鐵山公司 (IRM) 2020 Q4 法說會逐字稿

Good morning, and welcome to the Iron Mountain Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions)

Please note that this event is being recorded. I would now like to turn the conference over to Greer Aviv, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Andrew. Good morning, and welcome to our fourth quarter 2020 earnings conference call. We have provided the user-controlled slides on our Investor Relations website. We will also be providing the link to today's webcast and earnings materials. We are joined here today by Bill Meaney, President and CEO; and Barry Hytinen, our EVP and CFO.

Today, we plan to share a number of key messages to help you better understand our performance, including how we have successfully navigated the COVID-19 pandemic, how we continue to execute on Project Summit and the resulting transformation across the organization, how we have accelerated momentum in our data center business, and how we are increasing our commitment to diversity and inclusion and other sustainability initiatives.

After our prepared remarks, we'll open up the lines for Q&A. Today's earnings materials will contain forward-looking statements, including statements about our 2021 and longer-term expectations. As you know, all forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials the safe harbor language on Slide 2 and our Annual Report on Form 10-K for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliation to these measures as required by Reg G and our supplemental financial information.

With that, Bill, would you please begin?

Thank you, Greer, and thank you all for taking the time to join us. Let me start by saying I hope you and your families are safe and well.

As we close out a year, which has been marked by a first quarter, delivering near record growth growth to a remaining year where we had to manage headwinds from COVID. I want to take a few minutes to reflect on where we've been and where we're going. First, I want to pause and acknowledge that we continue to fight COVID-19, and we maintain making the safety of our employees, their families and our customers our first priority. Whilst we are optimistic of the positive impact the rollout of vaccines will have, we continue to believe that 2021 will look similar to 2020, albeit in reverse in terms of the macroeconomic landscape.

However, 2020 was also a year where there was much to celebrate, which came out of the creativity and resiliency demonstrated by our teams. I couldn't be more proud of my fellow mountaineers around the world in terms of the way we responded to the COVID-19 pandemic. In a phrase, we managed the crisis, the crisis didn't manage us. We continue to serve our customers where throughout the depths of the crisis, more than 96% of our facilities remained open. We maintained our focus on Project Summit, where we increased our targeted sustained annual cost savings from $200 million to $375 million, and have already achieved over $200 million on an annual run rate by the end of 2020.

We accelerated our growth in data center with 58.5 megawatts of new leases announced in 2020 versus 16.9 megawatts in 2019. We continued our investment in new products and innovation with a focus on supporting our customers' remote workforces. These services led to growth in our digital solutions year-on-year of 8%, excluding FX. And we continue to see good returns from our global strategic accounts organization and maintained our focus on shifting our culture as part of Project Summit to be one more in-tune with accelerating our revenue growth through new services and solutions. This continued focus on expanding our service offerings to our customer base of 225,000 customers and organizations, in spite of COVID, has allowed us to guide to organic revenue growth of 2% to 6% in 2021, the highest level of growth in the past decade.

This significant investment in innovation and new product development is supported by our purpose to be our customers' most trusted partner for protecting and unlocking the value of what matters most to them in innovative and socially responsible ways. Our strategy is highlighted by an important balance between accelerating growth, driven by developing end-to-end solutions to help our customers unlock value from their content as well as sustaining growth in physical storage and data center. In other words, being both the lock and the key to many of our customers' physical and digital data assets.

The strategy is underpinned by our high-performance, customer-obsessed culture and our strong customer connection with not only 225,000 customers, but over 950 of the world's largest 1,000 companies. It is not simply investment in products that has given us accelerated revenue growth but a deliberate focus on shifting our culture as part of Project Summit. This shift in culture is marked by a singular focus on our customers as our north star; an acceleration in our commitments around diversity and inclusion, not just because it is just, but also because it is a key to our strategic success in being a more creative and dynamic organization, which can deliver more value in tune with our customer needs; and an increase in our commitments to carbon neutrality. 2020 stars continue to secure renewable energy to meet the power needs of 100% of our data centers, even with the rapid increase in bookings in new facilities operating.

Some examples of our laser focus on how we have responded to our customers' needs in more creative ways, included processing unemployment benefits to get them into the hands of people in need during the crisis and setting up 12 digital mail rooms around the globe for customers who didn't know how they were going to stay connected with their remote workforce. In a phrase, we helped our customers when they needed it most. What that all means to me is that we came out of 2020 stronger than ever, a company with a new sense of momentum that will fuel both our top and bottom line growth.

