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Should You Retain Iron Mountain Stock in Your Portfolio Now?
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Iron Mountain (IRM - Free Report) is well-positioned to benefit from a stable and resilient core storage and records management business. The company’s accretive buyouts and expansion efforts toward fast-growing businesses like the data center bode well for growth. However, competition from industry peers is likely to lead to aggressive pricing pressure and lower margins. High interest rates add to its woes.
Last August, Iron Mountain announced the availability of a secure software-as-a-service platform - Iron Mountain InSight Digital Experience Platform. The platform allows customers to access, manage, govern, and monetize both physical and digital information.
Shares of this Zacks Rank #3 (Hold) real estate investment trust (REIT) have rallied 32.6%, outperforming the industry's upside of 20.4% over the past three months.
Image Source: Zacks Investment Research
What’s Aiding IRM?
IRM derives a majority of its revenues from fixed periodic (usually earned monthly) storage rental fees charged to customers based on the volume of their records stored, ensuring a steady stream of recurring revenues. Iron Mountain’sretention rate for its records management business was 92.8% in the second quarter.In the second quarter of 2024, Iron Mountain’s organic storage rental revenues increased 10.1% from the prior year 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 8.6% and 9.6%, 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. In the second quarter, IRM attained data center revenue growth of 29.4%.
Iron Mountain has an aggressive expansion strategy, which includes acquisition and development, to supplement organic growth in storage revenues. The company is focusing on capital recycling by monetizing non-core assets and entering into joint ventures and sale-leaseback transactions, using sale proceeds to fund the development pipeline. Such moves highlight the company’s prudent capital management practices and relieve the pressure on its balance sheet.
Iron Mountain had a total liquidity of approximately $2.3 billion as of June 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. With this, it has ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities.
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 IRM’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 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 remain elevated. As of June 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.
The Zacks Consensus Estimate for Cousins Properties’ current-year FFO per share has been raised marginally over the past two months to $2.66.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved northward marginally over the past two months to $8.09.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.V
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Should You Retain Iron Mountain Stock in Your Portfolio Now?
Iron Mountain (IRM - Free Report) is well-positioned to benefit from a stable and resilient core storage and records management business. The company’s accretive buyouts and expansion efforts toward fast-growing businesses like the data center bode well for growth. However, competition from industry peers is likely to lead to aggressive pricing pressure and lower margins. High interest rates add to its woes.
Last August, Iron Mountain announced the availability of a secure software-as-a-service platform - Iron Mountain InSight Digital Experience Platform. The platform allows customers to access, manage, govern, and monetize both physical and digital information.
Shares of this Zacks Rank #3 (Hold) real estate investment trust (REIT) have rallied 32.6%, outperforming the industry's upside of 20.4% over the past three months.
Image Source: Zacks Investment Research
What’s Aiding IRM?
IRM derives a majority of its revenues from fixed periodic (usually earned monthly) storage rental fees charged to customers based on the volume of their records stored, ensuring a steady stream of recurring revenues. Iron Mountain’sretention rate for its records management business was 92.8% in the second quarter.In the second quarter of 2024, Iron Mountain’s organic storage rental revenues increased 10.1% from the prior year 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 8.6% and 9.6%, 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. In the second quarter, IRM attained data center revenue growth of 29.4%.
Iron Mountain has an aggressive expansion strategy, which includes acquisition and development, to supplement organic growth in storage revenues. The company is focusing on capital recycling by monetizing non-core assets and entering into joint ventures and sale-leaseback transactions, using sale proceeds to fund the development pipeline. Such moves highlight the company’s prudent capital management practices and relieve the pressure on its balance sheet.
Iron Mountain had a total liquidity of approximately $2.3 billion as of June 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. With this, it has ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities.
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 IRM’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 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 remain elevated. As of June 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.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Cousins Properties (CUZ - Free Report) and Lamar Advertising (LAMR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Cousins Properties’ current-year FFO per share has been raised marginally over the past two months to $2.66.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved northward marginally over the past two months to $8.09.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.V