What is the main purpose of the special distribution announced by Equinix?

The main purpose of the $416.0 million special distribution is to distribute Equinix's accumulated earnings and profits from periods prior to January 1, 2015. This is a critical step required for Equinix to qualify for taxation as a Real Estate Investment Trust (REIT) starting from its taxable year beginning January 1, 2015.

Will shareholders receive the special distribution in cash or stock?

Shareholders of record as of October 27, 2014, will have the option to elect to receive their portion of the $416.0 million special distribution entirely in common stock or entirely in cash. However, the total amount of cash payable to all shareholders is capped at $83.2 million. If the aggregate cash elections exceed this amount, shareholders electing cash will receive a pro-rata portion in cash and the remainder in common stock.

Is Equinix guaranteed to become a REIT?

No, Equinix states that the REIT conversion is complex and not guaranteed. While the company is implementing its conversion plan, several significant implementation and operational challenges remain, including obtaining a favorable private letter ruling from the IRS, Board approval, and completing necessary reorganizations and system modifications. The Board may also decide not to proceed with the REIT election if it is not deemed to be in the best interest of the company or its stockholders.

How will the special distribution be taxed for shareholders?

Equinix expects that the special distributions, whether paid in cash or stock, will generally be taxable as dividends. For eligible U.S. stockholders meeting certain holding period and other requirements, it is expected to qualify primarily as qualified dividend income, with any remaining portion treated as a tax-free return of capital. Shareholders are strongly advised to consult their own tax advisors for specific tax implications.

EQIX 8-K SEC Disclosure

Summary

Equinix, Inc. (EQIX) filed an 8-K on October 16, 2014, to announce significant progress and details regarding its previously announced plan to convert to a Real Estate Investment Trust (REIT) for U.S. federal income tax purposes, effective for its taxable year beginning January 1, 2015. The company declared a special distribution of $416.0 million, payable in either common stock or cash to shareholders of record as of October 27, 2014. This distribution, along with adjustments to convertible notes, is expected to cover Equinix's accumulated earnings and profits from periods prior to 2015, a necessary step for REIT qualification. While the company is moving forward with the conversion plan, it also emphasizes that the REIT conversion is complex and not guaranteed. Several critical steps remain, including obtaining a private letter ruling from the IRS, Board approval, and significant operational and system adjustments. The filing also provides details on shareholder election options for the special distribution, including limitations on cash payments and the timing of stock value determination. Investors should note that the distributions are generally expected to be taxable as dividends, with potential qualification as qualified dividend income for eligible U.S. stockholders.

Key Highlights

1Equinix announced a $416.0 million special distribution to shareholders, payable in stock or cash, as part of its plan to convert to a REIT effective January 1, 2015.
2The special distribution is a key step to distribute accumulated earnings and profits from pre-2015 periods, a requirement for REIT qualification.
3Shareholders have election rights to receive the distribution in either common stock or cash, with a cap on the total cash payable ($83.2 million).
4The value of the stock component will be based on the average closing price of Equinix's common stock on the three trading days commencing November 18, 2014.
5Equinix cautions that the REIT conversion is complex and not guaranteed, with significant implementation and operational challenges remaining.
6The company estimates the total special distributions for 2014 and 2015, combined with conversion rate adjustments for convertible notes, could range from $1.0 to $1.1 billion.
7Distributions are expected to be taxable as dividends, potentially qualifying as qualified dividend income for eligible U.S. stockholders.

EQUINIX INC 8-K Report, Corporate Update (Oct 16, 2014)

Summary

Key Highlights

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