Equinix (EQIX), the biggest global player and operator in network-neutral colocation, recently saw multiple expansion due to its driving toward a REIT-conversion process, standing out in among peers for Todd C. Weller, Managing Director at Stifel, Nicolaus & Co., Inc.
“Equinix gained 100%-plus last year,” Weller said. “The REITs have historically traded at a premium to the operating companies. We think a lot of that premium has been the tax benefit of being a REIT and the increased cash flows associated with that, so that was a big driver of Equinix’s valuation.”
Weller says some of EQIX‘s REIT benefits include not having to pay corporate taxes, which translates into a 35% to 40% tax savings, although he doesn’t shy away from reminding investors that the data center space is a capital-intensive business and the company will have to access external capital to fund this growing business.
“The event’s happened, and as you think about 2013 for Equinix, we think the catalyst reverts more around the fundamentals, the growth, potential upside to estimates,” Weller said. “You could see some upward drift in the multiple, because it does now get pegged a bit to the REITs, so to the degree we get some more uplift in the REIT multiples, as people get comfortable with the wholesale space, that could benefit Equinix as well.”
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