Equinix Leaps on REIT Conversion News
Equinix (NASDAQ: EQIX), one of the world's largest owners of data centers, has decided to convert its structure a real estate investment trust or REIT. The company plans on finalizing the conversion and operating as a REIT beginning January 1, 2015.
Equinix shares jumped 13.6 percent to a record $212 in morning trading.
Competitor CyrusOne, owned by Cincinnati Bell, filed for an IPO last month and said it plans to structure itself as a REIT, while document storage operator Iron Mountain announced in June its plan to convert to a REIT.
Reuters reported in July that Equinix was giving serious thought to converting into a real estate investment trust.
“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," Chief Executive Steve Smith said.
The move by Equinix is seen primarily as a means to lower its taxable income. The lumber giant Weyerhaeuser (NYSE: WY) converted to a REIT in 2010 and lowered its tax rate from 35 percent to 15 percent.
Since REITs are required to pay out 90 percent of taxable income to shareholders, Weyerhaeuser REIT shares currently have a 2.4 percent dividend, but analysts believe the yield will rise to somewhere around 4.0-4.5 percent.
Equinix thinks the dividend story will help shareholders. "As a REIT, we will be able to provide our shareholders with regular distributions from earnings,” said CEO Smith.
The company will file for a private letter ruling (PLR) from the IRS by the end of 2012 on questions relating to the REIT conversion.
Should the PLR be favorable, Equinix expects to distribute between $700 million and $1.1 billion to shareholders. The distribution will be in the form of up to 20 percent in cash and at least 80 percent in stock.
Equinix believes that the conversion will have almost no impact on services to customers or the performance of its data centers.
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