Iron Mountain IRM is poised to gain from a recurring revenue business model and expansion efforts toward fast-growing businesses such as the data center. The accretive buyouts bode well for growth. A healthy balance sheet is likely to support the company’s growth endeavors over the long term. However, competition from industry peers and elevated interest expenses are its concerns.
Shares of this Zacks Rank #3 (Hold) real estate investment trust (REIT) have risen 14.5% over the past six months, outperforming the industry's 10.6% growth.
Analysts seem bullish on this REIT, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share being raised marginally northward over the past three months to $4.91.
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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. Its retention rate for its records management business was 92.7% in the third quarter of 2024. Iron Mountain’s organic storage rental revenues increased 9.3% year over year in the third quarter of 2024. This performance highlights IRM’s benefits, which it reaps from a stable revenue source.
IRM is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. In November 2024, it acquired two data center development sites in Virginia to enhance rapid growth within the data center market. In the third quarter of 2024, IRM attained data center revenue growth of 20.9%. Due to the company’s strong pipeline, management expects to lease 130 megawatts for 2024.
IRM had total liquidity of approximately $2 billion as of Sept. 30, 2024, with a net total lease-adjusted leverage of 5.0X. It had no significant debt maturities until 2027, and 78% 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 projection 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.
What’s Hurting IRM?
The records and information management services industry is highly fragmented, with numerous competitors in North America and around the world. Although Iron Mountain offers compelling products and has a strong market position, it faces significant competition. Going forward, this is likely to result in aggressive pricing and will 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. As of Sept. 30, 2024, IRM’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 broader REIT sector are Crown Castle Inc. (CCI) 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 Crown Castle Inc.’s 2024 FFO per share has been raised marginally over the past two months to $7.
The Zacks Consensus Estimate for Cousins Properties’ current-year FFO per share has moved marginally north in the past two months 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
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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.
