Favorable Private Letter Rulings Received from Internal Revenue
Service
Electing REIT Status Effective January 1, 2014
Company Updates Guidance and Estimated Special and Regular
Distribution Amounts
BOSTON--(BUSINESS WIRE)--
The board of directors of Iron
Mountain Incorporated (NYSE: IRM), the storage and information
management services company, has unanimously approved the company’s
conversion to a real estate investment trust (“REIT”) for the taxable
year beginning January 1, 2014, following the receipt of favorable
private letter rulings from the Internal Revenue Service, including a
ruling regarding the characterization of the company’s steel racking
structures as real estate for REIT purposes under the Internal Revenue
Code.
“We are delighted to be moving forward with our conversion to a REIT,”
said William L. Meaney, Iron Mountain chief executive officer. “We
believe the REIT structure fits well with our business and will enhance
value for our stockholders through increased payouts. Moreover, this
structure enhances our ability to sustain our durable, high-return
storage rental business, expand our presence in emerging markets and
pursue emerging business opportunities through disciplined capital
allocation. As a result of successful conversion, we can offer
stockholders the benefits of enhanced yield and stable, low-risk growth,
thereby maximizing total returns.”
The company will host a conference call and webcast to discuss the
planned REIT conversion tomorrow, Thursday June 26, 2014 at 8:30 am ET.
For webcast and conference call details, please visit the company’s
investor relations website at http://investors.ironmountain.com/company/for-investors/events-and-presentations/events/default.aspx
Special and Regular Distributions
In accordance with tax rules applicable to REIT conversions, in order
for Iron Mountain to be eligible to elect REIT status for the taxable
year beginning January 1, 2014, Iron Mountain anticipates making a
special distribution in the second half of 2014 of the company’s
previously undistributed accumulated earnings and profits (the “2014
Special Distribution”). The 2014 Special Distribution also will
encompass some extraordinary items of taxable income that the company
expects to recognize in 2014, such as depreciation recapture in respect
of the company’s accounting method changes commenced in its pre-REIT
period as well as foreign earnings and profits that the company
repatriates as dividend income. Based on its current analysis, the
company estimates that the aggregate amount of the 2014 Special
Distribution will be between $600 and $700 million. The company expects
to pay the 2014 Special Distribution in a combination of the company’s
common stock and cash, with at least 80% in the form of common stock and
up to 20% in cash. The 2014 Special Distribution follows an initial
earnings and profits distribution of $700 million paid on November 21,
2012 and will result in a total estimated payout of Iron Mountain’s
accumulated earnings and profits distributions associated with its REIT
conversion, as well as the other extraordinary items of taxable income
described above, of a range of $1,300 to $1,400 million. Iron Mountain
will publicly announce a record date and payment date for the 2014
Special Distribution after such dates are determined by the board of
directors.
Additionally, Iron Mountain expects its full-year 2014 annual
distribution as a REIT to be $400 to $420 million, excluding the 2014
Special Distribution, compared with the current projected annual
dividend of approximately $207 million. Based on 193 million shares of
common stock outstanding, this amount represents a regular quarterly
distribution of approximately $0.52 to $0.54 per share. However, the
actual quarterly distribution rate per share for the remainder of 2014
will be adjusted to reflect cash distributions already paid on the
common stock in 2014 and the number of shares of common stock issued in
connection with the 2014 Special Distribution. Iron Mountain intends to
make quarterly distributions that in the aggregate equal or exceed the
minimum annual distribution required as a REIT, although the timing and
amount of future distributions is at the discretion of Iron Mountain’s
board of directors and will be based on a number of factors, including
investment opportunities to advance the company’s strategic plan.
Principal advisors related to the REIT conversion are Sullivan &
Worcester LLP, Latham & Watkins and PricewaterhouseCoopers LLP.
