In its report, Hindenburg accuses Equinix of overstating adjusted funds from operations (AFFO), a key measure of profitability for REITs, by more than 22% in 2023 alone. They argue that this manipulation results from misclassification of routine maintenance costs as “capital expenditures for growth” (CapEx). This tactic allegedly allowed Equinix to demonstrate lower operating costs and higher profitability, which led to inflated bonuses for executives.
Hindenburg cites interviews with former employees who detail how routine equipment replacements such as batteries and light bulbs were labeled as “growth” expenses. This strategy increased Equinix’s reported AFFO and enriched executives through stock bonuses, according to the report. They estimate that these manipulations have led to a $3 billion increase in AFFO since 2015.
Other allegations include that Equinix potentially inflated energy consumption in its data centers. Although Equinix reports a 79% utilization rate based on cabin space, Hindenburg believes this figure is misleading and capacity may be oversold by 175%. They also note concerns about Equinix’s cloud strategy, arguing that its “xScale” solution contributes minimally to its revenues.
Equinix confirmed the report was published and said the allegations were being investigated. They are confident in their business model and the value it provides to customers. However, this has not yet affected the company’s stock price.
Source: Ferra
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