Queensland. These customers represent a range of sectors covering AI, hyperscale, government, and enterprise. Our total contracted capacity across Australia has increased to 41 megawatts, representing 95% growth from June 2025. Second, our development program continues to move at pace. The accelerated expansion at Sydney1 is tracking well with the next 20 megawatts scheduled for delivery in Q2 of this calendar year. Also, Brisbane2 is now fully contracted with incremental expansion underway to support recent customer wins. Very pleasingly, the design for our Adelaide site has been upsized from 8 megawatts to 15 megawatts. We will, of course, only build out this capacity once we find a cornerstone customer and that customer has been secured. This is a substantial development for our business and a very recent achievement. Chicago1 remains firmly on track for completion by Q2 for this year. These outcomes reflect disciplined execution across the portfolio. As noted earlier, our balance sheet remains very well positioned to deliver on our development pipeline. DigiCo is ready to capture the surge in data center demand. In all of my years working in the data center industry, I've never seen such an overwhelming amount of demand in the market. AI is driving the largest infrastructure build-out we have seen in decades. Customers are demanding larger hyperscale density footprints than ever before and continue to signal more capacity to come. This global surge is translating into local demand for DigiCo, particularly at SYD1, a scarce Tier 1 global carrier hotel in a tightly held market. At SYD1, 100% of existing capacity is contracted, and total Australian contracted capacity has grown to 41 megawatts, which reflects both the velocity and depth of customer requirements. Importantly, we have over 50 megawatts of embedded development upside here, scaling to 88 megawatts, positioning Sydney1 as one of the largest Tier 1 carrier hotels in the world. Further, our qualified demand pipeline now exceeds 200 megawatts, providing us with meaningful selectivity. We are not reliant on any one single outcome or any one single counterparty. Instead, we are deliberately partnering with long-term creditworthy customers where we can deliver high-value solutions at attractive risk-adjusted returns for the business. I'll now hand over to Ralph to take you through Sydney1.

Thanks, Michael, and good morning, everyone. It has been a very busy, but pleasingly also a very productive period for the build-out and expansion of our assets. And I'd like to take you through a few highlights, starting with the SYD1 20-megawatt delivery update on Page 11. As flagged last October, we have upsized the original 9-megawatt project to 20 megawatts to capture incremental customer demand. That decision not only reflects strong underlying demand, but also demonstrates the inherent flexibility of the SB1 facility to deliver high-density capacity at speed. Execution on this project is progressing well. As you can see from the photos, we've installed a tower crane to expedite delivery of critical items. We are nearing completion of the data halls, and we are installing major cooling infrastructure that not only supports the 20-megawatt project, but also forms part of the future 88-megawatt project. We have secured all long lead time equipment, and the project remains firmly on track for delivery in the June quarter of this calendar year. Importantly, this tranche is underwritten at a yield on cost above 15%. This demonstrates our ability to efficiently convert secured power and adapt our existing asset into contracted high-return capacity. Lastly, the work we are doing now not only benefits us in the short term because by developing an established supply chain for the 20-megawatt project, it also provides us with a solid foundation for future construction works at SYD1, and gives us the ability to accelerate further development to meet future customer demand. In summary, the 20-megawatt project is derisked on schedule, tracking to budget, and delivering returns above our target of 15% using our secured power. Turning now to the broader SYD1 88-megawatt development project. This project has been strategically designed to deliver contiguous high-density capacity capable of supporting large-scale 5- to 10-megawatt-plus deployments, which is increasingly aligned with the current hyperscale and AI-driven customer requirements. The full 88-megawatt project integrates both the SYD East and West buildings into one campus to allow greater flexibility to convert secured power into high-value capacity for DigiCo in an efficient and staged manner. The key aspect that allows us to deliver future tranches and megawatts in an efficient and staged manner is due to the fact that the structure is already built and a large portion of the building is empty, which means we do not need to deal with the traditional construction risks and the available space allows us to have a high degree of flexibility to respond to our customer needs. Other highlights for the 88-megawatt project include: for approvals, we have received the state significant development approval in December 2025 for the full 88-megawatt project. For design, the design for the 88-megawatt project is progressing well and nearing completion. And in regards to delivery, early works are underway, and we have commenced an early contractor involvement process to work alongside the design to ensure the project is significantly derisked and able to be delivered in an efficient and cost-effective way. Finally, we are targeting the appointment of a head contractor in the September quarter of 2026. Following commissioning of the initial 20-megawatt tranche in the June quarter of this year, we expect an incremental 20 megawatt of capacity to be delivered in 2027, with the full 88-megawatt project expected to be complete in the financial year of 2029. In conclusion, this project is a structured stage deployment, utilizing secured power, which is underpinned by planning approval, disciplined capital allocation, and strong customer demand. I'll now pass along to Simon, who will provide the financial results overview.

