Good morning, and welcome to the Iron Mountain Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Greer Aviv, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Steve. Hello, and welcome to our fourth quarter and full year 2018 earnings conference call. The user-controlled slides that we will be referring to in today's prepared remarks are available on our Investor Relations site along with the link to today's webcast. You can find the presentation at ironmountain.com under About Us/Investors/Events & Presentations. Alternatively, you can access today's financial highlights press release, the presentation and full supplemental financial information together in one PDF file by going to investors.ironmountain.com under Financial Information. Additionally, we have filed all related documents as one 8-K, available on the IR website. On today's call, we'll hear from Bill Meaney, Iron Mountain's President and CEO, who will discuss highlights and progress toward our strategic plan followed by Stuart Brown, our CFO, who will cover financial results and our 2019 guidance. After our prepared remarks, we’ll open up the lines for Q&A. Referring now to page 2 of the presentation, today's earnings call, slide presentation and supplemental financial information will contain forward-looking statements, most notably our outlook for 2019 financial and operating performance. All forward-looking statements are subject to risks and uncertainties. Please refer to today's press release, earnings call presentation, supplemental financial report, the Safe Harbor language on this slide and our Annual Report on Form 10-K, which we expect to file later today for a discussion of the major risk factors that could cause actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results, and the reconciliations to these measures as required by Reg G are included in this supplemental financial information. With that, Bill, would you please begin?

Thank you, Greer, and thank you all for taking the time to join us. We’re pleased to be here this morning to discuss our fourth quarter and full year 2018 performance. 2018 marked a year of continued strong growth for Iron Mountain highlighted by global storage organic revenue growth, significant growth in our data center business and further scale in our emerging markets. Turning to slide 3 of our financial results presentation, full year increased 10% which was in line with our expectations, driven in part by the contribution from recent data center acquisitions and strong growth and services. Notably total organic revenue growth was 3.6% for the full year, a strong acceleration from the 2.3% we reported in 2017. Adjusted EBITDA was also in line with expectations growing 14% year-over-year and resulting in a 120 basis point improvement in our margin. Lastly, we generated 16% growth in AFFO at the high end of our expectations, whilst continuing to reinvest in the growth of our business and supporting our commitment to our dividend. The strong AFFO performance compares to an increase in our fully diluted shares outstanding of 7.4% and resulted in a 160 basis points reduction of our payout ratio to 78%. As it relates to our fourth quarter performance, we achieved constant currency revenue and adjusted EBITDA growth of 10% and 12% respectively, whilst our margin expanded a 100 basis points year-over-year. I’ll provide more detail around volume trends in a few minutes. When on a global organic basis Records Management volume was flat in 2018. Importantly, 2018 was a year of continued evolution for Iron Mountain. We made significant progress in increasing our mix to high growth businesses, completing more than $1.7 billion in targeted acquisitions. This evolution is highlighted by the ongoing expansion of our global…

Thank you, Bill and thank you all for joining our fourth quarter and 2018 results conference call. We delivered very strong AFFO growth in 2018 of 16% and continue to expand our adjusted EBITDA margins while also achieving 3.6% organic revenue growth. This growth was supported by results of our revenue management program and continued expansion of value add services and our data center platform with growth of records volumes in our international markets offsetting declines in North America. We are pleased with the healthy performance across our business segments as well as our progress investing in and integrating faster growing businesses. Not only do these new businesses create value for shareholders, but also allow us to be better partner with our customers for their critical physical and digital storage needs. I'd like to start off the financial discussion with the performance highlights which you can see on slides 8 and 9 of the presentation. For the quarter revenue was in line with expectations approaching $1.1 billion growing about 7% on a reported basis then almost 10% on a constant currency basis. This is driven by contributions from our recent data center acquisitions and strong organic revenue growth including solid contributions from our emerging markets in our businesses. Total organic revenue grew by 3.5% in the fourth quarter compared to the prior year and 3.6% for the full year. Organic storage revenue grew 1.9% for the quarter and 2.4% or by $60 million for the full year. Organic service revenue grew 6.1% in the fourth quarter and by 5.4% for the full-year. Service growth was primarily driven by increased contributions from our expanding Secure Shred business, continued strength and recycled paper prices as well as additional digitization and special projects. Our adjusted EBITDA grew over 12% on a constant currency…

Thank you, Stuart. And just a couple of comments before we begin the question and answer is, first of all, it was a very strong year, which was punctuated by double-digit EBITDA and AFFO growth well ahead of the shares we issued to support our acquisition of the IO data center. The business also has never been stronger or better positioned, continued organic storage revenue growth with remaining untapped storage segments or reserves, a broader range of businesses and services still tied to our existing business relationships built on decades of trust and accelerating organic growth of EBITDA and AFFO which underpins future dividend growth whilst de-levering. With that operator I'd like to open it up to questions.

Yes. Thank you. We will now begin the question and answer session. [Operator Instructions] The first question comes from Nathan Crossett with Berenberg.