For the next few minutes, allow me to illustrate for you what I mean by momentum. If resilience was the word for 2020, growth is the word for 2021. We're already seeing evidence of this growth in data centers, for example, and expect this to continue. As we have discussed before, we are also seeing good growth in digital solutions as well as physical storage, both from the continued durability of our records management business, together with an expanding consumer business and believe this growth should continue. This change in revenue growth trajectory is a direct result of the investments we have made in new product areas, coupled with changes we have made in our commercial engine. One of the fundamental changes we have made in our commercial approach is that we have invested in creating more time for our salespeople to engage differently with our strategic customers. This extra time with customers has allowed us to uncover new revenue opportunities, not just for additional physical storage and new data center customers, but for digital services, which provides both greater visibility for doc data as well as driving much more value from data borne both physically and digitally.

As a result, you can see, both from our performance last year as well as the guidance we have provided today for 2021, our company is more and more seen by our customers as a partner who, yes, protects and manages all their physical and digital assets, but also gives our customers the key to integrating their information, unlocking its value as well as accelerating their own digital transformation journey. For 70 years, we've offered protection for the assets our customers value most. We now more and more catalog, index, govern and manage complete information across physical and digital domains, securely storing what customers need, disposing of what they down and helping them unearth the insights that drive business transformation.

Let's now explore some exciting growth opportunities ahead of us. These are areas where we see great opportunities for growth as we position ourselves to unlock greater value for our customers and include data centers, fine arts and entertainment services, consumer storage, secure IT asset disposition or SITAD, small and medium business, content service platform, or CSP, think of this as electronic content management or ECM on steroids and secure offline storage for a highly secure air gap data storage for cost-effective protection against ransom attacks.

Let's go into a little bit more detail about a couple of these areas. In data center, we have built a strong global platform with 15 operating facilities across 3 continents since 2017. And we just announced an agreement, which once closed, will mark our entry into the very fast-growing Indian market through our investment in Web Werks. The total addressable market for our data centers globally is $20 billion, and is growing at over 10% for co-location or retail customers in over 40% for the hyperscale segment.

If you look at fine art storage and entertainment services, it's roughly a $2 billion market for both together. Just 2 months ago, the L.A. Times wrote an article about our entertainment services business. They called us the Fort Knox of Hollywood. The article highlighted how we are driving a different level of growth in that business through not just storage, but how we facilitate more opportunities for the studios and artists in distributing their assets to viewers and listeners.

In consumer, we've grown the business in 1 year from about 2 million cubic feet of storage to more than 7 million cubic feet of storage, so 3x as big in just 12 months. The total addressable market for consumer storage is more than $35 billion, and it is growing at about 5% to 6% per year. I'd note that our segment focus is on valet storage, where our logistics expertise gives us a strong competitive advantage as well as being a nice submarket, which represents a significant opportunity for future growth.

Our SITAD business has an addressable market of $10 billion, and we have seen strong growth in this business over the course of 2020. More importantly, we have found that our strong heritage around data security and chain of custody is proving a differentiator as we recently took on the global responsibility for SITAD on behalf of 2 large financial institutions. So hopefully, this helps you appreciate why we are so excited about the growth opportunities as we look to 2021 and beyond. Taken together, the 7 areas I highlighted earlier represent a significant market opportunity for us.

Let me put some context around that. If you look back to 2015, the total addressable market we competed in was $10 billion. And on average, those markets had low growth rates. Over the last 5 years, as we've listened to customers, built expertise and developed new products and solutions, the addressable market we now compete in is over $80 billion, yes, $80 billion. Additionally, those products and services that we've developed expertise in are growing at a 13% organic growth rate. So not only has the addressable market for expanded service has grown by over 8x, but these new areas have double-digit industry growth rates, which helps facilitate our entry. Let me now shift gears and briefly review our performance in the fourth quarter and throughout 2020.

At a high level, we couldn't have been more pleased with the way our mountaineers navigated the challenging environment in 2020 brought on by COVID-19. Throughout the pandemic, we were laser-focused on execution and controlling those factors that we could, leading to outperformance against our own internal expectations through the last 3 quarters of 2020. This resulted in continued strength in total storage rental revenue, which grew nearly 4% on a constant currency basis and 2.4% organically. While service revenue declines continued to offset the solid storage growth, we grew adjusted EBITDA 1.3% when adjusting for currency, and our margin expanded 110 basis points in 2020. This, all in spite of total revenue being down $115 million due to service activity declines.

I want to thank our teams across the globe who stayed focused in the face of so many obvious distractions. Our success is a reflection of our mountaineers' dedication, and most importantly, I have been inspired by the way our teams looked after both the physical and the mental health of each other as they navigated the threats from COVID, both at work and at home.

