Dalrymple Finance values Csquare shares at $0

Dalrymple Finance published a report valuing Csquare's shares at $0, arguing the data center operator's capital structure leaves stockholders with little of the upside from its expansion. The stock traded at $14.90, against a $21 July debut and the $23 to $27 marketed range, according to Data Center Dynamics.

Csquare raised more than $1 billion in its July IPO, short of the $1.35 billion target, Data Center Dynamics reported. The company, formerly Centersquare, was assembled in April 2024 by merging Cyxtera and Evoque, two Brookfield-owned businesses. Brookfield built Evoque in 2019 from AT&T's data center and colocation assets, and bought Cyxtera after the provider's bankruptcy. The portfolio runs to more than 80 facilities, 3.5 million sq ft and 400MW of capacity.

The report's test for allocators is seniority: which claim on a Csquare facility's cash flow gets paid first, the asset-backed lender's or the shareholder's. Keith Dalrymple, Dalrymple Finance's chief executive, says many of the better data centers were bought with asset-backed securities whose loans are secured on the future performance of the asset, so lenders capture the growth, not shareholders. Anyone underwriting the equity or the ABS paper prices the same cash flows from opposite ends of the structure.

Dalrymple says more than half the portfolio came from Cyxtera, the colocation provider that filed for bankruptcy, and that one group of Brookfield-owned facilities de facto defaulted on its debt. He argues the prospectus does not disclose that financial failure.

Csquare's pitch, as Dalrymple describes it, is a 'business transformation' — roughly $4 billion of investment at over 20 percent returns to almost triple the sellable megawatts of the legacy colocation sites. He estimates returns on all-in cost will land below the cost of capital, making each new deployment 'ultimately value-destructive.'

The number that would settle the argument is realized returns on the roughly $4 billion program measured against its cost of capital, a figure public companies report.