Iron Mountain Inc.
) recently announced that its conversion to a real estate
investment trust (REIT) has been unanimously approved by its board
of directors. Accordingly, it will operate as a REIT from the
taxable year commencing from Jan 1, 2014.
This approval came after the receipt of favorable private letter
rulings from the Internal Revenue Service (IRS). Following the
news, shares of Iron Mountain surged 23.2% ($6.91) in after-hours
trading on Jun 25, 2014.
This decision comes more than three years after Elliot Management
Corp had proposed the plan for conversion to REIT in Mar, 2011.
This proposal was approved by the company's board in Jun, 2012.
Since then it was awaiting a thorough review by the IRS as well as
other necessary approvals for it to become operative.
However, in light of the new development, Iron Mountain is likely
to distribute between $1.3 billion and $1.4 billion to shareholders
from its accumulated earnings and profits as per the REIT
regulations. Moreover, the company will publicly announce a record
date and payment date for the 2014 Special Distribution as
determined by the board of directors.
Due to its conversion to a REIT, the company provided a revised
guidance for 2014. Management expects revenues to be between $3.09
billion and $3.17 billion, adjusted EPS to be between $1.37 and
$1.52, annual dividend to be between $400.0 million and $420.0
million and free cash flow to range between $350.0 million and
The company rents out 66 million square feet of storage space
around the world and this storage segment contributed 59.0% of
revenues in 2013.
To-date in 2014, the company has invested more than $60.0 million
in five international storage related businesses. The international
transactions include three deals in Turkey and Poland, which
enhanced the company's leadership position in these emerging
markets, and the acquisition of a leading provider of offsite data
storage and data protection services named Tape Management
Services in Australia.
The conversion into a REIT would definitely increase shareholders'
value and reduce the tax burden on the company. On the contrary, a
dismal quarter would affect the dividend payout directly.
We believe that Iron Mountain's strong product portfolio,
increasing market share and promising international business are
the primary growth catalysts. Moreover, the company's entry into
the data center market could act as a positive factor.
However, costs related to conversion and fluctuations in recycled
paper prices are the near-term headwinds for the company. Moreover,
volatile foreign exchange rates and competition from
Guidance Software Inc.
Pitney Bowes Inc.
) are the other headwinds.
Currently, Iron Mountain has a Zacks Rank # 3 (Hold).
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