Turning now to our physical storage business. Total global organic volume was essentially flat compared to the third quarter. Contributing to this was a 1.9 million cubic foot increase in consumer and adjacent businesses, offset by a similar decrease in records and information management volume. For the full year, total global organic volume was flat, which is a good outcome considering the environment in which we were operating. This year, we expect total global organic volume to be flat to slightly up. Looking more specifically at RIM organic volume, this was down 1.9 million cubic feet sequentially. For the full year, organic volume declined 1.1%. In our Global Digital Solutions business in 2020, we were actually able to grow service revenue 8% year-over-year, excluding FX. Despite the pandemic, our team grew revenue. This goes back to the different mindset I mentioned earlier. We see a further acceleration in our digital solutions business going into 2021 and expect to exceed $300 million in revenue for the year.

Turning now to our Global Data Center segment. The team had a phenomenal year, blowing its leasing targets out of the water quarter after quarter. For the full year, we leased more than 58 megawatts remember, our target coming into 2020 was 15 to 20 megawatts. I want to underscore that, that success was not just the result of leasing to hyperscalers. We had very good commercial momentum in our core enterprise retail colocation business, which represented 12 megawatts of the 58 megawatts or close to 40% of our bookings, excluding Frankfurt. We attracted 73 new logos to our platform during 2020, adding to our broad and diverse base of more than 1,300 data center customers. This should enable us to strengthen our network ecosystem and increase the stickiness of our deployments.

We also had a busy year in terms of development with more than 10 megawatts commissioned across multiple data centers and geographies increasing our leasable megawatts to 130. Our team is actively adding to our development pipeline to ensure we have the right capacity in the right markets to meet robust customer demand, and we are excited for the opportunities we see ahead of us in 2021, where we expect to end the year with over 170 leasable megawatts. One of those opportunities is further expanding our data center footprint into new fast-growing markets. As I mentioned earlier, this morning, we announced entering into an agreement for a strategic JV with Web Werks, which once closed, would expand our reach to India, including Mumbai, Pune and Delhi. The data center market in India is projected to grow rapidly in the coming years, and India is the second largest telecommunications market in the world. We are excited to be an early mover into an emerging market where the demand is high and the supply is low.

Turning to Project Summit. We generated adjusted EBITDA benefits of $165 million in 2020, consistent with our most recent expectations and significantly ahead of our initial estimates of $80 million, reflecting strong execution in swift and decisive actions activity -- actions on early initiatives. This gives us an exit rate of annual savings of over $200 million heading into 2021. As you will hear from Barry in more detail, we are fully on track to recognize the estimated $375 million of adjusted EBITDA benefiting this year, and we are expecting -- and we are excited for the tangible benefits we will experience this year as we continue to enhance our technology and processes.

Before I wrap up, I'd like to provide a little more detail about our continued commitment to cut our carbon emissions I referenced earlier. We were one of the first 100 or so corporations worldwide to have an ambitious carbon reduction goal approved by the science-based targets initiative as being aligned with the Paris Climate Accord. Already in 2019, we reported that our goal to cut 25% was more than doubled by delivering a 52% reduction 6 years sooner than our 2025 commitment. As we did this whilst growing our global data center business, one of the most energy-intensive industries in the world. We continue to flex our innovation muscle around energy consumption as well as having introduced the Green Power Pass to our customers. This is the first solution of its kind and allows us to pass the benefits of 100% renewable energy data center platform to our customers for them to use to meet their sustainability targets. We are confident based upon the momentum we are building in this area that we can achieve 100% carbon neutrality well before 2050 in spite of our rapidly growing data center business.

To summarize, I've never been more optimistic about our opportunities for growth at any other time in our history, even with the anticipated continued headwinds due to COVID impacting our traditional service areas. And I've never been more proud of how we've behaved as an organization over the course of 2020 and through the pandemic. We went above and beyond for our customers and our teams and embrace new collaboration tools and change how we work. Our mountaineers truly lived our values day in and day out. I'm excited to be on this journey with you all, and I can't wait to see the future together.

With that, I'll turn the call over to Barry.

Thanks, Bill, and thank you for joining us to discuss our full year and fourth quarter results. In a challenging macro environment, our team delivered solid performance across each of our key financial metrics. For the full year, revenue of $4.1 billion declined 2.7% on a reported basis, which includes a 100 basis point impact from foreign exchange. Total organic revenue declined 3.3%. Organic service revenue declined 12.8%, reflecting the continued COVID impact on our activity levels. Despite the macro headwinds, total organic storage rental revenue grew 2.4%, driven by more than 2 points of revenue management. On a constant currency basis, adjusted EBITDA increased 1.3% year-on-year to $1.48 billion. Reflecting the team's strong progress with Project Summit and revenue management, EBITDA margin expanded 110 basis points to 35.6%, representing the best margin performance in the company's history. Importantly, we see opportunity for profitability to continue to expand over time. AFFO increased 2.4% to $888 million or $3.07 on a per share basis.

