We are adding a high-yielding REIT, Iron Mountain (IRM), to our Income/Value Portfolio; specializing in the secure storage and retrieval of data and records for organizations, the company has around 225,000 customers in roughly 50 countries worldwide, explains Scott Chan, editor of The Complete Investor.
The company started out in the 1950s as a corporation. After its 2014 conversion to a REIT, it is required by law to distribute at least 90% of taxable income to shareholders.
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Digitalization has greatly reduced the need for physical documents. Still, in the normal course of operation, many businesses still typically generate a significant volume of hardcopy documents along with various forms of media (blueprints, X-rays, etc.). With office space limited, organizations look outside to store everything that they need or are required to maintain.
Iron Mountain is happy to oblige. From the very first underground vault almost 70 years ago (the founder had repurposed an underground mine), Iron Mountain’s operations have grown to more than 1,450 facilities worldwide. Today, the facilities hold almost 700 million cubic feet of hardcopy records and documents.
Once boxes of paperwork go into storage, they generally remain for the long term and require minimal upkeep. Iron Mountain says that more than half the records that entered its facilities at least 15 years ago are still there.
Indeed, Iron Mountain’s customer retention rate is 98%. No single customer accounts for more than 1% of revenue, so Iron Mountain is not vulnerable to disproportionate revenue disruption from losing just one or two customers.
All this allows Iron Mountain to enjoy a steady source of recurring revenue and cash flow that’s largely immune to economic cycles. Since initiating a dividend policy in 2010, the company has increased its payout every year.
In 2017, Iron Mountain entered the data center market to catch the digitalization tailwind. All of its data centers run on renewable energy.
Where available, the centers qualify for carbon credits, helping reduce operating costs and leaving more cash to distribute to shareholders. Data centers now account for about 6% of revenue, a figure that should rise as the company continues to invest in new capacity.
The bottom line is that while Iron Mountain isn’t the most exciting investment out there, it’s a fine choice if you are looking for a conservative REIT that offers protection against economic cyclicality and generates steady and predictable cash flow.
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