Equinix Inc. wants to be the latest high-tech company to become a Real Estate Investment Trust or REIT. Learn more about the trend.
Equinix Inc., a California data center company, is the latest high-tech firm to announce plans to convert to a Real Estate Investment Trust or REIT, according to a company statement released last week.
“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,” Steve Smith, CEO of Equinix, said in a statement.
REITs were established by Congress in the 1960s to give retail investors greater access to commercial real estate markets. The pooled investments enjoy a special tax status. The Internal Revenue Service exempts REITs from corporate taxes, but requires them to distribute 90 percent of their income to shareholders in the form of dividends.
Successful REITS can yield a reliable income stream and grow in value. The products, which perform somewhat independently of stocks and bonds, are the favorite alternative investment of the high net worth, according to Millionaire Corner research conducted over the fourth quarter of 2011. One-third of millionaires with investable assets between $5 million and $25 million reported owning REITs with an average balance of $492,000.
“We are committed to creating long-term shareholder value,” Peter Van Camp, executive chairman of Equinix, said in a statement. “The REIT structure supports this objective and positions us to achieve profitable, strategic growth domestically and internationally.”
Equinix plans to file a request for a private letter ruling from the Internal Revenue Service by the end of the year, and expects the IRS to classify Equinix’s data centers as qualified real estate assets. After receiving a favorable ruling from the IRS, Equinix anticipates distributing $700 million to $1.1 billion in accumulated earnings and profits to shareholders in up to 20 percent cash and at least 80 percent in common stock.
“As a REIT, we will be able to provide our shareholders with regular distributions from earnings,” Steve Smith, CEO of Equinix, said in a statement. “While operating as a REIT, we will continue to fully execute on our global growth strategy of expanding in markets where demand and financial return warrant.”
Rival companies have already announced plans to restructure themselves into REITs, according to Reuters. Last month CyrusOne Inc., which is owned by Cincinnati Bell Inc., said it plans to restructure itself as a REIT. Iron Mountain Inc., a document storage operator, made a similar announcement in June, according to Reuters.