How could a company turn down a chance to lower its tax bill, efficiently repatriate offshore earnings, and slice a couple of hundred basis points off cost of capital? Most couldn’t, and neither is Iron Mountain.

The data-storage and records-management company announced last week that it will do something that’s becoming very popular: convert to a real estate investment trust (REIT). REITs pay out 90% of their profits to shareholders as dividends, and in turn aren’t taxed on any profits.

In a conference call with analysts on June 6, Iron Mountain CEO Richard Reese and CFO Brian McKeon pointed out some of the other benefits of being a REIT: higher dividends for shareholders, the ability to repatriate earnings from outside the United States without paying U.S. taxes on them, and “lower effective financing costs” from converting some leased real estate to owned facilities that can be financed more cheaply.

On a pro forma basis for 2011, Iron Mountain would have saved $120 million to $130 million on its U.S. taxes if it had operated as a REIT, said McKeon. (The company had operating income of $611 million last year.)

A REIT has to derive 75% of its revenue from rents and other real estate activities, and Iron Mountain may qualify because it earns much of its income renting space to companies for document storage and protection.

Hoping to lure investors hungry for dividends who want to play the real estate market but don’t want to own property, operators of wireless-service towers, data-warehousing firms, and health-care facility companies are also contemplating converting to REIT status.

But, as Reese pointed out in the call, converting to a REIT “is not a risk-free decision.” Nor is it cheap.

Being a REIT has one big disadvantage: a REIT cannot deduct the interest it pays on debt financing. So Iron Mountain is going to have to overhaul its capital structure. “We built the business on debt,” Reese said on the call. “I’ve said loud and clear many times we’d never need another dollar of equity. Now I am saying loud and clear, ‘new strategy, new plan, new face of the business, and equity has a role in it now.’”

But if Iron Mountain plans to issue new equity, stockholders are likely to worry about dilution. So CFO McKeon hopes to reduce the dilutive effect from new equity issuances by using an “at-the-market equity draw-down program.” Like stock buybacks that are conducted “at-the-market,” an equity draw-down program involves issuing new equity gradually, with the intent of minimizing the effect on the share price.

But there are some costs Iron Mountain will not be able to avoid. The two-year process for conversion (the company aims to be a REIT by January 1, 2014) is going to siphon cash from Iron Mountain’s business, as much as $425 million over a period of several years. Besides legal and tax advisory work, Iron Mountain has to invest in new accounting systems and a real estate asset-management system for reporting to investors, McKeon said.

“We have to redo our entire general ledger and accounting systems on a global basis,” said Reese. “And if you’ve ever tried to do that, you know that’s a lot of work.”

In addition, Iron Mountain will have to disgorge all accumulated earnings and profits (about $1.5 billion) to shareholders by the end of 2014.

And all this comes with another huge risk: the Internal Revenue Service has to approve Iron Mountain’s application for REIT status. While a change in tax law has “widened the aperture of what it means to be a REIT,” says CEO Reese, the company could fail to convert “because the IRS finds a problem with our private letter ruling and decides that our view of the world and their view of the world are not aligned.” Also, says Reese, if for some reason in the future a change in federal tax law redefines the parameters for real estate investment trusts, it could make Iron Mountain’s entire conversion project a “worthless endeavor.”

After the Iron Mountain call, Standard & Poor’s put the company’s “BB-” corporate credit rating on CreditWatch negative. But Iron Mountain shares are up almost 20% in the past week on news of the strategy.