Before I go into more detail, let me draw your attention to Slide 13 of our earnings presentation. We have made some refinements to our non-GAAP measures, spurred by feedback from the investment community that some of our non-GAAP measures are difficult to compare to peers. This includes changes to how we account for unconsolidated ventures, stock-based compensation and a portion of growth capital. To ensure comparability and transparency, we have provided our results on both the former and new methodology. Of course, the prior method will be comparable to current consensus estimates. For example, under our former methodology, full year 2020 adjusted EBITDA was $1.45 billion, which compares to the current consensus of $1.446 billion. More detail is available in our earnings slides and on our Investor Relations website.

Now turning to our results for the quarter, which are based on our updated non-GAAP definitions. On a reported basis, revenue of $1.1 billion declined 1.8%, which includes a 40 basis point impact from foreign exchange. Total organic revenue declined 3.4%. Organic service revenue declined 12.1%. Overall, we continue to see service declines moderate with the fourth quarter reflecting a modest improvement in service trends. Total organic storage rental revenue grew 1.7%, driven by revenue management. Adjusted EBITDA was $374 million under both our new and former definition. We exceeded the projections we shared on our last call as revenue trends, both in storage and service, were better than planned. Fourth quarter EBITDA reflects progress on our Summit transformation, revenue management and favorable mix, offset by COVID-driven impacts to the business. AFFO was $191 million or $0.66 on a per share basis, in line with our prior projections. AFFO reflects an increase in recurring CapEx that have been deferred earlier in the year in higher cash taxes.

Turning to segment performance. In the fourth quarter, our global RIM business had strong storage revenue growth, driven by volume growth in our faster-growing markets and revenue management. This was offset by declines in service revenue, albeit at moderating levels compared to earlier in the year, leading to total organic revenue decline of 3.6%. In our shred business, the combination of lower tonnage and an 8% decline in paper price versus last year resulted in a net $3 million reduction in adjusted EBITDA. While there's been a slight step-up in the index prices in January, recycled paper prices have remained low. At recent levels, we anticipate paper prices will result in EBITDA headwind of slightly over $10 million in 2021. We are pleased with the continued momentum in our consumer storage business as it becomes a more meaningful contributor to our overall physical storage volume growth. Global RIM adjusted EBITDA margin expanded 40 basis points, driven by revenue management and Project Summit.

In the fourth quarter, we continue to see fixed cost deleverage as we ensure we are staffed to the appropriate level to fully support our customers. We also had a step-up in facility expense as we invested in maintenance that we had delayed over the prior 2 quarters. Taking a look at headline numbers for our Global Data Center business, full year bookings came in at 58.5 megawatts. Excluding the full building lease in Frankfurt, we leased 31.5 megawatts, representing bookings growth of 26%. Total revenue grew 9% year-over-year.

We are pleased with our data center performance for the year and expect to continue to see an improving trajectory, thanks to the strong commercial success. In 2021, we expect to lease 25 to 30 megawatts, which, at the midpoint, would result in more than 20% annual bookings growth. We feel good about the state of our pipeline, both from a hyperscale perspective as well as our core retail colocation. We project full year revenue growth in the range of low double digits to approaching mid-teens. With our strong prior year bookings, we have good visibility to revenue. For the first quarter, we expect growth rates similar to the fourth quarter as the bulk of our 2020 bookings commence in the second quarter and beyond.

Turning to Project Summit. As a reminder, we expect total program benefits of $375 million, of which we delivered $165 million in 2020. We expect an additional $150 million benefit in 2021 with the balance in 2022. This quarter, the team delivered $52 million of adjusted EBITDA benefit. As to capital expenditures, in the fourth quarter, we invested $163 million, bringing the full year to $446 million, in line with our prior expectations. In 2021, we expect total capital expenditures to be approximately $550 million, consisting of approximately $410 million of growth CapEx, of which we plan to allocate approximately $300 million to data center development. We expect $140 million of recurring CapEx.

Turning to capital recycling. In the fourth quarter, our program generated approximately $451 million of proceeds, which includes the Frankfurt data center joint venture we mentioned last quarter. For the full year, our capital recycling program generated approximately $475 million. I would like to call out the sale-leaseback transaction we announced in December, in which we sold a portfolio of 13 industrial facilities, generating gross proceeds of $358 million. This portfolio was sold at a cap rate slightly below 4.5%. This was a compelling opportunity for us to monetize a small portion of our owned industrial assets while effectively maintaining long-term control of the facilities through an initial 10-year lease with multiple renewal options, among other favorable terms.

