Data centers eye REIT conversions

New Jersey, with its proximity to Wall Street, is home to numerous such facilities
May 13, 2013 03:30PM

Big data center operators are now seeking to restructure themselves as real estate investment trusts, allowing them to avoid corporate taxes and the stricter regulations levied against traditional utilities, the New York Times reported. But with regulators granting these centers the financial benefits of REITs without the restrictions of power companies, tax watchdogs are crying foul.

Data centers — which are located in otherwise nondescript buildings, particularly the most in-demand in New Jersey — house swaths of storage computers, power and high-speed fiber optics, and can lease for upwards of $1,000 per square foot.

One such center seeking a corporate reorganization is the Secaucus, N.J.-based Equinix, the top data center company on the planet, according to the Times. The company has over 90 data centers under its belt and last year posted $145 million in profit. As a REIT, the company would save over $100 million annually in taxes, the Times said.

“This is an incredible example of how tax avoidance has become a major business strategy,” Ryan Alexander, the president of watchdog group Taxpayers for Common Sense, told the Times. The Internal Revenue Service “is letting people broaden these definitions in a way that they kind of create the image of a loophole,” he added.

Other critics say that Equinix is not like Digital Realty Trust, a data center that operates as a REIT. Equinix has 80 of its 97 centers in buildings it leases, meaning its tenants have subleases.

“The REIT framework is designed to apply to real estate broadly, whether owned or leased,” an Equinix spokesperson told the Times, adding that REIT conversion would offer “tax efficiencies and disciplined returns to shareholders while also allowing us to preserve growth characteristics of Equinix and create significant shareholder value.” [NYT]Zachary Kussin