What are the expected benefits of converting to a REIT for Equinix and its shareholders?

Equinix believes the REIT structure offers potential for new value creation and enhanced growth strategies. Key anticipated benefits for shareholders include significant tax savings at the corporate level, leading to potentially increased income distributions. The company also plans a substantial distribution of its accumulated earnings and profits (E&P) to shareholders, expected to be between $700 million and $1.1 billion.

What are the key conditions and challenges for Equinix to complete the REIT conversion?

The conversion is contingent on several critical factors, including obtaining a favorable private letter ruling (PLR) from the IRS on technical tax issues, such as classifying data center assets as qualified real estate. Equinix must also complete complex internal reorganizations, separate operations into REIT-compliant and non-compliant entities (QRS and TRS), modify IT and accounting systems, and obtain necessary shareholder approvals for ownership limitations. There is no assurance that the IRS will grant the PLR or that the conversion will be successfully completed.

What is the expected financial impact of this conversion plan on Equinix?

Equinix anticipates incurring significant costs estimated between $50 million and $80 million for conversion efforts. Additionally, the company expects substantial tax liabilities, estimated at $340 million to $420 million, primarily due to depreciation recapture when shifting asset characterization for REIT purposes. These tax liabilities are expected to be offset by Net Operating Loss (NOL) carryforwards, which Equinix anticipates utilizing fully in 2012. Post-conversion, annual compliance costs are expected to increase by $5 million to $10 million.

EQIX 8-K: Regulation FD

Q: What is Equinix's main strategic announcement in this filing?

Equinix announced that its Board of Directors has approved a plan to pursue conversion to a Real Estate Investment Trust (REIT) for U.S. federal income tax purposes. The target effective date for this conversion is the taxable year beginning January 1, 2015.

Summary

Equinix, Inc. (EQIX) announced on September 13, 2012, its Board of Directors has approved a plan to pursue conversion to a Real Estate Investment Trust (REIT) for U.S. federal income tax purposes, targeting the taxable year beginning January 1, 2015. This strategic move is expected to create new opportunities for value creation, support growth strategies, and potentially offer significant tax savings to the company and increased income distributions to shareholders. The conversion is contingent upon receiving favorable rulings from the IRS, particularly regarding the classification of data center assets as qualified real estate. The company also plans a significant distribution of undistributed accumulated earnings and profits (E&P) to shareholders, estimated between $700 million and $1.1 billion, to be paid primarily in Equinix common stock.

Key Highlights

1Equinix, Inc. plans to convert to a Real Estate Investment Trust (REIT), targeting the taxable year beginning January 1, 2015.
2The conversion is subject to obtaining a favorable private letter ruling (PLR) from the IRS regarding the classification of data center assets as real estate.
3A significant distribution of undistributed accumulated earnings and profits (E&P) is anticipated, estimated between $700 million and $1.1 billion, to be paid mostly in stock.
4The company expects to incur substantial costs related to the conversion, estimated between $50-80 million, plus significant tax liabilities of approximately $340-420 million due to depreciation recapture.
5Shareholder approval will be required for internal reorganization measures, including imposing typical REIT ownership limitations (e.g., 9.8% ownership cap).
6Equinix anticipates utilizing all of its Net Operating Loss (NOL) carryforwards in 2012 to offset a portion of the anticipated tax liabilities.
7The conversion plan involves a separation of operations into Taxable REIT Subsidiaries (TRS) and Qualified REIT Subsidiaries (QRS) and requires extensive modifications to internal systems.

EQUINIX INC 8-K Report, Regulation FD Disclosure (Sep 13, 2012)

Summary

Key Highlights

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