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Equinix Inc.’s (EQIX - Analyst Report) board of directors has approved the company to convert its business category from a global interconnection and data center company to a Real Estate Investment Trust (REIT).

The board of directors studied alternative financing, capital and tax strategies, before approving the conversion plan. The board believes that this conversion will result in maximization of shareholders value in the long run.

Senior management also believes that the REIT structure will help the company to achieve its desired profitability along with growth in the domestic and international markets. This apart, management also believes that this restructuring will not have any impact on the service delivery or on the performance of the data center.

The company is quite hopeful about this conversion, and is in the process of seek a private letter ruling (PLR) from the Internal Revenue Service (IRS) for its proposed REIT conversion.  The company expects to file this request by the end of 2012.

If the company becomes successful in this conversion process, it is should be able to secure its REIT status for its taxable year beginning January 1, 2015.

Equinix boasts a presence across various geographical regions and is increasingly becoming popular among major players in the tech industry for data management. That is the reason for the company’s effort to project all its data center assets as real estate assets. This would result in a higher tax benefit for the company.

The company’s worldwide presence has resulted in high network density with a vertically focused approach, which will continue to support demand. Moreover, the nature of business for the company has some similarities, as companies in both the industries let out property to the end customers and clients.

On the other hand, a heightened debt situation, competitive threats from the likes of AT&T Inc. (T - Analyst Report) and Verizon Inc. (VZ - Analyst Report) and European exposure keep us on the sidelines.

Equinix carries a Zacks #3 Rank, implying a short-term Hold rating.

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