There's a thread here discussing debt being taken on for AI & datacenter builds.

I would like to raise another issue*: discounted equity placings and management payouts.

I feel that a key concern for property investors of this era isn't only the debt but also the equity issuance.

Accessing debt at bad interest rates is relatively easy. Accessing debt at very good interest rates (that make projects actually profitable) is difficult.

But accessing new equity can be easy and quick.

Issue at a discount to NAV, and reassure shareholders that urgency matters because a wonderful future lies ahead if the opportunity is seized immediately.

Thinking of examples I'm familiar with. Equity was suddenly issued for datacenter builds at prices relative to NAV/share ranging from -11% to -33%.

Every time this happens, you're trading away part of an existing (and often quite good) portfolio for a speculative bet, and sometimes the company hasn't actually built a datacenter before.

When Buffett talks about the bad deals he made in the past; he tends to mention those where he paid in stock - trading a long-curated portfolio of good businesses for a new bad business.

The cash raised won't be generating returns for years to come - assuming project success.

But current company profits must now be shared among more new shares in the meantime, pushing down EPS and EPS growth.

On top of that, management 'project related bonuses' / 'profit shares' on datacenter builds can be surprisingly high in some projects.

Ask Gemini/Chatgpt to guide you through management bonuses, awards, profit shares paid for datacenter builds by European property funds & REITs in recent years. You may be surprised.

I actively avoid companies that announce datacenter builds. It has cost me some profit amid the current hype/mania, but, it has improved the quality of my sleep.

TRS


* pardon the pun! :-)

PS At time of writing, I have no long or short positions in stocks relating to AI or datacenters.

PPS As always, this is just my opinion, please check claims/data for yourself if this matters to your situation.