Shares of Iron Mountain Incorporated IRM have rallied 38.5% in the past six months, well ahead of the industry’s growth of 13.8%.
This REIT continues to benefit from its stable and resilient core storage and records management businesses, enabling it to ride the growth curve. The company’s accretive buyouts and data center business expansion efforts are likely to have paid off well.
Analysts also seem bullish on this Zacks Rank #3 (Hold) stock, with the Zacks Consensus Estimate for 2024 adjusted funds from operations (AFFO) per share being revised two cents upward to $4.51 over the past month.
Image Source: Zacks Investment Research
Factors Behind the Surge in IRM Stock Price: Will This Last?
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 jump 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.
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. In the third quarter of 2024, the company attained data center revenue growth of 20.9%. It leased 106 MW of data center capacity from the beginning of 2024 through Nov. 6, 2024. Due to the company’s strong pipeline, management expects to lease 130 MW for the year. Moreover, it leased 124 MW of data center capacity in 2023.
Iron Mountain’s healthy balance sheet position, along with ample financial flexibility, has enabled it to capitalize on long-term growth opportunities. IRM had a 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 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 a solid financial position, the increased dividend is likely to be sustainable in the forthcoming period.
Key Concerns for Iron Mountain
However, there are concerns for Iron Mountain. Although Iron Mountain offers compelling products and has a strong market position, the company faces significant competition. Going forward, this is likely to result in aggressive pricing and keep margins under pressure.
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 marginally 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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Iron Mountain Incorporated (IRM) : Free Stock Analysis Report
Cousins Properties Incorporated (CUZ) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