On a leverage-neutral basis, this transaction freed up approximately $260 million of investable capital that we intend to redeploy into faster-growing areas, including our data center business. We plan to make these investments in 2021, so our year-end net debt balance reflects these proceeds. With a highly favorable market backdrop in our strong data center development pipeline, we are planning to continue to recycle industrial assets. In 2021, we are planning for $125 million of recycling.

Turning to the balance sheet. At year-end, we had approximately $2 billion of liquidity. We ended the year with net lease-adjusted leverage of 5.3x, down from 5.7x at year-end 2019. The pro forma, excluding the investable proceeds from our leaseback, leverage would have been slightly under 5.5x. As we have said before, we are committed to our long-term leverage range of 4.5 to 5.5x. For 2021, we expect to end the year within our target range near the high end. With our strong financial position, our Board of Directors declared a quarterly dividend of $0.62 per share to be paid in early April. As we have said before, we are fully committed to our dividend at this sustainable level. Our long-term target for payout ratio is low to mid-60s as a percentage of AFFO.

Now to give you more details as to our outlook for 2021, we are pleased to reinstitute financial guidance reflecting the strength of our business, our team's strong execution and improved visibility. For the full year 2021, we currently expect revenue of $4.325 billion to $4.475 billion. We expect adjusted EBITDA to be in a range of $1.575 billion to $1.625 billion. At the midpoint, this guidance represents revenue growth of 6% and EBITDA growth of 8%. At the midpoint, our guidance implies about 75 basis points of EBITDA margin improvement year-on-year. We expect AFFO to be in the range of $945 million to $995 million or $3.25 to $3.42 per share. At the midpoint, this represents 9% growth for both metrics. Our guidance assumes global physical volume will be flat to slightly positive, revenue management will be a significant benefit in 2021.

And I will note the majority of those actions have already been taken as we speak to you today, and nearly all of them will be in place by the end of the quarter as we are seeing in digital solutions, combined with a slight recovery in our service activity across the year. In terms of EBITDA, our expectations include the benefit from revenue management and top line growth as well as Project Summit savings. Partially offsetting those benefits is a prudent outlook for inflation, a step-up in cost from prior COVID-driven discretion, rent from our sale-leaseback transactions and innovation spend. While we do not typically guide quarterly, with the pandemic, we felt it would be helpful to share our expectations for the first quarter. On a dollar basis, we expect revenue and adjusted EBITDA to be consistent to slightly up from the fourth quarter results.

In summary, our team is executing well, visibility is improving, and our pipeline across the business has been strengthening over the last several months. We feel well-positioned as we move into 2021. I am confident in the team's ability to continue to build on our momentum.

And with that, operator, please open the line for Q&A.

(Operator Instructions)

The first question comes from George Tong of Goldman Sachs.

You highlighted growth opportunities from data centers, fine art, consumer storage, secure IT asset disposition and other services. Can you describe your go-to-market strategy to penetrate these growth markets? And what proportion of revenue you expect this growth portfolio to evolve to over the next 3 to 5 years?

George, thanks for the question. I think this year, most of the growth will be around the digital services, which I highlighted. So I said last year, we did 8%, and we see a further acceleration in that growth rate going into this year. And on SITAD, you'll continue to see -- it's a relatively small portion of the business. But as I said, to give you some idea of the scale, those 2 global contracts that we've signed early in this year to serve financial service institutions. Those 2 combined are probably in the order of about 15% year-on-year growth. So it's pretty high levels of growth on what it traditionally was smaller parts of our business.

But over time, over the next -- what you can expect is over the next year or 2, we'll start guiding more and more to those individual pieces of business. But if you think about it, what this all means is more on a consolidated basis, it gives us the confidence on guiding to say that we said that 2% to 6% growth in terms of top line range. And if you take the midpoint of 4%, it just gives us much more confidence as we go forward that we can really start driving bottom line growth, not just through margin expansion, but through top line growth because of the resiliency and the attractiveness of these new segments.

The next question comes from Shlomo Rosenbaum of Stifel.

Barry, maybe you could help me parse just the 2% to 6% organic revenue growth. When I look at it, the adjacent businesses versus the core business, if they're growing roughly 13% in line with the end markets, that seems to me it would be a little bit above 3% growth. What is the embedded assumption for the balance? In other words, the core business and the storage, is that assuming you're going to get consistent 2% to 3% pricing? And is there any FX that's involved in that as well?

Sure, Shlomo. Thanks for the question. If I take the total revenue guide, which is 4% to 8%, that's a little over $250 million at the midpoint or slightly over 6%. We're expecting data center, as I mentioned in the prepared remarks, to be up kind of double digits, approaching mid-teens. So that's, call it, $40 million of pure revenue growth, be it a small amount of FX on that number since you asked about that. And then turning to the global RIM business, we're projecting $200-plus million of total growth. Now that's assuming revenue management of the normal levels that we've been experiencing, 2% to 3%, maybe even a little bit closer to the high end as we continue to roll that out.

