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Should You 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.
Later in July 2024, Iron Mountain reported a second-quarter 2024 adjusted fund from operations (AFFO) per share of $1.08, which beat the Zacks Consensus Estimate of $1.06. Results reflected solid performances in the storage and service segments and the data center business. However, higher interest expenses in the quarter acted as a dampener.
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 92.8% in the second quarter.
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 8.2% and 9.3%, respectively.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. IRM 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.
With the growth in cloud computing, the Internet of Things and Big Data and an increasing number of companies opting for third-party IT infrastructure, data center landlords like IRM, Digital Realty (DLR - Free Report) and Equinix (EQIX - Free Report) ) are experiencing a booming market.
In the second quarter, the company attained data center revenue growth of 29.4%. It leased 66 megawatts of data center capacity in the quarter, totaling 97 megawatts in the first six months of 2024. Due to Iron Mountain’s strong pipeline, management is confident to exceed its original projection of 100 megawatts and now expects to lease 130 megawatts for the year. Moreover, in 2023, it leased 124 megawatts of data center capacity.
Iron Mountain had a total liquidity of approximately $2.3 billion as of Jun 30, 2024, with a net total lease-adjusted leverage of 5.0X, the lowest level since before the company’s REIT conversion in 2014. It had no significant debt maturities until 2027, and 80% of its net debt was fixed.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Iron Mountain remains committed to that. In August 2024, concurrent with its second-quarter 2024 earnings release, it announced a 10% hike in its cash dividend to 71.5 cents per share from 65 cents paid out earlier.
Given Iron Mountain’shealthy operating platform, our year-over-year adjusted AFFO growth projections of 9.8% for 2024, a lower-than-industry payout ratio and a solid financial position, the increased dividend is likely to be sustainable in the forthcoming period.
What’s Hurting IRM?
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 elevated. As of Jun 30, 2024, Iron Mountain’s net debt was approximately $12.89 billion. For 2024, our estimate indicates a year-over-year rise of 17.7% in net interest expenses.
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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Should You 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.
Later in July 2024, Iron Mountain reported a second-quarter 2024 adjusted fund from operations (AFFO) per share of $1.08, which beat the Zacks Consensus Estimate of $1.06. Results reflected solid performances in the storage and service segments and the data center business. However, higher interest expenses in the quarter acted as a dampener.
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 92.8% in the second quarter.
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 8.2% and 9.3%, respectively.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. IRM 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.
With the growth in cloud computing, the Internet of Things and Big Data and an increasing number of companies opting for third-party IT infrastructure, data center landlords like IRM, Digital Realty (DLR - Free Report) and Equinix (EQIX - Free Report) ) are experiencing a booming market.
In the second quarter, the company attained data center revenue growth of 29.4%. It leased 66 megawatts of data center capacity in the quarter, totaling 97 megawatts in the first six months of 2024. Due to Iron Mountain’s strong pipeline, management is confident to exceed its original projection of 100 megawatts and now expects to lease 130 megawatts for the year. Moreover, in 2023, it leased 124 megawatts of data center capacity.
Iron Mountain had a total liquidity of approximately $2.3 billion as of Jun 30, 2024, with a net total lease-adjusted leverage of 5.0X, the lowest level since before the company’s REIT conversion in 2014. It had no significant debt maturities until 2027, and 80% of its net debt was fixed.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Iron Mountain remains committed to that. In August 2024, concurrent with its second-quarter 2024 earnings release, it announced a 10% hike in its cash dividend to 71.5 cents per share from 65 cents paid out earlier.
Given Iron Mountain’shealthy operating platform, our year-over-year adjusted AFFO growth projections of 9.8% for 2024, a lower-than-industry payout ratio and a solid financial position, the increased dividend is likely to be sustainable in the forthcoming period.
What’s Hurting IRM?
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 elevated. As of Jun 30, 2024, Iron Mountain’s net debt was approximately $12.89 billion. For 2024, our estimate indicates a year-over-year rise of 17.7% in net interest expenses.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.