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Is It Wise to Retain Iron Mountain (IRM) in Your Portfolio?
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Iron Mountain Incorporated (IRM - Free Report) is well-positioned to gain from its recurring revenue business model. Also, its accretive acquisitions and data center business expansion efforts bode well. Its healthy balance sheet position is likely to support its growth endeavors. However, competition from industry peers may lead to aggressive pricing pressure and lower margins. High interest rates add to its woes.
What’s Aiding IRM?
Iron Mountain enjoys a steady stream of recurring revenues from its core storage and records management businesses. The company derives most of its revenues from fixed periodic (usually earned monthly) storage rental fees charged to customers based on the volume of their stored records. Its retention rate for its records management business was 92.9% in the first quarter.
In the first quarter of 2024, Iron Mountain’s organic storage rental revenues increased 7.4% from the prior-year quarter. The benefit was driven by revenue management in its Global RIM Business segment and growth in its Global Data Center Business segment due to lease commencements. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024. For 2025 and 2026, the metric is expected to witness growth of 8.3% and 8.7%, respectively.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. It is making organic growth efforts, along with expansion projects and developments. Such moves will enable the company to capitalize on strong demand for connectivity, interconnection and colocation space and drive leasing activity.
In the first quarter, the company attained data center revenue growth of 28.2%. It leased 30 megawatts of data center capacity in the quarter. Moreover, in 2023, it leased 124 megawatts of data center capacity.
Iron Mountain had a total liquidity of approximately $2 billion as of Mar 31, 2024 and a weighted average maturity of 5.7 years. IRM ended the first quarter of 2024 with a net total lease-adjusted leverage of 5.1X, the lowest level in a decade. It had no significant debt maturities until 2027, and 76% of its net debt was fixed.
Shares of this Zacks Rank #2 (Buy) company have rallied 28.3% over the past three months against the industry’s growth of 12.5%.
Image Source: Zacks Investment Research
What’s Hurting IRM?
As the archiving of original hard-copy documents loses relevance, paper needs are shrinking at the enterprise level. This, along with shifts in data storage through non-paper-based technologies, is affecting physical storage volume and demand for the handling of records. This is reducing service activity levels and records management volume. In addition, the digitization of records may shift its revenue mix from more predictable storage revenues to more volatile service revenues.
The records and information management services industry is highly fragmented, with numerous competitors in North America and worldwide. Although Iron Mountain offers compelling products and has a strong market position, the company faces significant competition. This is likely to result in aggressive pricing and will keep margins under pressure going forward.
A high interest rate environment is a concern for IRM. The company may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. As of Mar 31, 2024, Iron Mountain’s net debt was approximately $12.61 billion. For 2024, our estimate indicates a year-over-year rise of 11.2% in net interest expenses.
The Zacks Consensus Estimate for Americold Realty Trust’s current-year funds from operation (FFO) per share has been raised 3.60% over the past month to $1.44.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has moved marginally northward over the past month to $2.64.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.
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Is It Wise to Retain Iron Mountain (IRM) in Your Portfolio?
Iron Mountain Incorporated (IRM - Free Report) is well-positioned to gain from its recurring revenue business model. Also, its accretive acquisitions and data center business expansion efforts bode well. Its healthy balance sheet position is likely to support its growth endeavors. However, competition from industry peers may lead to aggressive pricing pressure and lower margins. High interest rates add to its woes.
What’s Aiding IRM?
Iron Mountain enjoys a steady stream of recurring revenues from its core storage and records management businesses. The company derives most of its revenues from fixed periodic (usually earned monthly) storage rental fees charged to customers based on the volume of their stored records. Its retention rate for its records management business was 92.9% in the first quarter.
In the first quarter of 2024, Iron Mountain’s organic storage rental revenues increased 7.4% from the prior-year quarter. The benefit was driven by revenue management in its Global RIM Business segment and growth in its Global Data Center Business segment due to lease commencements. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024. For 2025 and 2026, the metric is expected to witness growth of 8.3% and 8.7%, respectively.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. It is making organic growth efforts, along with expansion projects and developments. Such moves will enable the company to capitalize on strong demand for connectivity, interconnection and colocation space and drive leasing activity.
In the first quarter, the company attained data center revenue growth of 28.2%. It leased 30 megawatts of data center capacity in the quarter. Moreover, in 2023, it leased 124 megawatts of data center capacity.
Iron Mountain had a total liquidity of approximately $2 billion as of Mar 31, 2024 and a weighted average maturity of 5.7 years. IRM ended the first quarter of 2024 with a net total lease-adjusted leverage of 5.1X, the lowest level in a decade. It had no significant debt maturities until 2027, and 76% of its net debt was fixed.
Shares of this Zacks Rank #2 (Buy) company have rallied 28.3% over the past three months against the industry’s growth of 12.5%.
Image Source: Zacks Investment Research
What’s Hurting IRM?
As the archiving of original hard-copy documents loses relevance, paper needs are shrinking at the enterprise level. This, along with shifts in data storage through non-paper-based technologies, is affecting physical storage volume and demand for the handling of records. This is reducing service activity levels and records management volume. In addition, the digitization of records may shift its revenue mix from more predictable storage revenues to more volatile service revenues.
The records and information management services industry is highly fragmented, with numerous competitors in North America and worldwide. Although Iron Mountain offers compelling products and has a strong market position, the company faces significant competition. This is likely to result in aggressive pricing and will keep margins under pressure going forward.
A high interest rate environment is a concern for IRM. The company may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. As of Mar 31, 2024, Iron Mountain’s net debt was approximately $12.61 billion. For 2024, our estimate indicates a year-over-year rise of 11.2% in net interest expenses.
Other Stocks to Consider
Some other top-ranked stocks from the broader REIT sector are Americold Realty Trust (COLD - Free Report) and Cousins Properties (CUZ - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) and Zacks Rank #2, respectively, at present.You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Americold Realty Trust’s current-year funds from operation (FFO) per share has been raised 3.60% over the past month to $1.44.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has moved marginally northward over the past month to $2.64.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.