I Love This Storage REIT And Here's Why

Before I get started, let me be clear, I’m not recommending a self-storage REIT today.

Summary

  • IRM customers' storage needs are largely unaffected by interest rate movements, and the company's core storage NOI doesn't change with the value of the underlying real estate.
  • In a rising rate environment, this structure reduces IRM's exposure to real estate value fluctuations compared with REITs that own their entire portfolios.
  • This REIT is definitely uniquely positioned and I see more potential as the Iron Mountain brand continues to widen its moat.

Before I get started, let me be clear, I’m not recommending a self-storage REIT today.

I’m not even recommending a Data Storage REIT (although there’s an excellent article on CyrusOne (NASDAQ:CONE) in the upcoming newsletter).

My favorite storage REIT is unique and, accordingly, I am making the case that Iron Mountain (IRM) is a clear winner, because the company is distinguished because of the relative insensitivity to higher interest rates.

Simply put, IRM customers' storage needs are largely unaffected by interest rate movements, and the company's core storage NOI doesn't change with the value of the underlying real estate.

The company has an operating business, and that means it effectively controls real estate through long-term leases with multiple lease extension options and direct ownership in strategic locations of about one-third of its properties. IRM controls ~86 million square feet (27 million owned and 59 million leased), and the average building size is ~60K square feet.

In a rising rate environment, this structure reduces Iron Mountain's exposure to real estate value fluctuations compared with REITs that own their entire portfolios. Additionally, it should be noted that the company enjoys higher levels of real price increases during periods of more inflation.

Since the company owns less real estate (owns 27 million sq. ft. and leases 59 million sq. ft.), the operations drive the value for the company. Because IRM has hundreds of customers, it can pass through increases, and this means the REIT is less impacted by rising rates.

Also, IRM has only 2% customer turnover in a given year... this means 50% of the boxes that were stored 15 years ago still remain. Now you know what I mean when I say, "This REIT has exceptional shelf life."

Iron Mountain REIT

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