Iron Mountain (IRM), the New Jersey-based document-storage firm, said that its board approved a plan for the company to convert to a real estate investment trust, or REIT. Iron Mountain also boosted its dividend 8% for an annual payout of $1.08 a share. A quarterly dividend of 27 cents will be paid July 13 to stockholders of record June 22. Iron Mountain, one of several companies that have been weighing the decision to switch to REIT status, said the conversion would happen after Jan.1, 2014, pending U.S. government approvals. “The REIT structure provides stockholders with dividends from U.S. tax savings and other increases in distributable income that will enhance stockholder returns,” CEO Richard Reese said in a statement. Iron Mountain leases 64 million square feet of storage space around the world.
In accordance with tax rules applicable to REIT conversions, Iron Mountain expects to distribute accumulated earnings and profits (E&P) of approximately $1.0 billion to $1.5 billion to stockholders, to be paid out in a combination of at least 20% in cash and up to 80% in Iron Mountain common stock. The company expects it will distribute a significant portion of this E&P distribution in the fourth quarter of 2012. The company expects to distribute the balance over several years beginning in 2013 based, in part, on U.S. Internal Revenue Service (IRS) rules and the timing of the conversions of additional international operations into the REIT structure.
IRM is currently trading at $31.94, up from $28.40 prior to the REIT announcement this week. The current target price for IRM is in the range of $36-40 following regulatory approval of the REIT conversion.
Barclays estimates Iron Mountain’s (IRM) planned conversion to a REIT could boost the records management and storage company’s value by $10/share.
William Blair Analyst Nate Brochmann believes benefits of conversion, include lower tax rate, more efficient financing, opportunity to shift capital structure toward equity, greatly outweigh costs, will enable IRM to increase returns to shareholders. Based on simple dividend discount model, thinks there could be 40% upside to the stock due to conversion. Given value he believes REIT conversion unlocks for shareholders, recommends investors purchase shares.
Iron Mountain (IRM) was initiated with an Overweight at Piper Jaffray with a price target at $35.