And as I mentioned in the prepared remarks, certainly, the vast majority of those actions will be in place by the end of the quarter. We're certainly expecting COVID -- with COVID, we're planning to flat to slightly up volume. And Bill mentioned the digital solutions, which would be probably in the vicinity as much as $50 million of year-on-year benefit, and that results in a very slight service activity recovery for the balance of our services. On the adjacent businesses, we're continuing to see the business improve, but I'd say we're being a little bit conservative and prudent with respect to the COVID impact as we continue to see those underlying markets recover. I will note that we did see, for the second quarter in a row and very nice volume out of our adjacent businesses, and that's the entertainment services business continuing to see improving trends. Bill, anything you'd like to add there?

The only other element, Shlomo, I would add is, from an FX perspective, be about, call it, 1.5 points in total of the 4% to 8%, something of that order in light of where FX rates are in terms of forward projection on bank views. So thanks for the question.

The next question comes from Nate Crossett with Berenberg.

Two quick questions, if I could. So I was curious on respect of the new JV, how much will you guys own? How did it come about? And is this the kind of platform where there will be opportunities over time? And then also just a question on capital recycling. I think you mentioned $125 million. I'm just curious, how much of your industrial portfolio would you be willing to recycle long term?

So thanks for the questions, Nate. So coming on the Web Werks JV that we announced this morning, it's a great question. So we're super excited about India. I mean, personally, I've been to India, I don't know how many times over the last 3 years, specifically looking for a data center -- the right data center entry because it's been on our radar screen for quite some time. And with Web Werks, we found a very good partner that already has presence in Mumbai, Pune and Delhi, which are 3 of the key regions, and they have a roadmap to expand that to Bangalore, Hyderabad and Chennai. So -- which we really think gives us a very good platform because Delhi is not a single location.

In terms of the way -- why we chose Web Werks is that first of all, the team, it's entrepreneurial brothers that actually built the company. And they have always had a very strong focus on telecommunications interconnects. And in fact, that's how they started their business. So we think that actually, they've built a good ecosystem around the locations that they already have. They understand the market and the business extremely well. So we're also buying into effectively a management team. And as we alluded to in our press release is that the way the JV is structured is we start in a minority, and they have about 4 megawatts that are actually running as we sit here today in those 3 locations. They have both brownfield expansion capacity as well as land for further greenfield expansion. And the $150 million that we announced will be put in over time on a cost basis as we build out that expansion.

So you can think of it as a way that we paid a slight premium for our entry to get the initial 4 megawatts and the management team. And then that $150 million that goes in over the next 2 or 3 years will lead to us to have a majority ownership, and that will be on a cost basis, that money is put in. So we'll effectively slide down towards a cost that is approaching the actual cost to build the facility. So we're really excited about the market. It is the second largest telecommunications market in the world. It has probably about 10% of data center running in India has Northern Virginia. So -- and it's just a very fast-growing market. We've got a great management team that comes along as part of the deal, and we have a clear road map to expand and build a truly Indian footprint.

And Nate, thanks for the question. This is Barry. On the recycling point. We, as you know, see recycling of industrial assets is highly attractive as we see the valuations as really good at these levels. And together with our development pipeline and data center, among others, it's a really good move for us to invest in faster-growing opportunities. The way I think about it is industrial assets continue to increase in terms of valuation. So the level of recycling that we've assumed in the plan this year would kind of be a mid-single-digit percent of purely the industrial asset base. So we've got a -- and that is obviously a base that continues to expand in terms of value in light of what's going on in asset prices out there.

So over time, I think planning for something in this level annually is not a bad place to plan, if I were you. And I would also note that if we continue to see opportunities on both sides. On the industrial side as well as incremental opportunities in development pipeline, we would not be afraid to continue to recycle even at a little bit higher level. But for the year, we're planning $125 million. Thanks for the question.

The next question comes from Michael Funk with Bank of America.

A couple, if I could. So first, thinking about the potential impact of wage and inflation on the business with the $15 minimum wage being pushed through, I'm wondering how that might impact your proposed cost savings?

Thanks for the question, Michael. I think it's an important topic in wage inflation just a -- even absent of the $15 minimum wage in terms of our frontline staff, especially our couriers. We've been in that I would say, a highly competitive environment for the last 4 or 5 years, at least, with a boom of e-commerce. So for us, the $15 minimum wage is less of an issue. Most, if not all, of our workers are kind of north of that. The bigger issue for us is, quite frankly, the pressure on e-commerce for similar types of jobs. That being said, we've been able to manage our churn pretty well.