Financial Performance Outlook
Today the company updated 2014 guidance for Adjusted OIBDA, Adjusted EPS
and Free Cash Flow (FCF) to reflect the expected election of REIT status
effective January 1, 2014. Additionally, the company adjusted the range
for regular dividends it would expect to distribute as a REIT. This
guidance is based on current expectations and does not include the
potential impact of any future acquisitions or divestitures:
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($MM except per share data)
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Previous C-Corp
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C$ Growth
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REIT
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C$ Growth
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Revenues
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$3,090 - $3,170
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2% - 4%(1)
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$3,090 - $3,170
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2% - 4%
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Adjusted OIBDA(2)
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$930 - $960
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2% - 5%
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$915 - $945
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0% - 3%
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Adjusted EPS
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$1.03 - $1.14
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$1.37 - $1.52(3)
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Investments:
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Capex (ex: Real Estate)(4)
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~$245
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~$250
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Real Estate(5)
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~$90
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~$90
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FCF (ex: Real Estate)
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$300 - $340
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$350 - $390
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FFO (Normalized)
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N/A
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$435 - $485
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AFFO
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N/A
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$565 - $615
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Annual Dividend
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~$207
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$400 - $420
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1. Includes 0% - 2% internal revenue growth
2. Excludes approximately $6 million of charges related to the company’s
organizational realignment and includes on-going REIT compliance costs
of approximately $15 million
3. Assumes 193 million shares outstanding
4. Includes ~$6 million for the relocation of the Boston headquarters
and $5 million of REIT conversion Capex
5. Includes ~$40 million for data center construction
Guidance for 2014 assumes approximately 2.5% revenue benefit and
approximately $20 - $25 million of Adjusted OIBDA from 2013
acquisitions, including initial acquisition integration costs. The
company’s 2014 guidance reflects expected cost savings from 2013
restructuring initiatives; those benefits will offset cost inflation and
pressure from expected core service declines and will support investment
to advance the company’s strategic plan. The company’s capital spending
and free cash flow outlook include an estimated $50 million of spending
related to acquisition integration and facility consolidation.
Revised 2014 REIT guidance includes the impact from ongoing annual REIT
compliance costs of approximately $15 million. Revised 2014 guidance
does not include costs associated with the company’s REIT conversion
(“REIT Costs”), reversal of certain deferred tax items resulting from
the REIT conversion or shares of common stock issued as part of the 2014
Special Distribution.
About Iron Mountain
Iron Mountain Incorporated (NYSE: IRM) is a leading provider of storage
and information management services. The company’s real estate network
of over 66 million square feet across more than 1,000 facilities in 36
countries allows it to serve customers around the world. And its
solutions for records
management, data
management, document
management, and secure
shredding help organizations to lower storage costs, comply with
regulations, recover from disaster, and better use their information.
Founded in 1951, Iron Mountain stores and protects billions of
information assets, including business documents, backup tapes,
electronic files and medical data. Visit www.ironmountain.com
for more information.
Forward Looking Statements
This press release contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and
other securities laws and is subject to the safe-harbor created by such
Act. Forward-looking statements include Iron Mountain’s 2014 financial
performance outlook and statements regarding Iron Mountain’s
stockholders benefitting from stable, low-risk growth, the estimated
amount of the 2014 Special Distribution and Iron Mountain’s estimated
2014 regular distributions, Iron Mountain’s operations, economic
performance, financial condition, goals, beliefs, future growth
strategies, investment objectives, plans and current expectations and
the anticipated benefits from Iron Mountain’s proposed conversion to a
REIT. These 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” or
similar expressions, it is making forward-looking statements.
Although the company believes that the forward-looking statements are
based on reasonable assumptions, its expected results may not be
achieved, and actual results may differ materially from its
expectations. Important factors that could cause actual results to
differ from expectations include, among others: (i) the actual 2014
Special Distribution and the company’s expected full-year 2014 minimum
annual distribution as a REIT may be materially different from the
company’s estimates set forth above; (ii) the cost to comply with
current and future laws, regulations and customer demands relating to
privacy issues; (iii) the impact of litigation or disputes that may
arise in connection with incidents in which we fail to protect our
customers' information; (iv) changes in the price for our storage and
information management services relative to the cost of providing such
storage and information management services; (v) changes in customer
preferences and demand for our storage and information management
services; (vi) the adoption of alternative technologies and shifts by
our customers to storage of data through non-paper based technologies;
(vii) the cost or potential liabilities associated with real estate
necessary for our business; (viii) the performance of business partners
upon whom we depend for technical assistance or management expertise
outside the U.S.; (ix) changes in the political and economic
environments in the countries in which our international subsidiaries
operate; (x) claims that our technology violates the intellectual
property rights of a third party; (xi) changes in the cost of our debt;
(xii) the impact of alternative, more attractive investments on
dividends; (xiii) our ability or inability to complete acquisitions on
satisfactory terms and to integrate acquired companies efficiently; and
(xiv) other trends in competitive or economic conditions affecting our
financial condition or results of operations not presently contemplated;
and (xv) other risks described more fully in the company’s Annual Report
on Form 10-K filed on February 28, 2014, under “Item 1A. Risk Factors,”
and other documents that the company files with the Securities and
Exchange Commission from time to time.
