Iron Mountain Incorporated IRM is well-poised to benefit from strong cash flows in the storage and records management business, its focus on data center business and a robust balance-sheet position. It provides records & information management services and data center space & solutions in more than 60 countries.
Iron Mountain enjoys a diversified tenant and revenue base, with no single customer accounting for more than 1% of its revenues in 2021. Also, it derives the 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. As a result, its core storage and records management businesses ensure a steady stream of recurring revenues.
Over the past three to five years, IRM recorded funds from operations (FFO) per share growth of 9.70% compared with the industry’s average of 0.84%. Also, the FFO per share is expected to be up 36.96% for 2022 compared with the industry’s average of 9.69%.
In order to supplement its storage segment performance, IRM has been undertaking expansionary efforts in its fast-growing businesses, especially the data center segment, which is presently witnessing a rise in demand. In September 2021, to boost its data center operations in Germany, the company completed the acquisition of assets of a Frankfurt data center. As of Mar 31, 2022, Iron Mountain’s Global Data Center Business footprint encompassed nine markets in the United States and nine international markets. Such moves enable it to capitalize on the strong demand for connectivity, interconnection and colocation space and drive leasing activity.
Going forward, Iron Mountain has an aggressive expansion strategy, which includes acquisition and developments, to supplement organic growth in storage revenues. It has not only gained new customers from acquisitions but also has been able to expand operations in international markets, specifically emerging ones, thereby accelerating the EBITDA growth rate. In 2021, IRM completed the acquisition of two records management companies and one art storage company for a total of approximately $45.1 million to enhance its existing operations in the United Kingdom and Indonesia and expand its operations in Morocco. Moreover, in January 2022, it acquired roughly 80% interest in ITRenew, a company with asset lifecycle management operations, primarily in the United States, for around $725 million.
Iron Mountain holds a healthy balance-sheet position and enjoys ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities. As of Mar 31, 2022, it had a total liquidity of $1.8 billion, including cash and cash equivalents of $195.7 million. Moreover, in March 2022, IRM announced the completion of its amended and restated credit agreement. The move enhanced the company’s financial flexibility, with IRM securing a $547 million increase to the credit agreement and a new five-year maturity.
IRM’s current cash flow growth is projected at 9.70% compared with the 9.64% expected for the industry. In addition, its trailing 12-month return on equity (ROE) is 49.70% compared with the industry’s average of 3.94%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Solid dividend payouts are arguably the biggest enticement for real estate investment trust (REIT) shareholders, and Iron Mountain remains committed to increasing shareholders’ wealth. It holds a record of announcing dividend hikes for nine consecutive years. In 2019, concurrent with its third-quarter earnings, it announced a 1.2% sequential hike in quarterly cash dividend to 61.85 cents and has maintained the dividend payment thereafter. Given the company’s liquidity and underlying strength of its operating platform, such shareholder-friendly moves are encouraging.
Analysts seem bullish on this Zacks Rank #1 (Strong Buy) stock. The estimate revisions trend for 2022 funds from operations (FFO) per share indicates a favorable outlook for the company as it has significantly increased 22.3% over the past two months to $3.78.
Shares of IRM have lost 8.8% in the past three months compared with the industry's decline of 14.9%. However, given its progress on fundamentals and positive estimate revisions, the stock is likely to keep performing well in the quarters ahead. Hence, the dip offers a good entry point.
Image Source: Zacks Investment Research
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Host Hotels & Resorts HST, OUTFRONT Media OUT and Pebblebrook Hotel Trust PEB.
The Zacks Consensus Estimate for Host Hotels’ 2022 FFO per share has moved 5.1% upward in the past month to $1.65. HST presently carries a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for OUTFRONT Media’s ongoing year’s FFO per share has been raised 7.7% over the past two months to $2.09. OUT carries a Zacks Rank #1, currently.
The Zacks Consensus Estimate for Pebblebrook Hotel’s current-year FFO per share has moved 12.5% northward in the past month to $1.80. PEB carries a Zacks Rank of 1 at present.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report
Iron Mountain Incorporated (IRM) : Free Stock Analysis Report
Pebblebrook Hotel Trust (PEB) : Free Stock Analysis Report
OUTFRONT Media Inc. (OUT) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research