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Iron Mountain (IRM) Rises 13.3% YTD: Will the Trend Last?
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Shares of Iron Mountain Incorporated (IRM - Free Report) have gained 13.3% year to date against the industry’s fall of 10.2%.
This Boston, MA-based real estate investment trust (REIT) continues to benefit from its stable and resilient core storage and records management businesses, enabling it to ride the growth curve. It is likely to continue benefiting from the healthy revenue management and volume trends in the quarters ahead. The company’s accretive buyouts and data center business expansion efforts are likely to have paid off well.
It expects 2024 AFFO per share in the range of $4.39-$4.51. The Zacks Consensus Estimate for IRM’s current-year AFFO per share is pegged at $4.42, which lies within expectations.
Image Source: Zacks Investment Research
Let’s find out the factors behind the surge in the stock price.
Iron Mountain enjoys a stable and resilient core storage and records management businesses. 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. This paves the way for a steady stream of recurring revenues for the company.
Iron Mountain’s organic storage rental revenues increased 7.4% year over year in the first quarter of 2024. The benefit was driven by revenue management in its Global RIM Business segment, as well as by growth in its Global Data Center Business segment, on the back of lease commencements.
The company has a diversified tenant and revenue base and serves more than 240,000 clients across different industries and geographical locations. Most importantly, no single customer accounted for more than 1% of its revenues in 2023, reflecting a well-diversified revenue generation base.
In the first quarter of 2024, IRM recorded a 92.9% retention rate for its records management business. This is likely to support the company’s cash flows in the quarter ahead. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024. For 2025 and 2026, the metric is expected to witness growth of 8.3% and 8.7%, respectively.
To supplement its storage segment performance, IRM has been expanding into its fast-growing businesses, most notable being the data center segment. The company is actively pursuing organic growth efforts, along with expansion projects and developments to capitalize on the strong demand for connectivity, interconnection and colocation space. This is likely to drive leasing activity in the upcoming period.
In the first quarter, the company attained data center revenue growth of 28.2%. It leased 30 megawatts of data center capacity in the first quarter of 2024. It leased 124 megawatts 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. As of Mar 31, 2024, it had a total liquidity of $2 billion. It has no significant debt maturities until 2027 and 76% of its net debt was fixed. Its net total lease-adjusted leverage was 5.1X in the first quarter of 2024, which was the lowest level in a decade.
Additionally, its current cash flow growth is projected at 4.54% compared with the 1.66% expected for the industry. Also, a significant trailing 12-month return on equity compared with the industry’s average of 3.06% reflects its superiority in terms of utilizing shareholders’ funds over its peers.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Iron Mountain remains committed to that. In August 2023, concurrent with its second-quarter 2023 earnings release, it announced a 5.1% hike in its cash dividend to 65 cents per share from 61.85 cents paid out earlier. Such efforts enhance shareholders’ wealth and boost investors’ confidence in the stock. Check Iron Mountain’s dividend history here.
Given the company’s healthy operating platform, our year-over-year AFFO growth projections of 7.1% for 2024, a lower-than-industry payout ratio and solid financial position, the latest dividend hike is likely to be sustainable over the long run.
However, competition from industry peers may lead to aggressive pricing pressure and lower margins, weighing on the company’s profitability. High interest rates add to its woes.
The Zacks Consensus Estimate for LAMR’s 2024 FFO per share has moved 3.7% upward in the past month to $8.03.
The Zacks Consensus Estimate for REXR’s ongoing year’s FFO per share has increased marginally over the past two months to $2.34.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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Iron Mountain (IRM) Rises 13.3% YTD: Will the Trend Last?
Shares of Iron Mountain Incorporated (IRM - Free Report) have gained 13.3% year to date against the industry’s fall of 10.2%.
This Boston, MA-based real estate investment trust (REIT) continues to benefit from its stable and resilient core storage and records management businesses, enabling it to ride the growth curve. It is likely to continue benefiting from the healthy revenue management and volume trends in the quarters ahead. The company’s accretive buyouts and data center business expansion efforts are likely to have paid off well.
It expects 2024 AFFO per share in the range of $4.39-$4.51. The Zacks Consensus Estimate for IRM’s current-year AFFO per share is pegged at $4.42, which lies within expectations.
Image Source: Zacks Investment Research
Let’s find out the factors behind the surge in the stock price.
Iron Mountain enjoys a stable and resilient core storage and records management businesses. 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. This paves the way for a steady stream of recurring revenues for the company.
Iron Mountain’s organic storage rental revenues increased 7.4% year over year in the first quarter of 2024. The benefit was driven by revenue management in its Global RIM Business segment, as well as by growth in its Global Data Center Business segment, on the back of lease commencements.
The company has a diversified tenant and revenue base and serves more than 240,000 clients across different industries and geographical locations. Most importantly, no single customer accounted for more than 1% of its revenues in 2023, reflecting a well-diversified revenue generation base.
In the first quarter of 2024, IRM recorded a 92.9% retention rate for its records management business. This is likely to support the company’s cash flows in the quarter ahead. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024. For 2025 and 2026, the metric is expected to witness growth of 8.3% and 8.7%, respectively.
To supplement its storage segment performance, IRM has been expanding into its fast-growing businesses, most notable being the data center segment. The company is actively pursuing organic growth efforts, along with expansion projects and developments to capitalize on the strong demand for connectivity, interconnection and colocation space. This is likely to drive leasing activity in the upcoming period.
In the first quarter, the company attained data center revenue growth of 28.2%. It leased 30 megawatts of data center capacity in the first quarter of 2024. It leased 124 megawatts 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. As of Mar 31, 2024, it had a total liquidity of $2 billion. It has no significant debt maturities until 2027 and 76% of its net debt was fixed. Its net total lease-adjusted leverage was 5.1X in the first quarter of 2024, which was the lowest level in a decade.
Additionally, its current cash flow growth is projected at 4.54% compared with the 1.66% expected for the industry. Also, a significant trailing 12-month return on equity compared with the industry’s average of 3.06% reflects its superiority in terms of utilizing shareholders’ funds over its peers.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Iron Mountain remains committed to that. In August 2023, concurrent with its second-quarter 2023 earnings release, it announced a 5.1% hike in its cash dividend to 65 cents per share from 61.85 cents paid out earlier. Such efforts enhance shareholders’ wealth and boost investors’ confidence in the stock. Check Iron Mountain’s dividend history here.
Given the company’s healthy operating platform, our year-over-year AFFO growth projections of 7.1% for 2024, a lower-than-industry payout ratio and solid financial position, the latest dividend hike is likely to be sustainable over the long run.
However, competition from industry peers may lead to aggressive pricing pressure and lower margins, weighing on the company’s profitability. High interest rates add to its woes.
Zacks Rank & Stocks to Consider
IRM currrently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the REIT sector are Lamar Advertising (LAMR - Free Report) and Rexford Industrial Realty (REXR - Free Report) , 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 LAMR’s 2024 FFO per share has moved 3.7% upward in the past month to $8.03.
The Zacks Consensus Estimate for REXR’s ongoing year’s FFO per share has increased marginally over the past two months to $2.34.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.