Thank you, Ralph, and good morning to everyone on the call. On Slide 13, we show our results for the 6-month period to 31 December 2025. The Appendix 4D and statutory accounts lodged today also show comparable results for the period 1 November 2024 to 31 December 2024, which only included 14 days of trading. On this slide, we have therefore shown the sequential period being the 6 months to June 2025, which represent a full 6 months of trading and provide a better sequential comparison of trends. Revenue was $108 million, up 11.5%. This growth largely came from the first 2 of 3 phases of the Chicago data center, commencing billing during the period. Operating costs grew by 8% at a lower rate than revenue due to the positive mix shift towards higher-margin U.S. revenue. Underlying EBITDA grew by 15% to $57 million. Today, we have upgraded FY '26 guidance to the top end of the range, being $125 million, which implies a second-half skew due to the phasing in of contract wins in the Australian business. Deducting net interest expense of $25 million and after adjusting for the management fees settled in scrip results in adjusted FFO of $30.5 million. From this, we declared a $0.06 dividend and maintain our full year guidance of $0.12 per security, reflecting 90% to 100% payout of full year FFO. I would now like to explain the accounting treatment for the Chicago asset and the corresponding adjustments we have made for underlying EBITDA and adjusted FFO. The Chicago project is due to be physically handed over to the tenant in stages during the June 2026 quarter. However, under the terms of the lease, the tenant has been making rental payments since July 2025. This pre-completion rental income of $18.5 million is recognized as unearned rental income on the balance sheet for accounting purposes. But for the purposes of this slide, we have included this income in revenue and underlying EBITDA. Similarly, accounting rules dictate that interest on the Chicago debt facility is capitalized to the balance sheet until physical handover. During the half year period, $12.9 million of pre-completion interest payments that related to the rental income has been included in adjusted FFO to better match revenue and financing costs. Moving to Slide 14 and balance sheet. DigiCo ended the period with cash of $349 million and net debt of $1.51 billion. Net assets were $2.49 billion, which equates to a net asset value per share of $4.50, both largely flat over the period. Adjusting for first half CapEx in Australia results in an adjusted NAV of $4.62. Capital expenditure amounted to $50 million during the half. Completion of the Sydney1 20-megawatt project will see higher CapEx in the second half to reach our full year guidance of $160 million to $180 million. The value of investment properties rose by $202 million, reflecting a drawdown on the escrow balance to fund the Chicago development and a fair value increase on Chicago, partly offset by the strengthening U.S. dollar. Turning now to Slide 15, capital position and funding. We ended the period with a strong liquidity position of $658 million, comprising $349 million of cash and $309 million of undrawn debt facilities. Gearing was 35.8% at the lower end of the 35% to 45% range. All interest rate exposure remains hedged to maturity at an effective all-in cost of 6%. The weighted average debt tenor is 3.4 years with no maturities before FY '29. With the ongoing development of Sydney1 and the stabilization of Chicago, we are well placed to refinance our debt facilities at lower cost when market conditions are right. In addition to the $658 million of existing liquidity, we are confident in releasing further capital for funding the 88-megawatt project from the Australian capital partnering process and capital recycling from the U.S. assets. Overall, the balance sheet remains robust, liquid, and positioned to fund near-term capital projects without placing pressure on gearing. I'll now hand back to Michael.

