Hindenburg Research has slated Equinix Inc (NASDAQ:EQIX) in a report, alleging the digital infrastructure firm is trading at elevated levels due to accounting manipulation.
By overstating its adjusted funds from operations (AFFO), Hindenburg argued on Wednesday that Equinix had been made to look more profitable than was reality.
“Our investigation [...] revealed that Equinix manipulates its accounting for adjusted funds from operations, the key profitability metric for real estate investment trusts (REIT),” the firm said.
“We estimate this metric was overstated by at least 22% in 2023 alone,” it continued, noting Equinix traded at an 86% premium to peers on a price-to-AFFO basis.
Citing former employees, Hindenburg said Equinix’s manipulative practices stemmed from top management after it transitioned to become a REIT in 2015.
Such manipulation included labelling maintenance capital expenditure as growth capital expenditure, which in turn boosted AFFO metrics.
“These accounting manipulations have manifested in what look like obviously distorted company metrics,” Hindenburg said.
Hindenburg added that insiders and management had been awarded compensation based on the manipulated accounts, alongside highlighting recent boardroom shuffles of chief executive Charles Meyers to executive chairman and the resignation of chairman Peter Van Camp.
“Overall, as management tiptoes into the background after cashing out, we believe Equinix’s hefty valuation premium, claimed market leadership and growth prospects will soon reverse course, “ Hindenburg said.
Hindenburg also revealed it had taken a short position against Equinix, which has a market cap of near-US$80 billion, on the back of the research.
“We are investigating the claims and we will respond in due course,” an Equinix spokesperson said on Wednesday, meanwhile.
Equinix shares fell 4.8% to US$804.23 on the news.