How to Read a Deal
Every data center price is a present value of contracted cash flows, adjusted for what the contracts do not guarantee. The shorthands, from EBITDA multiples to cap rates to price per megawatt, compress that logic and hide its assumptions. The four standing risks are tenant concentration, power availability, obsolescence and interest rates, and they rarely arrive alone. Faraday's read is that power scarcity has been doing the work that cheap money once did in holding valuations up, which makes the durability of that scarcity the single assumption most worth testing in any deal.
Knowledge check
Why can a multiple of current earnings be misleading when valuing a development-heavy data center platform?
Show the answer
Because much of the platform's value lies in capacity that is under construction or only planned, which produces little or no current earnings. The price should be separated into what is operating and leased, what is pre-leased and under construction, and what is merely planned, since each carries different risk.