Thank you, Simon. I'd like to briefly provide an update on our Los Angeles project. As many of you know, L.A. is an emerging high-growth Tier 2 data center market in the United States. And importantly, it is also a supply-constrained market. Challenges around land availability and access to power in California have limited new capacity, which is why our site is generating such strong interest from AI, hyperscale, cloud, and enterprise customers. Recently, community focus on energy and water usage for data centers has driven additional engagement and delayed the approval process. In response, we have voluntarily agreed as a business to prepare an environmental impact report to address public concerns to ensure the project moves forward with full transparency and community support. It is important to be clear that our underlying investment thesis remains unchanged for this asset. The land in L.A. is very strategically located and offers a broad range of flexibility for alternative uses. Of course, we will be very disciplined and decisive regarding capital allocation for the project, and we'll keep the market updated in the usual manner. Turning to our outlook and guidance. FY '26 underlying EBITDA is expected to be $125 million, now at the top end of our previous guidance range of $120 million to $125 million despite foreign exchange headwinds. We are also maintaining the July 2026 annualized run rate EBITDA of $180 million. We are maintaining FY '26 growth CapEx at between $160 million to $180 million due to the capacity expansion at Sydney1 [Audio Gap] per security, implying a 5.3% annualized yield, which is in line with our policy of 90% to 100% payout on FFO. Thank you. And I'd now like to hand back to the operator for our Q&A.

[Operator Instructions] Your first question comes from David Pobucky with Macquarie Group.

Just the first question on SYD1. The yield on cost is now 15% versus the 12% target indicated at the IPO. So if you could please just talk to the underlying assumptions there and what's changed?

Yes, thank you for your question. Perhaps I can take this answer. In short, I spoke to the benefits of Sydney1 earlier. So let me start there, and forgive me for any reiteration. But in short, Sydney1 is in such a unique location. There are no data centers like it near Sydney CBD. It's extremely highly connected. It's a very rich ecosystem. We've -- as we mentioned, and I think Ralph mentioned before, we've got our SSDA arranged already. We've got power locked in. We're right to go. We're ready to build. Design is very, very well progressed. And so we think that site demands a premium, and we think that premium is a yield on cost of 15%. And in fact, just to support that a little bit further, we have proof from recent customer wins that we're able to achieve that sort of pricing.

And the second question is on capital partnering. The group previously noted that it could release between $0.5 billion to $1 billion in equity proceeds. You didn't include that statement today. So just wondering if anything has changed? And kind of second to that, what pricing do you think you can achieve on SYD1 based on your conversations to date?

David, it's Simon. I might take that one. So nothing has changed in our expectation on the Australian capital partnering process. We have very strong conversations underway. We're very focused on finding the right long-term partner for the Australian business and the Sydney1 asset. As Mike just highlighted, we see that asset is very premium in this market and able to demand a premium return. Obviously, we are still working through some of the final design work on the 88-megawatt project, which Ralph just spoke to, and any potential partner coming in is going to want to have some visibility on the final costings and the final sequencing of that project. So we remain confident that we can achieve an outcome on capital partnering on the asset, and we see no reason to expect that to be at a discount to what the asset is carried out in the books and what we pay for it.

If I could just sneak one in, one more in. Building IT capacity was 51 megawatts across the portfolio. What do you expect that to be by June?

I think we've said that contracted IT capacity is 41 megawatts across the Australian business. And the guidance that we've given, the run rate guidance of $180 million for EBITDA, is based on that 41 megawatts being built from July onwards. Does that answer your question?