And the one thing I've spent it personally, a fair amount of time traveling around the country as well as in Europe and in Mexico, speaking to our frontline staff. Many of whom we had to furlough during the depths of the crisis, just to take the temperature. And their connection to the company, their loyalty, the gratitude in terms of the way our leadership teams have managed the crisis and also trying to support them and their families both mentally, health-wise and monetarily has been highly appreciated. So I think, I still remain very confident that mountaineers are really -- mountaineers, we look after each other. But the inflation that you're referring to is less for us driven by the minimum wage and it's more driven by just the boom in e-commerce, but it's a good point.

(Operator Instructions) The next question comes from Sheila McGrath of Evercore.

We do sometimes get questions how Iron Mountain competes in the data center business versus pure-play players. I was wondering if you can provide more insights on how you answer that question. Any details behind the benefits of Iron Mountain and cross selling? And what -- just what makes you more competitive? And was there much competition on that India joint venture?

Okay. Thanks, Sheila, for both questions. So first, I guess my flip answer to your first question is, I think 58.5 megawatts this year says that we're pretty competitive. So I send my congrats to our team, who have really dug in. I think the other thing what I would say is just another proof point, then I'll say how we're compete. Is that if you look at our -- especially on the sales side, but also on the operations side of our data centers, most, if not all of these folks come from leading, what I would call, pure-play data center companies. And so you could almost say, to me, it's not -- you measure the success of your offering in 2 dimensions. One is do customers buy it, right, which is the 58.5 megawatts this year of leasing activity or new leases signed, I think, is a pretty good proof point. On the other side is, are really -- are people willing to bet their career and their livelihood by coming to join you who are specialists in the field? And I have to say that Mark Kidd, who leads that business, has done a remarkable job in terms of attracting, really, I would say, top-tier focused data center talent.

Now in terms of the synergies between the business, which goes into the secret sauce, which you alluded to, it's still 40 -- about 40% of our colo leads come from our traditional records management sales force. And you're seeing that even more and more now that we set up strategic accounts. So I don't go to a strategic account meeting where they -- a strategic account executive pull me along where we're not speaking about data center opportunities. I mean, just last week, Barry and I were with the #2 executive of a global bank, and he brought up data center even before we could, we -- Barry and I, with one of our strategic account executives. So it's a -- people definitely see the connection. The decades -- this is our 70th year, the decades of trust that we've had with financial service institutions, hence the reason why the likes of Goldman Sachs and Crédit Suisse have trusted us with their colocation installs. So definitely, the trust is a big factor. And the team seems to be really getting great traction in the market.

The next question comes from Kevin McVeigh of Crédit Suisse.

Great. Barry, can you help us just understand how much the EBITDA methodology changes impact the 2021 EBITDA, if at all, just based on the free cash for the add-back of the stock-based comp and growth capital and then the JVs?

Sure. Thanks, Kevin. A couple -- there's a lot of material in our slide deck, but let me go through a couple of things. From an EBITDA standpoint, the stock comp year-to-year is very similar. I will note, like most companies, we have a performance element in our grant. So it's conceivable that depending upon where performance is, those grants could go higher or lower. So I would be planning for that to be very modestly up year-on-year. On the non-venture as it relates to how that impacts EBITDA there's 2 things there. As you know, that's our consumer joint venture, where we have a higher ownership, but the business -- and while the businesses performing better year-on-year as our plan, it still is in a loss position. So that will be a little bit more of a headwind, and then we'll add on the Frankfurt joint venture, where we own 20%, as you know, and that starts up, as we've mentioned before, the lease commences midyear and ramps over time as the client gets into the lease.

So that -- I would say, the unconsolidated ventures portion is fairly similar year-on-year, slight improvement. So net to EBITDA, very similar to the 2020 level of the add-back that you see in the documents. A EPS and FFO would flow similarly to EBITDA. And then from an AFFO standpoint, you'll note that there's less impact there than EBITDA since we were already adding back stock comp, so that has no change to AFFO. And the portion of growth capital is essentially at the same level. And I already mentioned the unconsolidated joint venture. So an add-back of kind of a high single-digit million dollar benefit to AFFO year-on-year, not unlike what we had again in 2020. Good question. Thanks for the question.

The next question comes from Eric Luebchow of Wells Fargo.

Bill, I think you said that post-COVID, you expected organic physical volume storage volume growth would be about 50 basis points or so. And it seems like you'll be pretty close to that range this year. So is that still the right way to think about the business once we get beyond COVID?

And then related to that, have you seen any impact this year from the decline in incoming boxes that you talked about last year as a result of the pandemic? And have those declines kind of more or less normalized to this point or is there still some impact to the business?

