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Equity Issuances Threaten To Undermine Iron Mountain's Growth Story

Aug. 02, 2018 4:22 PM ETIron Mountain Incorporated (IRM)25 Comments


  • IRM posted highly impressive growth numbers in Q2.
  • However, the company's common equity issuances nearly offset the growth numbers entirely.
  • Given that the equity capital was reinvested at accretive rates of return, the long-term growth trajectory remains intact.
  • In the meantime, however, IRM will be challenged to simultaneously maintain dividend growth and make progress on its payout ratio and leverage reduction goals.

Iron Mountain (NYSE:IRM) once again proved in Q2 that its well-known and highly trusted name-brand and global network of decades-old relationships with many of the world's top companies is driving strong operating performance and growth. The downside from the quarter is that IRM's free cash flow deficit, high dividend payout, elevated leverage, and aggressive growth aspirations continue to require management to issue new equity, diluting FFO/share growth. While IRM's operational stability, attractive dividend, and growth runway make it an attractive investment for income seekers, total shareholder returns may be subdued until management can reduce reliance on equity issuance and improve the company's speculative credit rating and negative credit rating outlook.


The company's moat appeared to remain as strong as ever during Q2 as Adj. EBITDA margin expanded 130 basis points and the business continued to experience strong growth. While these are very encouraging signs and imply that an investment in IRM should remain very safe for the foreseeable future, there do remain items of concern as indicated by the speculative credit rating and negative credit outlook. Primarily, through aggressive acquisitions into the data center space to fuel its growth, IRM has taken on considerable leverage. While management pointed to its average leverage positioning within the REIT sector, the reality is that its leverage is considerably higher than its nearest peers in the self storage and data center segments (blended 4.3x-5.1x leverage vs. 5.6x leverage for IRM). Moody's has implied that it wants to see IRM move its leverage into this range as well and IRM hopes to reduce its leverage into that range by the end of 2020.


Due to this high leverage and the ongoing heavy CapEx requirements to develop and integrate its data center business, management is having to issue considerable amounts of common equity to make

ChartIRM data by YCharts

This article was written by

Samuel Smith profile picture
Become a “High Yield Investor” with our 8% Yielding Portfolio.

Samuel Smith is Vice President at Leonberg Capital and manages the High Yield Investor Seeking Alpha Marketplace Service.

Samuel is a Professional Engineer and Project Management Professional by training and holds a B.S. in Civil Engineering and Mathematics from the United States Military Academy at West Point and a Masters in Engineering from Texas A&M with a focus on Computational Engineering and Mathematics. He is a former Army officer, land development project engineer, and lead investment analyst at Sure Dividend.

Analyst’s Disclosure: I am/we are long IRM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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