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Here's Why Iron Mountain (IRM) Shares Climbed 12.2% in 6 Months
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Shares of Iron Mountain Incorporated (IRM - Free Report) , carrying a Zacks Ranks #3 (Hold), have gained 12.2% in the past six months against its industry’s fall of 4.9%.
Last month, this Boston, MA-based real estate investment trust (REIT) reported fourth-quarter 2022 adjusted funds from operations (AFFO) per share of 98 cents, which surpassed the Zacks Consensus Estimate of 94 cents. This figure improved 6.5% from the year-ago quarter’s tally.
Also, total quarterly revenues of $1.28 billion increased 10.3% year over year. Iron Mountain’s results reflected solid performance in the storage and service segments, and the data-center business.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
Iron Mountain has a durable business model and 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. This ensures a steady revenue generation for the company.
Additionally, Iron Mountain’s diversified tenant and revenue base across different industries and geographical locations has paid off.
Storage rental revenues were $769.5 million in the fourth quarter, up 6.1% year over year. Also, service revenues amounted to $509.6 million, reflecting a rise of 17.3%.
Organic storage rental revenues grew 11% in fourth-quarter 2022, representing a sequential improvement of 130 basis points. The strength came from the continued benefit of pricing, coupled with positive volume trends and data center growth.
Further, the adjusted EBITDA improved 9.6% year over year to $471.9 million in the quarter.
IRM is focused on expanding its fast-growing businesses, especially the data center segment, to supplement its storage segment performance. It leased 14 megawatts of data center capacity in the fourth quarter of 2022. In full-year 2022, the company leased 139 megawatts, surpassing its projection of 130 megawatts.
Moreover, the company has an aggressive expansion strategy, which includes acquisition and developments, to supplement organic growth in storage revenues. In November 2022, the company acquired XData Properties, one of the largest data center parks in Madrid, and expanded its data center footprint in the EMEA region. Simultaneously, it bought a 10-acre land parcel and 50+ MVA (expandable to 100+ MVA) substation in Phoenix, AZ, and broadened its data center presence in North America.
On the balance sheet front, Iron Mountain had $1.3 billion in liquidity as of Dec 30, 2022. As of the same date, its net total lease-adjusted leverage was 5.1X, marking its lowest leverage level since 2017. The company has no significant debt maturities until 2027. IRM’s strong financial footing has enabled it to capitalize on long-term growth opportunities.
In addition, the company’s trailing 12-month return on equity (ROE) is 79.49% compared with the industry’s average of 3.60%. This reflects that the company has been more efficient in using shareholders’ funds than its peers.
Nonetheless, the fragmentation of the storage and information management services industry and a slowdown in the service business are concerning for the company. Also, rising interest rates and the strengthening of the U.S. dollar are worrisome.
The Zacks Consensus Estimate for Alexandria Real Estate’s 2023 FFO per share stands at $8.95.
The Zacks Consensus Estimate for Terreno Realty’s current-year FFO per share is pegged at $2.17.
The Zacks Consensus Estimate for Service Properties Trust’s 2023 FFO per share is pegged at $1.89.
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.
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Here's Why Iron Mountain (IRM) Shares Climbed 12.2% in 6 Months
Shares of Iron Mountain Incorporated (IRM - Free Report) , carrying a Zacks Ranks #3 (Hold), have gained 12.2% in the past six months against its industry’s fall of 4.9%.
Last month, this Boston, MA-based real estate investment trust (REIT) reported fourth-quarter 2022 adjusted funds from operations (AFFO) per share of 98 cents, which surpassed the Zacks Consensus Estimate of 94 cents. This figure improved 6.5% from the year-ago quarter’s tally.
Also, total quarterly revenues of $1.28 billion increased 10.3% year over year. Iron Mountain’s results reflected solid performance in the storage and service segments, and the data-center business.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
Iron Mountain has a durable business model and 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. This ensures a steady revenue generation for the company.
Additionally, Iron Mountain’s diversified tenant and revenue base across different industries and geographical locations has paid off.
Storage rental revenues were $769.5 million in the fourth quarter, up 6.1% year over year. Also, service revenues amounted to $509.6 million, reflecting a rise of 17.3%.
Organic storage rental revenues grew 11% in fourth-quarter 2022, representing a sequential improvement of 130 basis points. The strength came from the continued benefit of pricing, coupled with positive volume trends and data center growth.
Further, the adjusted EBITDA improved 9.6% year over year to $471.9 million in the quarter.
IRM is focused on expanding its fast-growing businesses, especially the data center segment, to supplement its storage segment performance. It leased 14 megawatts of data center capacity in the fourth quarter of 2022. In full-year 2022, the company leased 139 megawatts, surpassing its projection of 130 megawatts.
Moreover, the company has an aggressive expansion strategy, which includes acquisition and developments, to supplement organic growth in storage revenues. In November 2022, the company acquired XData Properties, one of the largest data center parks in Madrid, and expanded its data center footprint in the EMEA region. Simultaneously, it bought a 10-acre land parcel and 50+ MVA (expandable to 100+ MVA) substation in Phoenix, AZ, and broadened its data center presence in North America.
On the balance sheet front, Iron Mountain had $1.3 billion in liquidity as of Dec 30, 2022. As of the same date, its net total lease-adjusted leverage was 5.1X, marking its lowest leverage level since 2017. The company has no significant debt maturities until 2027. IRM’s strong financial footing has enabled it to capitalize on long-term growth opportunities.
In addition, the company’s trailing 12-month return on equity (ROE) is 79.49% compared with the industry’s average of 3.60%. This reflects that the company has been more efficient in using shareholders’ funds than its peers.
Nonetheless, the fragmentation of the storage and information management services industry and a slowdown in the service business are concerning for the company. Also, rising interest rates and the strengthening of the U.S. dollar are worrisome.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities (ARE - Free Report) , Terreno Realty (TRNO - Free Report) , each currently carrying a Zacks Rank #2 (Buy) and Service Properties Trust (SVC - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Alexandria Real Estate’s 2023 FFO per share stands at $8.95.
The Zacks Consensus Estimate for Terreno Realty’s current-year FFO per share is pegged at $2.17.
The Zacks Consensus Estimate for Service Properties Trust’s 2023 FFO per share is pegged at $1.89.
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.