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IRM-AGAIN

August 30, 2019. We are sounding like a broken record and have mentioned IRM numerous times recently. The indicators started turning up in early August after a severe tumble back April. We saw a positive article this morning talking about IRM.

Iron Mountain (IRM), aka the “outlier” (in my words), has built a sustainable platform around serving the needs of more than 230,000 customers in 53 countries on six continents. As told on its website, Iron Mountain serves organizations in every major industry and of all sizes, including more than 95% of the Fortune 1,000.

This means that Iron Mountain is perhaps the most diversified REIT there is (even more diversified that Realty Income) that rents millions of boxes (e.g., lawyers, the IRS, bankers, etc. require storage) with extremely strong retention rates of around 98%. And because of its low capital expenditure (or capex) on maintenance, its business model has solid pricing power that allows it to generate strong returns.

Furthermore, validating the “sticky” investment thesis, Iron Mountain’s destruction trends have been consistent over time. This company has clearly become the trusted document storage company – by design – and it has the logistics network, developed over a 68-year span, to pick up, transport, and store documents cheaper than anyone else out there right now.

Why so cheap?

Pundits argue that paper is going the way of the dinosaur, and because Iron Mountain rents boxes filled with a lot of paper (and shreds paper too), the market has become increasingly nervous that the company will not be able to maintain a competitive footprint in the global storage industry.

Yet, Iron Mountain has excelled at introducing innovative practices to bridge the gap – from paper to the cloud. For example, Iron Mountain owns 13 operating data center buildings and has around $210 million of data center projects in development (the company values the data portfolio at $2.5 billion).

Iron Mountain entered the data center market in late 2017 and has since made several bolt-on acquisitions totaling over $1.5 billion. By 2020, it hopes to get 7% of revenue and 10% of EBITDA from that segment. The company’s payout ratio is ~82% (our estimate) and we forecast the dividend to grow by around 3.5% in 2020. Given the pullback in price (YTD) we see catalysts supporting a stock that could generate 25%-plus returns in 12-18 months. Maintaining Strong Buy. https://seekingalpha.com/article/4288741-welcome-reit-garage-sale-separating-trash-treasure

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