Shares of Equinix (EQIX) jumped 7.5% Thursday, near an 11-year closing high touched last week, after the data center operator said its board had approved a plan to convert the company into a real estate investment trust.
The move, which provides tax benefits, had been expected from a company that is a leader in providing the infrastructure needed to fuel some of today's big tech trends, such as cloud computing and the fast growth of Internet-connected mobile devices. The stock has doubled this year.
Equinix said it expects to convert to REIT status by 2015, if all goes smoothly.
"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.
Equinix customers, which include leading cloud services providers Amazon Web Services, part of online retailer Amazon.com (AMZN), and Rackspace Hosting (RAX), lease space to house computer servers. Equinix provides power, cooling and access to high-speed Internet lines.
The data center market is divided between "wholesale" providers such as Digital Realty Trust (DLR) and DuPont Fabros (DFT) that provide huge amounts of square footage over contracts that run several years, and "retail" operators such as Equinix that sell less space over shorter contracts.
Some analysts have speculated that if Equinix converts to a REIT, it would open the door to a merger with Digital Realty, which already has REIT status.
The Internal Revenue Service must approve Equinix's conversion to a REIT. Shareholders also must approve.
"As a REIT, we will be able to provide our shareholders with regular distributions from earnings," Equinix CEO Steve Smith 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.
"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.
The company also reiterated its target to have revenue of more than $3 billion by 2015, up from $1.6 billion last year.
- real estate investment trust