Last week Iron Mountain (NYSE:IRM) said that the registration statement of Iron Mountain REIT Inc. was declared effective. As a result, a special meeting of the company’s stockholders will be held Jan. 20, 2015, at which stockholders will consider and vote on a proposal to adopt the plan of merger between the company and Iron Mountain REIT, among other proposals, according to a Form 8-K filed Dec. 12.

That’s just a “rubber stamp” though since Iron Mountain is already a REIT in many ways. The biggest hurdle for the Boston-based company was receiving a Private Letter Ruling (or PLR) from the IRS and specifically a ruling regarding the characterization of the company’s steel racking structures as real estate. Earlier this summer Iron Mountain achieved IRS approval for REIT status retroactively as of January 1st, completing the process that began in 2012.

By converting to a REIT Iron Mountain will now be forced to pay out at least 90% of taxable income to investors, resulting in a substantially higher dividend than the company previously paid. Also, in addition to the clarity with regards to the definition of steel racking as real estate, Iron Mountain will be deemed somewhat of a hybrid as it relates to its peer classification.

Although Data Center REITs have racking systems (like Iron Mountain) the business model is entirely different from traditional data storage of self-storage because of the service component that is associated with Iron Mountain's integrated data management business. Conversely, Iron Mountain rents out space in larger buildings that are comparable to Industrial REITs. So in terms of peer orientation, Iron Mountain will likely not trade at full real estate values and that valuation gap is the topic of this article.

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