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.
Non-GAAP Financial Measures
We have included supplemental non-GAAP financial measures in the
guidance section of this press release. This presentation of non-GAAP
financial measures should not be considered in isolation from, or as a
substitute for, the most directly comparable GAAP measures. We believe
that these non-GAAP financial measures provide meaningful supplemental
information regarding the company’s operating results primarily because
they exclude amounts we do not consider part of ongoing operating
results when planning and forecasting and assessing the performance of
the organization or our individual operating segments. We believe that
our non-GAAP financial measures also facilitate the comparison by
management and investors of results for current periods and guidance for
future periods with results for past periods.
Adjusted OIBDA
Adjusted OIBDA is defined as operating income before depreciation,
amortization, intangible impairments, (gain) loss on disposal/write-down
of property, plant and equipment, net, and REIT Costs. These measures
are an integral part of the internal reporting system we use to assess
and evaluate the operating performance of our business. We use multiples
of current or projected Adjusted OIBDA in conjunction with our
discounted cash flow models to determine our overall enterprise
valuation and to evaluate acquisition targets. We believe Adjusted OIBDA
provides our current and potential investors with relevant and useful
information regarding our ability to generate cash flow to support
business investment.
Adjusted Earnings Per Share from Continuing
Operations, or Adjusted EPS
Adjusted EPS is defined as reported earnings per share from continuing
operations excluding: (1) (gain) loss on the disposal/write-down of
property, plant and equipment, net; (2) intangible impairments; (3)
other (income) expense, net; (4) REIT Costs; and (5) the tax impact of
reconciling items and discrete tax items. We do not believe these
excluded items to be indicative of our ongoing operating results, and
they are not considered when we are forecasting our future results. We
believe Adjusted EPS is of value to our current and potential investors
when comparing our results from past, present and future periods.
Free Cash Flows before Acquisitions and
Discretionary Investments, or FCF
FCF is defined as Cash Flows from Operating Activities from continuing
operations less capital expenditures (excluding real estate and capital
expenditures associated with the REIT conversion), net of proceeds from
the sales of property and equipment and other, net, and additions to
customer relationship and acquisition costs. REIT Costs are also
excluded from FCF. Our management uses this measure when evaluating the
operating performance of our consolidated business. We believe this
measure provides relevant and useful information to our current and
potential investors. FCF is a useful measure in determining our ability
to generate excess cash that may be used for reinvestment in the
business, discretionary deployment in investments such as real estate or
acquisition opportunities, returning of capital to our stockholders and
voluntary prepayments of indebtedness.
Funds From Operations, or FFO and FFO (Normalized)
FFO is a non-GAAP financial measure commonly used in the REIT industry.
FFO is defined by the National Association of Real Estate Investment
Trusts (NAREIT) and us as net income excluding gains and losses on the
sale or write-down of real estate assets plus depreciation on real
estate assets. FFO does not give effect to real estate depreciation and
amortization because these amounts are computed, under GAAP, to allocate
the cost of a property over its useful life. Because values for
well-maintained real estate assets have historically increased or
decreased based upon prevailing market conditions, we believe that FFO
(Normalized) provides investors with a clearer view of our operating
performance. Our most directly comparable GAAP measure to FFO
(Normalized) is net income attributable to Iron Mountain. Although
NAREIT has published a definition of FFO, modifications to the NAREIT
calculation of FFO are common among REITs as companies seek to provide
financial measures that most meaningfully reflect their business. Our
definition of FFO (Normalized) excludes other items that we believe do
not appropriately reflect our underlying operations such as intangible
impairment charges, other income and expense (including foreign exchange
gains and losses), income and losses from discontinued operations,
provision or benefit from deferred taxes and REIT Costs.
Adjusted Funds From Operations, or AFFO
AFFO is defined as FFO (Normalized) excluding non-cash rent expense or
income, plus depreciation on non-real estate assets, amortization
expense (including amortization of deferred financing costs) and
non-cash equity compensation expense, less maintenance capital
expenditures. We believe AFFO is a useful measure in determining our
ability to generate excess cash that may be used for reinvestment in the
business, discretionary deployment in investments such as real estate or
acquisition opportunities, returning of capital to our stockholders and
voluntary prepayments of indebtedness.
Source: Iron Mountain Incorporated