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May 31, 2017

S3 Research: Short Interest Peaks on Iron Mountain

Iron Mountain (IRM US), the storage and information management real estate investment trust, was recently recommended as a short idea by Eminence Capital’s Ricky Sandler at the SkyBridge Alternatives (SALT) Conference in mid-May.  Based on real-time shorting activity since the pitch, S3 Partners calculates shares on-loan now hitting a year-to-date high.

Bearish speculators currently have $623.2 million at risk on the short side, which is a 39.9% increase since the start of 2017 when short exposure was $445.6 million.   Measured on a share basis, S3 Partners calculates as much as 17.8 million shares are now being borrowed by short sellers, a 29.6% increase from the start of 2017 when 13.7 million shares were sold short. 

Some of the risks Mr. Sandler highlights that investors are not necessarily pricing into the current valuation include secular headwinds, high leverage, and unrealistic growth expectations.  This has led him to believe that there is “more than 50% downside” potential in the shares, noting the rise of technology that can offer similar services via the web on much cheaper terms.  

Many investors are long IRM in their portfolios as an income play since the dividend currently indicates a 6% annualized yield.  If the price starts to falter, the yield will subsequently rise, and the pay-out will ultimately become unsustainable. This could put further pressure on the shares as these income-seeking investors potentially unwind positions if the company cuts the quarterly distribution too aggressively.  

With the stock up 7.9% so far in 2017, there seems to be heavy conviction by bears to not only stay short the name, but also build bets even further with the hope of a pending avalanche in price, and not paper.  

Want deeper insight into the above analysis? Contact: 
Director, S3 Partners
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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