Proposed Conversion Aligns With Operating Strategy and Provides
Significant Benefits to Stockholders
Company to Distribute Accumulated Earnings and Profits (E&P) of
Approximately $1.0 Billion to $1.5 Billion in Conjunction with Conversion
Company Announces 8% Increase in Quarterly Dividend Rate
Long-Term Capital Strategy Will Naturally Shift Toward Increased Use
of Equity to Support Lower Leverage and Real Estate Investment
BOSTON--(BUSINESS WIRE)--Jun. 5, 2012--
Iron
Mountain Incorporated (NYSE: IRM) today announced that its Board of
Directors has unanimously approved a plan for the company to pursue
conversion to a Real Estate Investment Trust (REIT). This decision
follows a thorough analysis and careful consideration of ways to
maximize value through alternative financing, capital and tax
strategies. Should the company be successful in the conversion process,
it would plan to elect REIT status no sooner than its taxable year
beginning January 1, 2014.
“Our Board and management team believe that electing REIT status will
maximize value as we advance our operating strategy,” said
Richard
Reese
, Iron Mountain’s Chairman and Chief Executive Officer. “A key
element of our strategic plan is a disciplined capital allocation
strategy to increase stockholder payouts and the REIT structure supports
this plan. Additionally, a REIT conversion will have virtually no impact
on our customers. They will experience no change in the people,
procedures or industry-leading chain-of-custody they have come to trust
with Iron Mountain.”
REIT Structure Supports Higher Returns and New Value-Creating
Opportunities
“The REIT structure provides stockholders with dividends from U.S. tax
savings and other increases in distributable income that will enhance
stockholder returns,” said Reese. “Over time the new structure will
facilitate distribution of profits covering approximately 90% of our
global storage operations and will also create new opportunities for
value creation through increased ownership of real estate and expansion
of our stockholder base.
“Given that the largest portion of our income is from renting storage
space to customers in our more than 64 million square feet of real
estate around the globe, we believe conversion to a REIT is the best
structure under which to execute our strategy,” added Reese. “The
quality and diversity of our customers are at the center of this
opportunity – supporting a very durable rental income stream, with
stable, high occupancy levels, strong retention and low tenant turnover
costs. These characteristics of our business are strikingly similar to
those of many real estate and related service companies, and by some
measures, even more attractive.”
Company Announces Plan to Support Conversion and Stockholder Payouts
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.
Separately, the company announced an 8% increase in its next six regular
quarterly dividend payments, accelerating distributions to stockholders
with total cash dividends over that period of approximately $280
million, based on the company’s currently outstanding shares of common
stock. The next quarterly dividend of $0.27 per share is payable on July
13, 2012 to stockholders of record on June 22, 2012.
In addition to payments to stockholders, Iron Mountain expects to incur
approximately $325 million to $425 million in one-time costs to support
the conversion process, including related income tax liabilities. The
company plans to seek a Private Letter Ruling (PLR) from the IRS on a
number of technical tax issues, including the characterization of its
racking assets as real estate, which would result in a tax liability for
the recapture of depreciation expenses. The total recapture of
depreciation and amortization expenses across all relevant assets is
expected to result in U.S. federal and state tax liabilities of
approximately $225 million to $275 million to be paid out over up to
five years beginning in 2012, a significant portion of which may be paid
in 2012. Additionally, the company currently estimates additional
conversion costs over that period to be approximately $100 million to
$150 million with approximately $20 million to $30 million of that
amount in 2012 (including approximately $10 million in capital
expenditures). If the conversion is successful, the company expects to
incur an additional $5 million to $10 million in annual compliance costs
in future years and may also incur costs and record non-cash charges to
realign its employee equity compensation plans with the REIT strategy.
The company will consider the issuance of debt and/or equity to support
projected conversion-related cash requirements, including stockholder
distributions, tax payments and other conversion costs noted above.
Long-Term Capital Strategy Moving Toward Lower Leverage and Increased
Use of Equity
“As a REIT, we will evaluate opportunities to increase our capital
allocation toward ownership of currently leased real estate,” said
Brian
McKeon
, Iron Mountain’s Chief Financial Officer. “Increased ownership of
real estate can provide high return investment opportunities. 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.
“We also expect our long-term capital strategy will naturally shift
toward lower leverage, reflecting the loss of tax advantages associated
with deductibility of interest expense,” added McKeon. “We will consider
a variety of approaches to shift our debt/equity mix toward more equity.
This will support our goals of increasing our investment in currently
leased real estate and of lowering our leverage over time.”
Successful Conversion Requires Approvals; Significant Hurdles Remain
The company has completed an extensive analysis of the REIT requirements
and believes it can meet the operational and technical thresholds
following the sale of its digital business in June 2011, and by
structuring a portion of its international operations as Qualified REIT
Subsidiaries (QRS) over time. The company’s planned timeframe for REIT
election is driven by a number of factors, including: (1) the
requirement to separate the U.S. business into Taxable REIT Subsidiaries
(TRS) and QRS; (2) the extent of the company’s global operations and the
need to separate certain of its international subsidiaries into the
QRS/TRS structure; (3) the complexity of required modifications to
information and accounting systems; (4) further review and development
of optimal domestic and international structures; and (5) refinement of
the REIT testing process.
