Equinix Inc. (EQIX), operator of data centers for companies such as AT&T Inc. and Amazon.com Inc., surged after approving a plan to convert into a real estate investment trust, a move aimed at reducing its tax obligations.
Shares rose 7.5 percent to $200.50 at the close in New York. The stock has increased 98 percent this year amid predictions that a REIT conversion is in the offing.
Demand for Equinix’s services is growing as more businesses and consumers rely on it to manage Web traffic, mobile apps and online video. Other technology companies that make money from owning and operating facilities and have opted for REIT status include storage provider Iron Mountain Inc. (IRM) and American Tower Corp. (AMT), which leases wireless communications tower space.
“The announcement today was sooner than we and most investors likely expected,” Gray Powell, an analyst at Wells Fargo & Co. who has a buy rating on Equinix, wrote in a note to investors. “We believe the stock will trade higher.”
The company plans to issue a special distribution of $700 million to $1.1 billion as part of the conversion, Redwood City, California-based Equinix said in a statement today. It expects to have REIT status beginning in 2015.
“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,” Equinix Chief Executive Officer Stephen Smith said in the statement.
U.S. REITs are required to distribute at least 90 percent of their income as dividends. The trusts typically are subject to lower taxes and pay higher dividends than other companies, so the conversion would help Smith return more money to shareholders, he said in an interview earlier this year.