It does.

Your next question comes from Richard Jones with JPMorgan.

Can you just remind us what's the total cost expected on the full build-out of Sydney1?

Richard, it's Simon. So there's no change to our expectation on cost for that project. We previously guided the market to $15 million per megawatt, so that includes the 20-megawatt project that we've talked about today. So I guess if you apply that to the full 62 megawatts of incremental capacity that's coming on through the whole project, you get a number of somewhere around $930 million.

And just from a, I guess, portfolio composition perspective, can you kind of discuss the options around capital partnering? Because to me, the 15% return on Sydney1, you'd be better kind of trying to keep that in-house and potentially looking to sell the stabilized U.S. assets, where there isn't, I would imagine a lot of value uplift to come in those assets. So just interested in your strategic thinking around partnering and I guess, keeping development upside within the trust.

Thanks for your question. I'll start answering, and Simon, please jump in. Firstly, we're always looking at remixing the asset. We've talked to you today about our focus on Sydney1, but we will always look at capital partnering opportunities, whether it be in Australia or the U.S., to ensure that we're delivering the most value for our shareholders. So you may well be right. We may well look at the divestiture of certain assets in the U.S. to fund high-yielding opportunities in Australia, but that may not be necessary at this point. As we spoke to before, we've got a very strong balance sheet, including cash and undrawn facilities announced. And so we're not here to tell you that we're about to go down that path, but we're certainly always looking at those sort of opportunities.

Your next question comes from Tim Plumbe with UBS.

Just one further clarification in terms of that 15% return, if possible. Are you guys including the $5 million of cost saves within that calculation, i.e., do we think about that as sitting within SYD1? Or is that sitting outside of SYD1 in corporate?

Tim, it's Simon. We're not really explicitly factoring that $5 million of cost savings into the 15%. We kind of consider that to be at the group level. And the 15% is designed to be the pure incremental yield on cost on the project.

And sorry, just so that I'm perfectly clear, the 15% is on the additional $15 million per megawatt? Or do we put the overall purchase price plus the additional CapEx, and you get a 15% return on the total number?

No, the 15% applies to the incremental CapEx that we're spending.

Your next question comes from Roger Samuel with Jefferies.

I've got a couple of questions. First one, so just on the 88-megawatt expansion, you are bringing forward the time frame. Is that predicated on securing a capital partner in the short term? And if you can't secure anyone, does it mean that you may face the project, so it is going to take a bit longer than FY '21 completion? Just conscious of your gearing targets.

Roger, thanks for the question. So the best way to look at that is that the 88-megawatt project is very modular. So as Ralph has described, there's a number of stages that we see coming online over a 3-year period, so we're not in a situation where we have to have absolute certainty on all funding necessarily in the near term to activate that project. And we remain focused on achieving the best long-term outcome on capital partnering on that asset. Just to remind you, obviously, that we do have the $650 million of available liquidity now, which is cash and debt. So we don't see any near-term issues with continuing with the project.

And in terms of Brisbane, what would trigger your decision to expand Brisbane floor?

Look, we're always -- thanks for the question. We're always looking at opportunities to expand in our key markets. As I've explained today, our focus is going to be on Sydney1, but also we obviously have assets throughout Queensland and Adelaide. I spoke to you, and we're quite excited about the growth in Adelaide and the fact that the team has been able to redesign Adelaide from 8 to 15 megawatts. But just to answer your question, we would certainly increase capacity in Brisbane if we found the right cornerstone customer. It would have to be the right customer and the right terms for us, and obviously offering the right yield, but certainly, we'd be open to that sort of expansion.

Your next question comes from Liam Schofield with Morgans.

Can you just touch on the time frame around utility connections? I think, Michael, you previously said if you had all the power available today, you could sell it. Can you just talk about the timing for connection there on the power? And then just on EBITDA, can you just talk about any remixing effects during the half? I think the team had previously said, you were reallocating tenants across the floor plate that could have an impact. Just those 2 items, please.