“We have done the work necessary to feel comfortable that we can operate
as a REIT; however, there are a number of hurdles yet to be cleared that
are out of our control and there can be no assurances we will be
successful in our planned conversion,” said Reese. “Our team charged
with providing support to the Board throughout this process has done an
outstanding job getting us to this point.”
As noted, Iron Mountain will file a PLR request seeking rulings on
several technical tax issues. Should the company be unsuccessful in
obtaining favorable IRS rulings, it will not be able to successfully
convert to the REIT structure but may still be required to pay up to
$225 million to $275 million related to the tax on the depreciation and
amortization recapture. In addition, stockholder approval will be
required to effect the necessary corporate reorganization, including a
provision to establish REIT-related ownership restrictions in Iron
Mountain’s charter. Should the company fail to complete the conversion
process it will have incurred substantial costs in this effort.
Principal advisors to the company related to the REIT conversion are EA
Markets LLC, J.P. Morgan Securities LLC, Latham & Watkins LLP, Morgan
Stanley & Co. LLC, PricewaterhouseCoopers LLC and Sullivan & Worcester
LLP.
Conference Call and Investor Presentation
Iron Mountain will discuss the details of its announcement to pursue a
potential conversion to a REIT on a conference call for investors on
Wednesday, June 6 at 8:30 AM ET. The public may access the conference
call through a live audio webcast available on the investor relations
section of its website, www.ironmountain.com.
The conference call can also be accessed in listen-only mode by dialing
(888) 263-0282 for domestic callers or (706) 902-0708 for international
callers, conference ID 88486519. The company suggests participants dial
in approximately 10 minutes before the call. In addition, a replay of
the call may be accessed online at the investor relations section of its
website, www.ironmountain.com,
or by phone in the U.S. at (855) 859-2056 for domestic callers or (404)
537-3406 for international callers, conference ID 88486519. Telephone
replays will be available from 12:00 PM ET on June 6, 2012 until 11:59
PM ET on June 13, 2012.
Iron Mountain will also post an investor presentation on the investor
relations section of its website, www.ironmountain.com,
by 6:00 PM ET on Tuesday, June 5, 2012. The presentation will be
furnished to the Securities and Exchange Commission (SEC) and will be
available on the SEC’s website www.sec.gov.
About Iron Mountain
Iron Mountain Incorporated (NYSE: IRM) provides information management,
storage and services that help organizations lower the costs, risks and
inefficiencies of managing their physical and digital data. The
company’s solutions enable customers to protect and better use their
information—regardless of its format, location or lifecycle stage—so
they can optimize their business and ensure proper recovery, compliance
and discovery. Founded in 1951, Iron Mountain manages billions of
information assets, including business records, electronic files,
medical data, emails and more, for organizations around the world. Visit www.ironmountain.com
for more information.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This press release contains forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and
other securities laws. The forward looking statements are subject to
various known and unknown risks, uncertainties and other factors. When
the company uses words such as “believes,” “expects,” “anticipates,”
“estimates,” “plans” or similar expressions, the company is making
forward looking statements. Although the company believes that its
forward looking statements are based on reasonable assumptions, its
expected results may not be achieved, and actual results may differ
materially from its expectations. For example:
-
This press release states that the company plans to pursue conversion
to a REIT and that the company believes it can meet the operational
and technical thresholds of becoming a REIT. In fact, there are
significant implementation and operational complexities to address
before the company can convert to a REIT, including obtaining a
favorable PLR from the IRS, completing internal reorganizations and
modifying accounting, information technology and real estate systems,
receiving stockholder approvals and making required stockholder
payouts. The company can provide no assurance when conversion to a
REIT will be successful, if at all. In addition, REIT qualification
involves the application of highly technical and complex provisions of
the Internal Revenue Code of 1986, as amended (the Code), to the
company’s operations as well as various factual determinations
concerning matters and circumstances not entirely within the company’s
control. Although, if it converts to a REIT, the company plans to
operate in a manner consistent with the REIT qualification rules, the
company cannot give assurance that it will so qualify or remain so
qualified.
-
This press release states that the company plans to elect REIT status
no earlier than the taxable year beginning January 1, 2014. In fact,
the company does not know when, if at all, it will elect REIT status,
and it may not do so. Further, as described in this press release,
many conditions must be met in order to complete the conversion to a
REIT, and the timing and outcome of many of these are beyond the
company’s control.
-
This press release states that the company believes electing REIT
status will provide significant benefits to stockholders, maximize
value, provide increases in distributable income to enhance
stockholder returns over time, increase the ownership of real estate
and expand the company’s stockholder base. The company’s Board of
Directors considered a variety of strategies, and there can be no
assurance that conversion to a REIT will be the most beneficial of the
alternatives considered. Further, conversion to a REIT may not result
in increases in distributable income, and the company can provide no
assurance that its stockholder base will be expanded.
