Equinix plans to become a real estate investment trust (REIT)

Equinix announced that by 2015 it plans to become an real estate investment trust, or REIT. The company provides square foot areas  to large corporate entities for data centres used in cloud computing. Its shares soared 7.5 percent on Thursday to near the all-time high after the news.

The company has been in the fast growing business of cloud computing as one of the chief vendors and its profitability has increased over the years. However, as a REIT it will have more cost effective operations and a tax-friendly business model. The up value of the stock on Thursday shows that investors approve of the decision.

“Today’s announcement is clearly a positive from a stock perspective as the potential REIT conversion was increasingly being priced into the stock,” Stifel Nicolaus analyst Todd Weller said in a report.

Though it does not provide any technical the services like equipment and software, but its real estate supply is one of the crucial part of the whole operation. Companies like Digital Realty Trust and DuPont Fabros supply large square foot space to companies like Amazon and Rackspace Hosting, who want to setup their cloud sourcing data centres on longer contracts. The likes of Equinix provides smaller spaces on shorter contracts.

Upon the conversion to REIT, analysts believe that Equinix might merge with Digital Realty, which is already an REIT.

Equinix CEO Steve Smith had to say this in a statement: “As a REIT, we will be able to provide our shareholders with regular distributions from earnings. 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.

“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.”

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Posted by Usman Khalid on Sep 15 2012. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.