Equinix plans to convert to a real estate investment trust (REIT), a move that may make the company’s shares even more attractive to investors, the company said today. The colocation provider says the conversion will have no impact on its data centers or services, but will allow the company to pay distributions to shareholders.
Shares of Equinix surged past $200 on the news. At midday, EQIX was trading at $203.07, a gain of nearly 9 percent on the session.
A REIT is a corporation or trust that uses the pooled capital of many investors to purchase and manage income property. Income comes from the rent and leasing of the properties, and REITs are legally required to distribute 90 percent of their taxable income to investors. Many of the largest data center developers operate as REITs, including Digital Realty Trust, DuPont Fabros Technology and CoreSite Realty. CyrusOne has just announced plans to go public as a REIT.
The Equinix board of directors approved the plans to seek REIT status after a “thorough analysis of various structures, including alternative financing, capital, and tax strategies, designed to maximize long-term shareholder value,” the company said. Equinix expects to elect REIT status for its taxable year beginning January 1, 2015.
“As a REIT, we will be able to provide our shareholders with regular distributions from earnings,” said Steve Smith, CEO of Equinix.“We have already seen several of our peers in the data center industry operate under a REIT structure, and we believe that this tax-efficient structure will enhance shareholder value and enable us to be even more competitive.”
Special Dividend of at Least $700 Million
If it is successful in converting to a REIT, Equinix will issue a special distribution to Equinix shareholders of accumulated earnings and profits of approximately $700 to $1.1 billion, which will be paid in a combination of up to 20 percent in cash and at least 80 percent in Equinix common stock. The company said it anticipates making most of the distribution before 2015, with the balance distributed in 2015. Following the completion of the REIT conversion, Equinix intends to pay regular distributions to its shareholders.
In addition to boosting investor interest, analysts say a REIT conversion could result in lower taxes for Equinix.
“We will be preserving the growth characteristics of the company while optimizing our global tax strategies, creating significant shareholder value,” said Keith Taylor, CFO of Equinix. “We have done the work necessary to feel comfortable that we can operate as a REIT. However, there are a number of hurdles yet to be cleared given the operational complexities to be addressed prior to conversion.”