Switch Inc. is to convert into a Real Estate Investment Trust (REIT).
"The Board of Directors of Switch recently voted unanimously to convert to a REIT and to pursue completion of the conversion by January 1, 2023. We look forward to sharing further details about our strategic initiatives to enhance shareholder value,” said Thomas Morton, president of Switch in the company’s Q3 2021 results.
Adopting REIT status provides beneficial tax status and regular dividends for shareholders, but requires the company to make the majority of its money from income-producing real estate. To classify as a REIT, a company needs to meet certain requirements around how it is owned and how it spends its money.
Switch's goal is to elect REIT status by January 2023, but noted in its forward-looking statement that “there are significant implementation and operational complexities to address before Switch can complete such conversion.”
There are over 200 publicly listed REITs in the US but just a handful of dedicated data center REITs..Data centers are still considered a niche, and are described as an “alternative asset category" within REITs, alongside the traditional major food groups of office, retail and industrial.
Digital Realty began the trend for datas center REITs back in 2004 (and is now one of the top ten of all REITs, with Digital CEO Bill Stein chairing the trade body Nareit)..
Equinix converted into a REIT in 2015, Iron Mountain in 2014. CoreSite, and CyrusOne are all also publicly listed REITs in the US. QTS was a publicly-listed REIT until it was acquired by Blackstone and its own REIT earlier this year.
There are also a number of diversified REITs with data centers in their wider portfolio such as Segro, Corporate Office Properties Trust, Mapletree Industrial Trust, Centuria, and Ascendas REIT. There are also dedicated telecommunications and infrastructure REITs that own and operate communications infrastructure – cell towers, fiber cables, etc – such as Crown Castle.
Switch first announced it was considering changing its status in August, saying it was considering the “evaluation of a REIT election” as part of a ‘shareholder value initiative.’
During this quarter's earnings results, the company generated revenue of $158.1 million, a Net Loss of $900,000, and Adjusted EBITDA of $76.9 million. The company signed 20 new contracts across 15 companies this quarter, valued at a total of $4 million and 0.3MW. It signed $90 million worth of renewals for a total of 9.3MW.