Short Seller Alleges Accounting Manipulation At REIT Equinix, Questions Its Operational Viability
A leading short seller is accusing data center giant Equinix of misleading investors.
Hindenburg Research, in a report published Wednesday, alleged that the world’s largest data center REIT is intentionally manipulating its accounting to artificially inflate a key measure of profitability.
Hindenburg, which has taken a short position on Equinix, also claimed the firm has leased more power to tenants than it actually has access to, placing the company at risk of not fulfilling its contract obligations. And it argued the REIT won’t benefit from the industry’s artificial intelligence-driven boom as much as it claims.
Shares in Equinix fell in the hours following the report’s publication, dropping more than 4% in the early hours of trading Wednesday before recovering to end the day down 2.3%. Equinix has a market cap of over $75B.
According to Hindenburg, Equinix’s leadership has for years used an “accounting trick” to artificially inflate the firm’s adjusted funds from operations, a key profitability metric for REITs. Equinix did this by intentionally misclassifying maintenance expenses as “growth capex,” giving the impression that the company is spending less to maintain its existing assets than it actually is, the report says. Hindenburg estimated the REIT overstated its AFFO by at least 22% last year.
“We estimate that Equinix's manipulation of maintenance capex has resulted in a cumulative $3 billion boost to AFFO since its 2015 conversion to REIT status,” Hindenburg said in its report. “Equinix’s questionable AFFO accounting has contributed to an estimated $295.8 million in stock award grants to top executives who have personally benefited from these accounting games.”
Citing interviews with former Equinix executives and other employees, the report provides examples of ways Equinix leadership has classified routine maintenance costs as growth capital expenditures. This includes putting new serial numbers on refurbished equipment so it could be listed as new and classifying expenses like replacing batteries and lightbulbs as capital improvements — practices that the report suggests made some employees uneasy.
“That’s really on the edge,” one told Hindenburg, according to the report.
The report also raises questions about the company’s operational viability, alleging that Equinix has oversubscribed its available power capacity. That would mean that if tenants tried to use all the power they were contractually allotted, Equinix wouldn't be able to fulfill those contracts. The report speculates that this will be a growing problem for Equinix in the years ahead, as AI dramatically increases the amount of power the information technology equipment housed in data centers uses.
Hindenburg portrayed Equinix as a company facing a looming power crisis that undermines its claims of being a beneficiary of the growing wave of AI-driven data center demand. As Bisnow has reported previously, Equinix has framed itself as a key part of the emerging AI data center ecosystem, offering both large single-tenant facilities for Big Tech hyperscalers and colocation space for enterprises with strong network connections to major cloud providers.
“[We’re] hitting in that sweet spot of what we think customers are really looking for: control over their enterprise data, the ability to access AI tools from the hyperscalers who are innovating rapidly in that area, and stitch it all together and make it work in a way that makes sense for them,” Equinix CEO Charles Meyers told analysts on a February earnings call.
But Hindenburg argued that Equinix doesn’t have the power to meet this growing demand, nor does it have the ability to upgrade older facilities to meet the shifting needs of AI computing. The short seller also said the REIT faces shrinking margins, along with “unprecedented competition and commoditization risk in its core product offering.”
A spokesperson for Equinix declined to comment on the specific allegations leveled by Hindenburg, saying that the firm is investigating the claims.
“We are aware of the report and in the process of reviewing claims made therein,” the firm said in a written statement to Bisnow. “We take these matters seriously, and we will not respond further to the claims during our review. We will report back once that review is complete, as appropriate.”
Analysts and data center industry leaders have been hesitant to judge the validity of the accusations of misleading accounting leveled against Equinix and its leadership. On Wednesday, several of the REIT’s analysts declined to comment or didn’t respond to requests for comment from Bisnow.
One analyst said much of Hindenburg’s analysis of Equinix is simply parroting critiques leveled by short seller Jim Chanos against data center REIT Digital Realty two years ago. Chanos took a much-publicized short position against the data center REIT, although many of his most dire predictions didn't come to fruition, and his fund has since shuttered.
“The thesis is largely a re-hashing of a short thesis published in 2022 which we disagreed with,” brokerage TD Cowen said, according to Reuters. “The comments on overselling power capacity are incremental, but (it) is a broader industry practice.”
While prior bets against data center REITs may not have panned out, Hindenburg Research has gained a reputation for unearthing information that has brought down companies and launched federal investigations.
Led by activist investor Nathan Anderson, the firm’s research played a significant role in the collapse of electric-car manufacturer Nikola and federal charges against its founder in 2021. More recently, Hindenburg’s report on Indian conglomerate Adani Group led to the collapse of the company’s share price. The investor also predicted the collapse of a nuclear-powered data center project touted by reactor manufacturer NuScale Power late last year.
While Equinix has long been considered a pillar of stability in the data center sector, these allegations come a week after the announcement of significant leadership changes at the firm.
On March 12, Equinix announced that Meyers, the president and CEO, will be transitioning to the role of executive chairman, while current Chair Peter Van Camp will step down from his formal responsibilities with the board.
UPDATE, MARCH 20, 9 P.M. ET: This story has been updated with a comment from Equinix and additional details from the report and context on the companies.
