Iron Mountain shares have been on a sharp decline over the announcement that the IRS is reviewing their application to become a real-estate investment trust (REIT). Shares of the company dropped dropped 15% immediately following the announcement on Friday.
REITs were created by the IRS for small real estate investors 50 years ago. A REIT does not pay income taxes on any income they distribute to shareholders as a dividend. They must also pay out at least 90% of their taxable income. This structure has become more common recently as a strategy to reduce taxes.
As the number of applications increased the IRS announced they were reviewing the policy of what companies can qualify as a REIT. Other notable firms that were also trying to convert were Equinix, a data center operator, and Lamar Advertising, the billboard company.
One thing that may hold up the conversion for Iron Mountain is the revenue from its shredding services. While the revenue from their record storage may be argued to be real estate it is very difficult to say the same about a mobile shredding truck. One solution may be to spin this off into a separate company or sell it. The question the CFO needs to answer is how much the company stands to gain in tax savings by being an REIT.
So to summarize the events this year, Brambles tried and failed to sell Recall to Shred-it, analysts have suggested that Cintas sell their document shredding, and now Iron Mountain looks to organize in a way that would put its operation of shredding services in question. The larger players have a lot of pieces moving right now. This opens the door to two types of players. The first are private equity groups looking to buy up local players to create a regional or even a national footprint. The second are the local shredding service providers. They have the local focus to provide an unparalleled level of service to their customers and secure their position.