Yes. I think, to your first question, I would say, yes. And part of that that recovery is based on the success that we've had in consumer. As I mentioned in our remarks, is that we went from 2 million cubic feet to 7 million cubic feet this year. Okay, Last year, I'd say, in 2020. In terms of the incoming volume, we still see the similar trends as we saw pre-COVID at this point. We haven't seen a -- we have -- and you can almost -- you can see that in our supplemental. We haven't seen an acceleration in that headwind that we're getting. But we're still, for sure, going through what I think I described on a few calls previously, maybe it was a year ago what I call the second derivative action. In other words, virtually all our customers are continuing to send us new boxes. But some of our historically fastest growing and largest verticals are sending them in at slower rates. So we continue to see that, what I call the second derivative drag on volume coming in slower than boxes aging out at their normal kind of 15-year life span. So we expect to continue to have what I would call the same pre-COVID headwinds on the traditional document side of the business more than offset by the growth in consumer.

The next question comes from Stephanie Yee with JPMorgan.

I also had a question about incoming boxes. Just as people return to work maybe later in the year, would you expect the incoming boxes to kind of pick up to pre colonels? And kind of along with that, as incoming boxes pick up, would constructions also pick up when people are back in the office more?

Thanks for the question. That would be our expectation, right? But I think it's -- I don't think it's going to be a sharp change because I think the people's transition back into the office will be more gradual than that. But I would expect -- but again, when you net those 2 things out, we don't expect a marked change in the trend. I mean if you think about it during the course of the last year is I think that our -- it's basically a flat storage story and then you add pricing on top of that, it's actually not a bad story at all. So we don't see either an acceleration in either direction of that trend. But I think what you described is -- would be, I think, a reasonable expectation, but I think they probably will fairly closely net each other out.

The next question comes from Jon Atkin of RBC.

On the data center side, I guess, I just wanted to get a sense on what competition you're seeing when entering new markets versus data center peers, financial sponsors, the thoughts on just -- updated thoughts on preferred path for joint ventures versus outright acquisitions? And then when it comes to, I guess, on a related question, do you have any kind of general thoughts on build-to-suits versus sale leasebacks?

Thanks, Jon, for the question, quite a bit in there. So let me kind of start about how we think about the JVs or we use India as an example. So India is a country that we're pretty comfortable, and that's why specific to India, at least a couple of times a year. But I would say, 5 years ago, I started going there with a focus on finding the right data center entry. Even though we have a little less than 2,000 people working on the records management side in India. So it's a market we know is, for us, it was important to find the right -- not just physical opportunity for entry, the right footprint, but also the right team that we could build on.

And with Web Werks, we found that. I think from a Web Werks standpoint, they also appreciate it is that we are not a financial sponsor or we're not a newbie in the Indian market. So they see how we operate in India already today. Culturally, we're attuned to the challenges that they have and are very supportive of their journey. And so that -- and this case, Deutsche Bank ran the process. But I think 1 of the reasons why we wanted was the relationship we were able to build with the entrepreneurs in the way we operate.

So that, to me, is part of our secret sauce is that we are a company that is in 56 countries around the world, over 20,000 mountaineers around the world so that we can make those connections. And then also, it's not lost on these entrepreneurs in this particular case, that we were actually refusing data center demand. We had a number of customers that were asking for capacity in India, and quite frankly, we just couldn't deliver for them so that we can bring that network to bear.

I think if you kind of think more broadly on build-to-suit, as we build on our reputation with some of the large hyperscale players, so as we announced the -- Frankfurt started off not as a build-to-suit, but ended up being a build-to-suit effectively because we had that interesting data center asset and it was hyperscaler that needed the whole 27 megawatts. So the design and engineering got modified to satisfy them. And that was one reason why we put it into the type of joint venture structure that we did because it turned out to be a completely stabilized asset from day 1, if you will. That has also led us to have -- we haven't done any at this point, but there's more and more that are approaching us to look at build-to-suit opportunities.

And quite frankly, where we just look at the returns. If the campus supports that and it allows us to actually further expand or even upgrade the capacity of a campus by bringing in more power on the back of a build-to-suit opportunity, then we absolutely entertain it. So the last thing I would say is that we are starting to see more pipeline and whether or not we execute on that is interesting is that when I was talking about the Frankfurt situation is that the customer there admitted to me that he really does see us as one of this handful of suppliers that he looks to when he's needing third-party capacity. So just naturally, we are starting to see those kind of opportunities. Whether or not we actually execute on them. It really is going to depend on the types of returns in the specific campus opportunity.

This concludes our question-and-answer session and the Iron Mountain Fourth Quarter 2020 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.