Thanks for your question, Liam. It's Ralph here. Perhaps I could answer the first part of your question. We have secured the full power allocation for 120 MVA from Ausgrid. We have all the feeders, which are the power leads that go from the substation to the data center, already in place. There are some minor works we need to do to upgrade to ensure that we can get that full allocation. But we have that design. It's out for tender, and we'll complete those works this year.

That's great. And just on remixing effects in the EBITDA for the half.

Yes, I can take that question, Liam. So when we announced the 20-megawatt project, we did talk about -- you're right, we did talk about a targeted remixing in Sydney1 in the customer base. That remixing has had somewhat of a negative impact in the first half that we just reported. And as you can determine from the guidance we've given, the $125 million, there is a second-half skew that comes through in that guidance, and that is the unwinding of that negative impact and the commencement of those -- the 22 megawatts that we've talked about as being leased during the period.

Your next question comes from [ Ben Brayshaw ] with Barrenjoey.

I just had a quick question on the budgeted or forecast yield on cost of 15% for SYD1. I was wondering if you could comment on what EBITDA margin you might be assuming in those underwriting assumptions, noting that SYD1 at the time of IPO was in the order of 60%. So perhaps that's just a reference point. If you could provide some color on that, that would be appreciated.

Ben, it's Simon. Look, I don't think we want to be getting going into that level of detail. I think we've been pretty prescriptive there around the overall yield on cost that we expect and the overall cost per megawatt to build it out. Obviously, you would expect that your marginal margin on incremental capacity is materially higher than the average that applies across the current asset, but we won't be going into detail on what that number is.

No problems. And just in relation to rents achieved on SYD1 on the leasing to date, have they been in line with the rents that you would expect to the overall project? Just wondering if you could comment on how those rents have come through on the leasing.

Thanks for the question. It's a bit of a short answer. But yes, the rent that we've been receiving from customers, and there's a number of them, have been either in line or above what we've talked about today.

Your next question comes from [ David Guarino ] with Green Street.

In some ways, it feels like you guys have become a victim of your own successes and now you're left with little to no capacity to the lease. But given you can bring some of that Sydney1 capacity online in '27, I'm wondering how far in advance do you think hyperscalers and cloud providers would be willing to sign a lease ahead of delivery?

Thanks for the question. It's a really good one. I've seen over the past 15 years, this change quite fundamentally. It used to be that customers, particularly the hyperscalers, would want to sign 6, 9, 12 months before. We're seeing that stretch out to longer periods, 12, 18 months, and sometimes more, and that's because of the constraints around demand. Having said that, it changes by geography and the exact location within the geography, so Western City versus CBD, for example. But that gives you a rough idea about how we think about timing and presecuring leases.

That's really encouraging. And then maybe one follow-up for Simon. You mentioned the refinancing opportunity on the Chicago asset once it reaches stabilization. But given, let's call it, let's just say, a more reserve sentiment around the tenant in that facility in recent months, could you maybe talk about where you think debt costs would land as we think about modeling in that, maybe in the next year or so?

Yes, sure. So obviously, we can't talk about who our tenants are in those assets in the U.S. We have said that the Chicago tenant is a global hyperscaler customer, and all our tenants are investment grade in the U.S. So I won't comment specifically on any credit spreads or credit rating of that particular tenant. But what I would say is that we are in a very strong position to refinance that at the right time to bring the margin down. Obviously, treasury rates are falling as well in the U.S. We're just waiting for the right time to do that.

Your next question comes from Paul Mason with Evans & Partners.

Just a couple from me. First one, with the big deal that you guys signed in SYD1, I mean, there was a few rumors going around that it was like a Neocloud, but I've sort of subsequently heard it's probably a higher credit quality counterparty. I was just wondering if you could make like a basic comment like it's one of the investment-grade big customers out there? Or is it actually like a Neocloud that's not one of the sort of rated entities that you might engage with?

