June 6, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of document storage specialist Iron Mountain (NYSE: IRM ) climbed 10% today after announcing plans to convert into a real estate investment trust.
So what: Management is making the move to maximize the company's value, and judging from the stock's response, Wall Street agrees wholeheartedly with the decision. REITs receive special tax considerations as they must distribute at least 90% of their profits to shareholders, so the conversion makes sense given Iron Mountain's stable, cash-generating business and substantial global land holdings.
Now what: Iron Mountain sees itself operating as a REIT no sooner than 2014 and, as part of conversion requirements, expects to distribute $1 billion-$1.5 billion to shareholders in accumulated earnings and profits. "As a REIT, we will evaluate opportunities to increase our capital allocation toward ownership of currently leased real estate," CFO Brian McKeon said. "Owning more of our facilities supports our valuation, helps ensure we meet the REIT asset test requirements going forward and can reduce our costs as we substitute more efficient capital funding for higher-cost lease financing." When you couple those benefits with the company's still-dominant position in the document management space, Iron Mountain is certainly a long-term income opportunity worth looking into.
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