Iron Mountain isn’t worth $30 Billion Dollars

Thesis: Iron Mountain isn’t worth $30 Billion dollars

Ideas:

1. Iron Mountain maintains REIT status to avoid paying corporate income tax; they are in the midst of transitioning from a physical storage REIT (like $PSA) to a Data Center REIT (like $DLR)

2. What is IRM's competitive advantage in building data centers + leasing their capacity?

3. IRM’s emphasis on sustainability is a farce

4. It’s debatable whether Iron Mountain can offload their data center capacity fast enough to pay off their debt

5. Iron Mountain’s “forward looking growth theme” (Project Matterhorn) is to fire people

REIT Notes:

• 75% of total assets must be held as real estate or cash

• The real estate isn’t required to be in the United States

• 75% of gross income must come from rent

• 90% of taxable income must be distributed to shareholders

• The above means that their operating overhead can only be 10% of net profit(including R&D investments)

• In 2023, REITs had an 11.4% rate of return

Financials & Debt:

• 30% of shares are held by Mutual Funds; 50% by Institutional Investors

• They paid $170 million in interest on debt in Q2

• IRM's Altman z-score is 1.2 (poor)

• Their CFO used to work at Kraft Heinz (S&P-worst Altman z-score of 0.83)

• IRM Debt-to-Equity ratio is >800; the REIT industry median is 0.79

• IRM has 17 Billion in long term debt; Haiti has 5 billion in debt.

• Digital Realty, an established data center REIT, has a market cap of ~$50 billion & P/E of ~40; IRM’s P/E ratio is 140

• Jane Street Capital bought $40 million dollars worth of shares on 08/15/24

• “A 10% depreciation in year-end 2023 functional currencies, relative to the United States dollar, would result in a reduction in our equity of approximately $422 million”

Project Matterhorn:

• “We expect to incur approximately $150 million in costs annually related to Project Matterhorn from 2023 – 2025. Costs consist of: restructuring, site consolidation, exit costs, severance, and costs for third party consultants who are assisting in the enablement of our growth initiatives”

• This approach is in addition to their 28% employee turnover rate

Iron Mountain’s Story (via. 2023 Annual Report):

• “Global leader in information management, innovative storage, data center infrastructure, and asset lifecycle management”

• 225,000 customers worldwide

• “We generate a majority of our revenues from contracted storage rental fees, via agreements that generally range from one to five years in length.”

• “More than 50% of physical records that entered our facilities approximately 15 years ago are still with us today”(😬)

• “As of December 31, 2022, our Global Data Center platform continues to match 100% of its consumption with renewable electricity procurement” (pointless as we all share the power grid)

Data Center Business (~500 M in revenue)

• From Q1 statement: “Leased 30MW of data center capacity”… this is just ~3.5% of their 860 MW total capacity. For reference, a single AWS Data Center was reported to have 960 MW.

• The rate of data center capacity growth >>> GPU production rate

• IRM has projected DECREASING “minimum lease payments” every year from now to 2028

Records & Information Management (RIM) Business (~3.5 Billion in Revenue)

• IRM stores 731.5 million cubic feet of records
• They have more leased property than owned (40 million sq ft vs. 17 million sq ft)
• Secure Shredding Service = They burn paper for you
• Fine Arts Storage Service = They assist in money laundering
• Iron Mountain is a safety deposit box for the cabal (e.g. Princess Diana, Elvis, Darwin, Prince, Bill Gates)

Iron Mountain InSight (Cloud SaaS):

• They host digitized corporate documents(trivial)

• this product has no synergy with leasing data center capacity

• Not a value add; they need this feature to MAINTAIN their RIM-job volume

• “Iron Mountain InSight is FedRamp ready on AWS and in process on GCP” – suggests that they won’t compete at the private/public cloud level; maybe a good acquisition target for Broadcomm(VMWare)…

My Position:

• IRM $87.5 Puts expiring 06/20/25

• 10 contracts @ $4.20; down ~33% since 08/05

TLDR: IRM’s 2023 Annual Report has 11 Pages of Risks