Iron Mountain Stock a Top Growth REIT in 2021
Iron Mountain Inc (NYSE:IRM) is an excellent high-growth real estate investment trust (REIT) that investors should keep on their radar in 2021. And not just because it provides a frothy annual dividend of 8.4% (with a trailing annual dividend of 8.42% and a five-year trailing dividend of 6.9%).
That’s a great reason, of course, but another reason to be bullish on Iron Mountain stock is its projected revenue growth in 2021. Which, as you can see in the chart below, has not been priced into IRM stock.
Iron Mountain stock is actually down 3.5% year-over-year. But Wall Street expects the global leader in storage and information management services to experience double-digit growth in 2021.
Fortunately, for buy-and-hold investors, IRM stock’s big 8.4% dividend yield helped them weather the coronavirus storm in 2020. In 2021, investors will hopefully be able to rely on Iron Mountain stock’s strong dividend growth and capital appreciation to juice their portfolios.
Chart courtesy of StockCharts.com
As noted above, Iron Mountain is the global leader in records and information management. The company has more than 720 million cubic square feet of global storage solutions in more than 1,450 facilities, in approximately 50 countries, across six continents. (Source: “Investor Presentation: Q4 2020,” Iron Mountain Inc, last accessed January 5, 2021.)
While Iron Mountain is a REIT, it’s not easy to pigeonhole what it does. It’s neither an industrial REIT nor a data center REIT; it’s somewhere in between. Its operations include records management, data management, digital solutions, and secure shredding. The majority of its business, 65%, comes from its storage segment, with 35% of its revenue coming from its service segment.
Iron Mountain has more than 225,000 customers from more than 50 different industries, including more than 95% of Fortune 1000 companies. Some of the industries it serves are health care, legal, financial, insurance, life sciences, and energy.
While Iron Mountain Inc has been reporting healthy revenue growth and robust margin expansion, it’s always looking for ways to increase shareholder value. To that end, the company has made significant progress in shifting its revenue mix to faster-growing businesses, including emerging markets and data centers.
It has also made serious inroads in fast-growing adjacent businesses, which include cultural and historic artifacts. Iron Mountain is the global leader in fine art storage and logistics; the company is used by every major music label and movie studio to protect films, recordings, and images.
Iron Mountain has been expanding its data center footprint through a number of strategic acquisitions, including Fortrust, I/O, Credit Suisse, and EvoSwitch.
Iron Mountain’s ongoing capital recycling program is seeing it sell off some of its real estate portfolio. In December, it sold 13 industrial facilities to Blackstone Real Estate Income Trust, Inc. for gross proceeds of $358.0 million. (Source: “Iron Mountain Announces Industrial Sale-Leaseback Transaction with Blackstone Real Estate Income Trust,” Iron Mountain Inc, December 3, 2020)
“This is a compelling opportunity for us to monetize a small portion of our owned industrial assets, while still maintaining long-term control of the facilities,” said Barry Hytinen, Executive VP and CFO.
“Combined with our balance sheet strength and strong cash flow generation, this transaction frees up approximately $260 million of investable capital on a leverage-neutral basis, that we intend to redeploy into faster growing areas, including our data center business.”
COVID-19 Impacts Q3 Results, But Management Already Seeing Improvements
Admittedly, the coronavirus pandemic took a bite out of Iron Mountain’s earnings growth in 2020. During the third quarter, its revenue slipped 2.4% year-over-year to $1.0 billion. The company’s services revenue slipped 12.5% year-over-year to $340.0 million, but its storage rental revenue, which accounts for the bulk of its business, increased 3.4% year-over-year to $1.1 billion. (Source: “Iron Mountain Reports Third Quarter 2020 Results,” Iron Mountain Inc, November 5, 2020.)
The company ended the third quarter with $152.0 million in cash and cash equivalents, as well as total liquidity of $1.7 billion.
Regardless, management said it has been seeing improvements in key U.S. and international markets. Moreover, the company’s “Project Summit,” an initiative aimed at cutting costs and fueling growth in earnings before interest, taxes, depreciation, and amortization (EBITDA), has been running on all cylinders.
Iron Mountain expects that Project Summit will have generated $165.0 million in adjusted EBITDA benefits in 2020, an increase from the previous expectation of $150.0 million. By the end of 2021, Iron Mountain expects Project Summit to generate $375.0 million of adjusted EBITDA benefits.
In addition to the company’s growing international footprint, the benefits from Project Summit and the eventual end of the pandemic should help Iron Mountain emerge as a stronger company. And that should help IRM stock break out to the upside in 2021.
There’s no guarantee that Iron Mountain stock will outpace the market this year, but it has been making the kind of strides that should propel it higher.
For impatient investors, Iron Mountain’s dividend can help. As a REIT, the company legally has to distribute the vast majority of its taxable income to investors in the form of dividends. During the third quarter, Iron Mountain Inc’s adjusted fund flows from operations (AFFO) came in at $0.73 per unit. Over the same period, management paid out $0.62 per unit in distributions, which represents a payout ratio of 85%.
This leaves management with lots of room to continue rewarding investors with strong payments. In the fourth quarter, Iron Mountain’s board of directors maintained its record payout by declaring a quarterly cash dividend of $0.6185 per share.
Iron Mountain has a long history of increasing its quarterly dividend. Since the first quarter of 2010, the company’s quarterly dividend has increased by 889%, from $0.0625 to $0.61.
So far, 2020 was the only year that Iron Mountain didn’t raise its annual dividend. The company has kept its quarterly dividend at $0.6185 since the fourth quarter of 2019—which is actually quite remarkable, considering the economic environment.
A large number of high-yield dividend stocks lowered or even cancelled their dividend programs as a result of the pandemic. But Iron Mountain’s strong balance sheet and recurring revenue stream meant it didn’t have to.
Maintaining its record quarterly dividend is a vote of confidence by the board of directors and shows that Iron Mountain Inc is heading in the right direction. You can’t ask for much more than that during the worst economic crisis since the Great Depression.