-
This press release provides an estimated range of the company’s E&P
distribution. The company is in the process of conducting a study of
its pre-REIT accumulated earnings and profits as of the close of the
company’s 2010 taxable year using the company’s historic tax returns
and other available information. This is a very involved and complex
study, which is not yet complete, and the actual result of the study
relating to the company’s pre-REIT accumulated earnings and profits as
of the close of the company’s 2010 taxable year may be materially
different from the company’s current estimates. In addition, the
estimated range of the company’s E&P distribution is also based on its
projected taxable income for its 2011, 2012 and 2013 taxable years and
its current business plans and performance, but the company’s actual
earnings and profits (and the actual E&P distribution) will vary
depending on, among other items, the timing of certain transactions,
the company’s actual taxable income and performance for 2012 and 2013
and possible changes in legislation or tax rules and IRS revenue
procedures relating to distributions of earnings and profits. For
these reasons and others, the company’s actual E&P distribution may be
materially different from the company’s estimated range.
-
This press release states that the company expects to pay up to 80% of
the E&P distribution in the form of company common stock. The company
may, in fact, decide, based on its cash flows, strategic plans, IRS
revenue procedures relating to distributions of earnings and profits,
leverage and other factors, to pay some or all of these amounts in all
cash or a mix of cash and common stock that pays stockholders up to
80% in Iron Mountain common stock.
-
This press release states that the company anticipates distributing a
significant portion of the E&P distribution in the fourth quarter of
2012 and expects to distribute the balance over several years
beginning in 2013. The timing of the planned E&P distributions, which
may or may not occur, may be affected by potential tax law changes,
including an extension of the current tax law regime for taxation of
dividends, the completion of various phases of the REIT conversion
process and other factors beyond the company’s control.
-
This press release states that the company plans to increase its
regular quarterly dividends to stockholders over the next six
quarters. The company can provide no assurance that it will increase
or even maintain its current level of dividend payouts. In addition,
future dividends will be dependent on the company’s cash flows, as
well as the impact of alternative, more attractive investments to
dividends.
-
This press release provides an estimated range of the company’s tax
and other costs to convert to a REIT, including estimated tax
liabilities associated with a change in the company’s method of
depreciating and amortizing various assets and annual compliance
costs. The company’s estimate of these taxes and other costs may not
be accurate, and such costs may turn out to be higher than the
company’s estimates due to unanticipated outcomes in the PLR, changes
in the company’s business support functions and support costs, the
unsuccessful execution of internal planning, including restructurings
and cost reduction initiatives, or other factors.
-
This press release states that the company expects to seek a PLR from
the IRS and that the company requires favorable rulings from the IRS
before converting to a REIT. The company can provide no assurance that
the IRS will ultimately provide the company with a favorable PLR or
that any favorable PLR will be received in a timely manner for the
company to convert successfully to a REIT as of January 1, 2014.
Further, changes in legislation or the federal tax rules can adversely
impact the company’s ability to convert to a REIT or the benefits of
being a REIT.
-
This press release states that the company may issue a portion of the
E&P distribution in shares of its common stock and that it expects to
shift its debt/equity mix toward more equity. Whether the company
issues equity, at what price and amount and other terms of any such
issuances, will depend on many factors, including alternative sources
of capital, the company’s then existing leverage, the company’s need
for additional capital, market conditions and other factors beyond the
company’s control. If the company raises additional funds through the
issuance of equity securities or debt convertible into equity
securities, the percentage of stock ownership by the company’s
existing stockholders may be reduced. In addition, new equity
securities or convertible debt securities could have rights,
preferences, and privileges senior to those of the company’s current
stockholders, which could substantially decrease the value of the
company’s securities owned by them. Depending on the share price the
company is able to obtain, the company may have to sell a significant
number of shares in order to raise the capital it deems necessary to
execute its long-term strategy. The company’s stockholders may
experience dilution in the value of their shares as a result.
-
This press release states that the company intends to shift its
long-term capital strategy toward lower leverage. The company can
provide no assurance that it will lower its leverage. The cost of the
company’s debt will depend on numerous factors, many of which are
outside the company’s control, including interest rates.
The company’s forward looking statements should not be relied upon
except as statements of the company’s present intentions and of the
company’s present expectations, which may or may not occur. Cautionary
statements should be read as being applicable to all forward looking
statements wherever they appear. Except as required by law, the company
undertakes no obligation to release publicly the result of any revision
to these forward looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Readers are also urged to carefully review and
consider the various disclosures the company has made in the company’s
filings with the SEC, including the sections “Risk Factors” and
“Cautionary Note Regarding Forward Looking Statements” in the company’s
Annual Report on Form 10-K for the year ended December 31, 2011 filed
with the SEC on February 28, 2012.
Source: Iron Mountain Incorporated
Iron Mountain Incorporated
Investor Relations
Stephen
P. Golden, 617-535-4766
Vice President, Investor Relations
sgolden@ironmountain.com