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Iron Mountain Incorporated IRM is focusing on capital recycling by monetizing non-core assets, and entering joint ventures and sale-leaseback transactions, using sale proceeds to fund the development pipeline. However, higher reliance on non-paper-based technologies and slowdown in service activity are affecting the service segment’s performance.
Particularly, the company recentlystruck a deal to dispose of its Intellectual Property Management (“IPM”) business to NCC Group for gross proceeds of $220 million.Management indicated that sale proceeds will be used to fund its growth objectives like data center development pipeline.
The company achieved a record level of quarterly revenues in the first quarter, whereas organic storage rental revenue growth and decent data-center leasing aided first-quarter 2021 results
In fact, focus on data-enter portfolio expansion will diversify the company’s revenue mix and improve adjusted EBITDA margins. As such, it is making organic growth efforts on the back of expansion projects and developments. Such moves will enable the company to capitalize on the strong demand for connectivity, interconnection and colocation space, and drive leasing activity.
Also, strength in its core storage and record management businesses is a positive. Iron Mountain enjoys a steady stream of recurring revenues from the business, deriving the majority of its revenues from fixed periodic storage rental fees charged to customers based on the volume of their records stored. Higher volume in faster-growing markets and efficient revenue-management efforts have resulted in strong organic growth for its storage rental revenues.
Moreover, the company has ample financial flexibility to meet its near-term debt obligations and other capital commitments, while pursuing growth opportunities. Specifically, it had total liquidity of $1.8 billion as of Mar 31, 2021, including cash and cash equivalents of $138.9 million.
However, archiving of original hard-copy documents is losing its relevance, while paper needs are shrinking at the enterprise level. These along with shifts in data storage through non-paper-based technologies are affecting physical storage volume and reducing the demand for the handling of records. This is reducing service activity levels and record management volume.
In addition, the digitization of records might shift its revenue mix from the more predictable storage revenues to service revenues, which are more volatile.
The pandemic has led to numerous shutdowns and restrictions of non-essential business operations, and an increase in remote-working policies across companies, resulting in a slowdown in the service activity level, thereby, affecting Iron Mountain’s organic service business growth. The headwinds are likely to continue in 2021 as well.
Lastly, restructuring charges related to Project Summit are estimated to be $200 million for 2021, while adjusted EBITDA benefits from the project are anticipated to be $150 million. This is likely to drag the company’s near-term profitability.
Shares of this Zacks Rank #3 (Hold) company have jumped 35.4% over the past three months compared with the industry's growth of 8.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
One Liberty Properties, Inc.’s OLP funds from operations (“FFO”) per share estimate for the current year has moved up 10% to $1.98 in the past week. The company currently carries a Zacks Rank of 2 (Buy).
OUTFRONT Media Inc.’s OUT Zacks Consensus Estimate for 2021 FFO per share has moved marginally north to 89 cents over the past month. The company currently carries a Zacks Rank of 2.
Braemar Hotels & Resorts Inc. BHR has a Zacks Rank of 2 at present. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised around 38% upward in a week to 44 cents.
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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