Hi, good morning. Maybe you can just talk a bit about your appetite for further data center acquisitions. I know you have plenty of room to build out based on the current pipeline. But wanted to get your thoughts on just outright acquisitions. Is it possible to see some more EvoSwitch type transactions going forward?

Good morning, Nate. Look I wouldn't rule it out but it's not really what we think we need to do in the plan. In other words the EvoSwitch, if you think about EvoSwitch specifically which as a good example is we look at the top 10 international markets and the top 10 U.S. markets and we say okay, do we feel, how do we prioritize those, which ones do we think we should enter. And then, when we look at that is, we look at what's the best way to enter that market. So Chicago, Northern Virginia and Frankfurt are all great examples where we decided the best way for us to enter that because it's important for our customers that we have decades of relationship with, plus some of our newer customers on the data center side that we have product on the shelf in those key markets and we decided the best way to enter those markets was through Greenfield development which we've done. In Amsterdam, we looked at the same thing because as you know, in Europe we refer many times to the flat markets, the top markets in Europe are Frankfurt, London, Amsterdam and Paris. So Amsterdam is absolutely a key market in Europe and it's one that our customers wanted to see us in. and when we looked at Amsterdam, quite frankly EvoSwitch for us was the best entry point. So, that's how we think about those markets but if you think about overall in terms of our growth plan, we're now almost 350 megawatts of capacity that we can build out both with sites that we've already started building in the Frankfurt in Chicago site and we feel really good about being able to achieve our financial plan with little or no acquisitions.

Thanks, that's helpful. And maybe just a quick follow-up, can you talk a bit about this datacenter competition. We've heard from some of the wholesale providers that price can be very competitive in certain markets. So, I'm just curious to hear your thoughts and maybe you could talk a bit about how you're trying to differentiate?

I think it's a good question, Nate. I think that well first of all I would differentiate between the enterprise customers in a hyper scale. So, it's fair to say right now, we as Iron Mountain is we're more the bulk of our customers are in the enterprise segment which is what you would expect. We notice that of the new logo who signed this year, 43% of them we already had an existing customer relationship, where then obviously those were enterprise customers. So, for us I think when you talk about pricing, we see less price sensitivity on the enterprise side quite frankly. So, Iron Mountain hasn’t been exposed to that as much. When you see the analyst talking about the pricing compression, it's more on the hyper scale. Now, what does that mean for us is we do have an appetite to be present in the hyper scale market and I think I've covered this before on the calls and it's more about getting to optimize in the yield on the site. So, if you look at Northern Virginia which is 82 acres and can build out well north of 80 megawatts of critical IT load. Then if you want to fill that, the rate that you fill it is it's important in some ways as what the specific revenue per kilowatt that you're getting on that site. So, to fill that out at a pace that we think is optimum, then we would expect that site to be somewhere at when it's fully built out between 40% to 60% hyper scale. Now, on our standpoint is our models are built on current hyper scale pricing. So, I think what you're hearing coming out of the industry is hyper scale pricing has come down and quite frankly these things typically are kind of 8% to 9% cash-on-cash returns. They are at least approaching that level now but that's where we built our model and that's where we expect our entry point, which are still well above our weighted average cost of capital and it's still a good return. So, I think the noise coming out of the market I think is more about people who have been heavily present in that segment before and they're realizing the pricing is coming down to what I would call the normal clearing price in terms of what a reasonable return is for these very large scale projects which have very long contract duration.

That's helpful, thanks. I'll get back in line.

Thank you. And the next question comes from Sheila McGrath with Evercore.

Yes, good morning. Your EBITDA margins in 2018 continue to improve, just wondering what your outlook for merging improvement is in 2019. Is it achievable to maintain or grow margin in North America in storage. And how is the mix shifting to datacenters driving margin improvement?

Yes, hi. Good morning, Sheila, this is Stuart. Just if you look at sort of the midpoint in guidance implies about a 30 basis point improvement in margin and as Bill mentioned in his prepared remarks where that's impacted also negatively by the change in lease accountings if you normalize for that it's a 50 basis points to a 100 basis point margin expansion. And I think you're going to see similar trends in '19 to what you saw in '18 with revenue management continuing to contribute to margin expansion in the developed markets. Emerging markets, you'll see some margin expansion really due to continue in increased scale because we're not we've got pricing program in those market but we're really there focused on driving scale and continuing to increase our market presence. And then you will get then in the datacenter business or that business grows as a percentage of the total business. You will get some uplift in margins because that business is higher average EBITDA margin than the rest of the business.

And as a follow-up, Bill you mentioned the federal vertical records growth of 4% in 2018. Just wondering how that backlog is looking in 2019 and any insights on how meaningful that opportunity might be?

No, thanks Sheila. No, I think that we expect to continue to build on that, obviously it's with the federal government the gestation period of it is longer than our say normal private enterprise customers. But we continue to see the backlog growing and I think we highlighted our homeland security win on the last call. And we start getting those what I call kind of an iconic brand is the momentum that's starting to build in the business. And we see that, we see an acceleration in terms of the pipeline. With that being said is that the government is one fiscal budget. So, you work this year to deliver the project generally for next year. But we really like what we see in the pipeline in terms of momentum. So, I would expect that to tick up over time.

