A short seller is betting against data center firm Csquare (CSQR), claiming that its stock has no value.

Keith Dalrymple, CEO of New Hampshire financial research firm Dalrymple Finance, said much of the NYSE-listed company’s data center portfolio is comprised of assets sourced from failed businesses, and that its financial structure will stop shareholders from making a strong return on their investment.

In a report published this week, Dalyrymple wrote: “We believe that the sales pitch is disconnected from fundamental realities and the capital structure relegates shareholders to a deeply subordinate position where value is more likely to be extracted via financing than created via returns.”

He added: “We believe the long-term value of CSQR shares is $0.”

Formerly known as Centersquare, Csquare was formed in April 2024 via a merger between Cyxtera and Evoque, both of which were owned by investment manager Brookfield.

Brookfield formed Evoque in 2019 from the purchase of AT&T's data center and colocation assets. It later acquired Cyxtera, itself formed from former Level3 and CenturyLink assets, following the colocation provider's bankruptcy proceedings.

Csquare’s portfolio totals more than 80 facilities and 3.5 million sq ft (325,160 sqm) with 400MW of capacity. It went public on the New York Stock Exchange in July, raising more than $1 billion but missing its IPO target of $1.35 billion.

Its stock debuted at $21 per share, below the $23-$27 Brookfield had marketed. At the time of writing, shares are trading at $14.90.

In his research note, Darymple said: “CSQR’s prospectus does not disclose that the assets have a long, documented history of financial failure. More than half of the assets came from Cyxtera, which we wrote on before the stock crashed and the company filed for bankruptcy; the remainder were Brookfield-owned facilities, one group of which de facto defaulted on its debt.”

He said Csquare is selling investors a “business transformation” pitch, and continued: “This growth story is centered on making ~$4 billion of investments with over 20 percent returns to almost triple sellable megawatts (MW) of power offered by these legacy colocation facilities. However, we estimate returns on all-in costs will be below the cost of capital, making each new deployment ultimately value-destructive.”

Darymple added that many of Csquare’s best data centers have been purchased through asset-backed securities (ABS), where loans are guaranteed on the future performance of an asset, in this case the data center. This, he argues, means the lenders will benefit from the company’s growth, rather than shareholders.

He said: “Our analysis shows that most of CSQR’s higher-quality assets including ~95 percent of easily upgradable vacant space, is pledged to ABSs; CSQR shareholders have primary claims on the lowest-quality space, in our analysis. We expect nearly all capex to be funded by CSQR (debt and equity), but shareholders will have only a residual claim on the financial benefits created in ABS-pledged facilities.”

Darymple believes Csquare will need to raise equity to fund its plans, and added: “With capital deployment generating returns below the cost of capital, and ABS holders likely having primary claim on those returns, we believe that CSQR shares are worth nothing.”

DCD has contacted Csquare for comment on the report. We spoke to Csquare CEO Spencer Mullee last year, who said the company’s portfolio was strong, and that it had a plethora of long-term clients, many of whom had run workloads in former Cyxtera data centers since before the bankruptcy. He said his firm was targeting AI companies alongside its traditional enterprise colo customers.

“Even through Cyxtera’s bankruptcy, their customer churn was very low,” Mullee said. “Data centers are a very sticky business. We still do significant enterprise business in that 1-5MW range - that hasn’t changed - but now there are the AI guys, and we do some of that business too.”