Deep Dive: StratCap Digital Infrastructure REIT’s 2024 10-K Analysis

In this comprehensive review, we unpack StratCap Digital Infrastructure REIT, Inc. (“DIR” or the “Company”) and its Form 10-K for the fiscal year ended December 31, 2024. Our goal is to highlight the most important elements of the filing, assess performance, outline key risks, and deliver an actionable investment score.

Warren.AI 💰 4.5 / 10

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1. Business Overview (Item 1)

Corporate Purpose: DIR is a perpetual‐life, non-traded REIT formed in April 2021 in Maryland. Its core mission is to acquire, establish, manage and lease digital infrastructure assets, with a primary focus on:

• Data centers (edge, colocation, telecom hubs) • Cell towers • Wireless easements and lease assignments • Fiber networks (including small cells and DAS)

Structure & Management:

• DIR conducts operations through SWIF II Operating Partnership, L.P. (“Operating Partnership”), of which DIR is the sole general partner. • External management by StratCap Digital Infrastructure Advisors II, LLC (the “Advisor”), an affiliate of StratCap Investment Management (“Sponsor”). • Advisor earns a management fee (0.75% of NAV) plus a 12.5% performance participation interest based on total return metrics. • Dealer‐manager: StratCap Securities, LLC, an affiliate of Advisor, distributes shares in DIR’s offerings.

Capital Formation:

• July 2021–February 2025: Private offerings of Class A, AX, D, DX, I and IX shares and OP Units (Class P & PX). • February 14, 2025: SEC declared effective DIR’s Form S-11 for the Public Offering of up to $500M in primary shares + $75M distribution reinvestment plan (DRP). As of filing, $2.97M gross raised (9,443 Class T + 280,552 Class I shares).

Portfolio Composition (December 31, 2024):

• Wholly owned: 39 towers, 61 tenant leases & 2 data centers. • Joint venture (51% stake): 139 towers, 199 tenant leases & 2 rooftop easements. • Total NAV: $123.8M, diversified across cell towers (56%), data centers (30%), cash & receivables (14%).

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2. Financial Performance (Items 7 & 8)

Revenue

For the year ended December 31, 2024 vs. 2023:

• Total Rental Revenue: $4.04M vs. $2.63M (+54%) – Cell towers: $1.39M vs. $0.62M (new acquisitions drove 27 towers by year-end vs. 18) – Data centers: $2.65M vs. $2.01M (two data centers owned all year vs. nine months in 2023)

Expenses

• Property operating: $0.66M vs. $0.34M (+92%), reflecting new ground-lease rent, utilities & taxes. • General & administrative: $3.75M vs. $4.23M (−11%), lower affiliate‐reimbursed compensation & admin costs. • Asset management fee: $1.48M vs. $0.77M (+93%), tied to NAV growth from acquisitions and capital raises. • Depreciation & amortization: $3.64M vs. $2.18M (+67%), driven by property assets + tenant intangibles. • Interest expense: $1.77M vs. $1.12M (+58%), higher outstanding debt (+ $12.7M new borrowings) and rate increases. • Performance participation: $0.95M vs. $1.19M, reflects 12.5% share of total return on NAV after 5% preferred return.

Net Results & Cash Flow

• Net loss attributable to stockholders: $(9.71)M in 2024 vs. $(6.13)M in 2023. • FFO(1) (after adjustments for non-cash items): $(5.86)M vs. $(3.17)M. • Cash from operations: $(4.20)M vs. $(4.61)M, funded by private offering & debt to cover distributions. • NAV per share (Dec 31, ’24): $10.33 across classes; monthly NAV ranged from $10.31–$10.37 in Q4’24.

(1) Funds From Operations (FFO) adjusts net loss for depreciation, amortization and certain non-recurring charges.

