Iron Mountain IRM 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.

Shares of this Zacks Rank #3 (Hold) real estate investment trust (REIT) have rallied 56%, outperforming the industry's upside of 18.9% over the past six months.

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What’s Aiding IRM?

Iron Mountain enjoys a steady stream of recurring revenues from its core storage and records management businesses. The company derives a majority of its revenues from fixed periodic (usually earned on a monthly basis) storage rental fees charged to customers based on the volume of their records stored. Its retention rate for its records management business was 92.7% in the third quarter. Iron Mountain’s organic storage rental revenues increased 9.3% year over year in the third quarter of 2024. We estimate a year-over-year increase of 9.4% in storage rental revenues in 2024. For 2025 and 2026, the metric is expected to witness growth of 9.1% and 8.7%, respectively.

This REIT has been expanding its fast-growing businesses, especially the data center segment, to supplement its storage segment performance. Given the strong demand for connectivity, interconnection and colocation space, demand for data centers is likely to rise in the coming years, poising this segment well for growth. 

In the third quarter of 2024, the company attained data center revenue growth of 20.9%. It leased 106 MW of data center capacity in the quarter, totaling 97 megawatts in the first six months from the beginning of 2024 through Nov. 6, 2024. Due to the company’s strong pipeline, management is confident that it will exceed its original projection of 100 megawatts and now expects to lease 130 MW for the year. Moreover, it leased 124 MW of data center capacity in 2023.

Iron Mountain had total liquidity of approximately $2 billion as of Sept. 30, 2024, and a weighted-average maturity of 4.9 years. With this, it has ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities. Iron Mountain ended the third quarter of 2024 with a net total lease-adjusted leverage of 5.0X, the lowest level since before the company’s REIT conversion in 2014. It has no significant debt maturities until 2027, and 78% 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 its healthy operating platform, our year-over-year AFFO growth projections of 10.1% for 2024, a lower-than-industry payout ratio and 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.

Despite the Federal Reserve announcing rate cuts recently, the interest rate is still high and is a concern for Iron Mountain. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. As of Sept. 30, 2024, Iron Mountain’s net debt was approximately $13.31 billion. For 2024, our estimate indicates a year-over-year rise of 20% in the company’s net interest expenses.

Stocks to Consider

Some better-ranked stocks from the REIT sector are Welltower Inc. WELL and Cousins Properties CUZ, 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 Welltower’s 2024 FFO per share has been raised 1.7% over the past month to $4.26.

The Zacks Consensus Estimate for Cousins Properties’ current-year FFO per share has moved marginally north in the past month to $2.68.

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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