Thanks, Paul, for your question, and I can't blame you for pressing on it. We've been asked this question a number of times over the past few months. And unfortunately, we just can't answer it. The confidentiality of our customers is paramount to us, and we need to look after who they are. So we're just not able to comment, and I can't give you any guidance, unfortunately.

Maybe more like -- just obviously, L.A. has got a bit of a delay. And if I look at your pedigree, you've had an amazing run building a really, really successful business with a few people in Australia. I mean, have you given much thought to maybe reconcentrating efforts down here instead of trying to build a North American business, given your track record in Asia Pacific? Or are you still like precommitted to like building out a really big North American business?

I'm not precommitted to anything. I think what we've been clear on today is that we feel the right place to allocate our resources today, at the moment, with our team is Australia, and particularly in Sydney. I've grown businesses, as you know, and as you referred to in Australia and Singapore, Hong Kong, Japan, and in Malaysia. I'm always looking at opportunities in different markets. But at the moment, we need to be focused and disciplined. And at the moment, our focus is to double down and consolidate in Australia.

And just a really quick one for Simon. Just on the accounting around Chicago1, does that all just convert to revenue and interest costs as soon as that site goes live, so we can just presume that, that all goes through the P&L in the second half? Or is there like more nuanced accounting to how we should like run that through our models?

Yes, you're right. So when physical handover occurs to the tenant from that date forward, it will be accounted for in a normal way, as you would expect. So rent will be revenue, and interest costs won't be capitalized. But that will be occurring, as we mentioned, towards the end of the June quarter. So you should expect the same normalization adjustments to occur in the second half.

Your next question comes from [ Mun Rasakam ] from CLSA.

It's actually James Druce from CLSA. Just one question on -- and I'm sorry if you've answered this before. For your expansion for SYD1, are you -- what rack density are you designing to? And can you just share the cooling system you'll be using?

Yes. Thanks for your question, James. It's Ralph here. It really depends on the customer. We are seeing a trend for AI customers increasing their rack density. As Michael mentioned, we have a range of customers at SYD1. So the density just depends on the type of customer, but we are seeing them increasing.

Maybe you could share what density you'll be designing up to. Obviously, there's different cooling systems that you'll need to install for that and limits given the envelope of the building.

Yes. Thanks, James. Yes, the Sydney1 facility has a lot of flexibility built into it. We have the ability to design and deliver both air-cooled and liquid-cooled solutions. A big part of our offering is ensuring we address the customer needs. We have the capacity to do that in SYD1 because we have the low capacity in the structure, and we have the ceiling-to-floor head height clearance to be able to meet those specifications.

That is all the time we have for questions today. I'll now hand back to Michael Juniper for closing remarks.

Thank you very much, and I'd like to thank everyone for their questions and the team here for the work that's gone into the presentation. A final remark for me. The first half of the year has been very positive for the DigiCo business, and the rest of the year is about being disciplined in our execution, converting demand into contracted capacity, delivering to our milestones, and maintaining our balance sheet strength as we position DigiCo for the next phase of growth. I'm personally very proud of what the team is achieving, and we have a lot to look forward to. We've achieved operational efficiency measures, delivering around $5 million in OpEx savings per annum. We've pivoted to a strong focus on Sydney growth as we've spoken about today. We have 88 megawatts of capacity, where we believe we can achieve 15% yield on cost, which I think everyone can see is a very impressive number, and at least $1.50 of additional NAV per security. We are very focused, as you can see and hear from us today, on prudent capital partnering and recycling where necessary to fund accretive projects. And our amazing new design team has upsized Adelaide from an 8-megawatt site to a 15-megawatt site, which will fit out, subject to customer demand. So look, I'm very excited about the business, and I think we've got a very exciting time ahead. So thank you for all your time.