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3. Liquidity & Capital Resources

Balance Sheet Highlights (Dec 31, 2024)

• Total Assets: $151.6M • Total Liabilities: $27.8M (including $29.3M debt – Sunflower Secured Credit Facility) • Net Assets (NAV): $123.8M • Debt/ NAV: 24%

Cash & Credit

• Cash: $2.51M • Available line of credit: $5.67M • Total liquidity: $8.18M

Capital Needs & Leverage

• Charter limit: debt ≤ 75% of cost basis (300% of net assets)––targeting 65% LTV loan-to-value or cost. • 2024 financing under Sunflower facility ($35M revolving; 5.75% – SOFR+2.75%). • Pro forma for Public Offering, debt levels may rise then decline as equity raises fund acquisitions and pay down borrowings.

Distributions

• Monthly distribution rate: ~$0.00148/day per share (~$0.54 annualized). • 2024 distributions declared: $6.60M (64% cash / 28% reinvested / 8% payable). • Funded primarily by private offering proceeds (since negative cash flow from operations).

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4. Key Risk Factors (Item 1A Summary)

1. Limited Operating History: Founded 2021; depends heavily on Advisor’s performance terms.
2. Negative Cash Flow: Operating losses funded by equity/debt; REIT distribution requirements may force asset sales or borrowing.
3. Illiquid Shares: Non-traded REIT with limited share repurchase; no public exchange listing.
4. Concentration Risks: Significant revenue from a few tenants (e.g., Verizon & AT&T) and areas (IN, TN, TX towers).
5. High Leverage: Debt increases risk of default; interest rate exposure; potential refinancing challenges.
6. Advisor Conflicts: External management fees & performance participation tied to NAV; potential for misaligned incentives.
7. REIT Tax Requirements: Must distribute 90% of taxable income; sensitive to income/test failures; complicated compliance.
8. Cybersecurity & ESG: Reliance on third-party data centers; potential power or network disruptions; rising regulatory scrutiny.

For a full list of risk factors, see Item 1A of the 10-K.

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5. Investment Considerations

Strengths & Opportunities

• High Growth Sector: 5G roll-out, AI/edge computing & remote work drive demand for digital infrastructure. • Tangible Assets: Long-term lease contracts with creditworthy telecom majors & colocation tenants. • NAV Transparency: Monthly valuations, independent valuation advisor review. • DRP & OP Units: Diversified capital-raising strategies reduce cash burdens.

Challenges & Threats

• Early Stage: Limited track record; reliance on Sponsor and Advisor expertise. • Debt & Rates: Rising rates increase financing costs; default/refinance risk; interest-rate hedging limited by REIT rules. • Liquidity Constraints: Restricted share repurchase program; potential for stock isolation if no listing or share transfers. • Advisor Fees & Conflicts: Management fees not performance-based; incentives might not align with stockholder interests. • Concentration: Geography & tenant concentration may magnify adverse events.

Net Profit/(Loss)

• Net loss attributable to stockholders: $(9,711,882) for the year ended December 31, 2024.

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6. Valuation & Net Asset Value

NAV provides a mechanism for purchase and repurchase pricing. Our key valuation inputs:

• Discount Rates (weighted average): 5.74% (towers) | 7.25% (data centers). • Exit Cap Rates: 4.22% (towers) | 6.25% (data centers).

Sensitivity example:

A 0.25% rise in discount rates would reduce tower values by ~2.0% and data center values by ~1.9%.

Monthly NAV per share as of December 31, 2024: $10.33 (all classes).

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7. Verdict & Score

StratCap Digital Infrastructure REIT operates in a high-growth corner of the market, with tangible tangible assets and long-term lease structures. However, as an early-stage, non-traded, externally-managed REIT with negative cash flow, leverage, and limited share liquidity, it faces significant execution, debt and REIT compliance risks.

Investment Score: 4.5 / 10

The score reflects strong industry demand versus execution & financial risks:

• Pros: Digital infrastructure demand; NAV transparency; creditworthy lease contracts. • Cons: Operating losses; reliance on debt; share illiquidity; potential conflicts with Advisor.

Bottom line: DIR presents a thematic play on data-hungry network build-outs. But for investors, the timing, share liquidity and early operating track record warrant caution.

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This analysis is for informational purposes only and does not constitute an offer or recommendation to purchase securities.