Thank you.

Thank you. And the next question comes from George Tong with Goldman Sachs.

Hi thanks, good morning. You are now several years into your revenue management initiative. Can you provide us with an update on the roll out of revenue management across your geographies and the amount of pricing benefit you expect through 2020?

Yes, good morning George. So, first of all in terms of the program is that it's pretty much completely rolled out obviously in North America and now Western Europe. We start rolling it out this year or past last year in 2018 with four centers across the broader international market out beyond Western Europe. So, we expect to see some real traction in those markets whereas Western Europe will be fully online this year, last year was partially online, obviously North America will continue online. So, what we expect is similar levels of price increase in North America. In Europe as we while in North America is we got this past year, we expect an uptick on coming out of Europe and also the emerging markets, and so the international markets this year. So, we feel pretty good in terms of the momentum that we're getting on that. So, I think you can expect that we'll have further strength from price in revenue management coming in to 2019 and we built that into our guidance.

Got it, that's helpful. And on margins, we essentially achieved all your targeted transformation savings and recall cost synergies to the end of 2018. Can you remind us of your 2020 EBITDA margin target taking into account the lease accounting changes and discuss some of the initiatives you have to bridge from your current margins to 2020 margins?

Yes, I mean if we normalize for the impact of the lease accounting and even if we go back which to normalize actually for the rev rec accounting that we had that helped us in 2018, while we've been achieving margin expansion of 50 basis points to a 100 basis points a year. Looking forward, right investment benefit also by the obviously the flow through of rev rec as well as synergies, we continue to have cost improvement programs in place that you will continue to see benefit from going forward. So, we expect to see sort of similar levels of margin expansion going forward. But in addition, we've historically been investing $20 million to $30 million a year in our new business growth and new business initiatives and starting to see some green shoots come out of those businesses. And as you look forward, we expect to see some margin expansion that coming out of those business as well. So, I think as you look forward, feel quite comfortable with sort of continuing a similar track of a margin expansion.

Got it, thank you.

Thank you. And then the next question comes from Andy Wittmann with Robert W. Baird & Company.

Yes, great. I guess my question kind of builds on the last question here. Just want to understand some of the moving parts of -- I know the long-term guidance to 2020 that you gave. As talked to obviously multi -- your look is going to have lots of puts and takes as things change over the years. But maybe just to start out level side us. Stuart, can you talk about can you quantify the FX headwind that the target is seeing to revenue and EBITDA, so we could kind of really look on it as on the 2019 currency rates. And I mean it looks like you need to find something like I don’t know exactly what the FX it is but double-digit EPS growth or EBITDA growth into next year in margin increases '20 over '19 of a 200 basis points or so. So, can you just talk about some on the puts and takes in a little bit more detail and achieving that 2020 guidance and how you feel about the key matrix of revenue and EBITDA specifically?

Yes. I'm glad you asked the question. Again, and today we're really focused on the 2019 guidance. So, we didn’t want to sort of confuse that with sort of putting out 2020 numbers. So, let me walk you through the puts and takes to how to get there. And to answer your first question on the currency, if you go back to my script, we talked about in 2019, FX headwinds by itself on revenue were $60 million to $70 million on an EBITDA or $20 million to $25 million. And --.

Can you give that cumulative business beginning now just so we can kind of compare more easily, do you have that handy for each one?

I don’t have that handy. Again, the exchange rates prior to sort of the recent changes haven’t been that significant, so we go back to what our 2020 plan has been. This is now really the biggest impact. And yes, remember the 2020 plan was built on currency rates at a certain period of time. So, you should, we should always be normalizing for FX when it goes up or down.

Right.

So, but if you look forward and relative to our last 2020 plan, right, you can see that we've delivered right on track for 2018 to get to the 2020 plan adjusted for FX from 2018 reported results, EBITDA would need to grow about 15% or $200 million to get to the range of the 2020 numbers. So, when you think about you got about 4% organic EBITDA growth per year, so that adds in and of itself run a $120 million, continue to expect in our long-term plan, continue to expect a 150, actually a $150 million plus of M&A per year. So, that $300 million total M&A, that would add about another $50 million of EBITDA and anything about the comments I just made around, we've been investing in new businesses and services about $30 million per year. So, those should start to deliver EBITDA growth as well combined with savings from continuous improvement can get you back into that range for what our longer term models were. We will, at some point be issuing sort of new long-term growth targets in the future. We're looking at sort of when the best time is to do that now.

And the only thing I would just add Andy on this is that from a FX standpoint is that in our view as we take FX right and the good news is we don’t have a margin exposure on that. So, whether it gives us a tailwind which it did a couple of years ago and now it's giving us headwinds is what your where our shareholders are paying for us to do is to manage the business through those tailwinds and headwinds. So, we're really focused on line-of-sight to the operational plan that we have to do to deliver that original 2020 guidance and we're well on track with that. And we think the looking at some of the R&D pipeline that Stuart relayed, mentioned the $30 million that we're spending roughly a year on that that includes things like Iron Cloud and InSight which we effectively have seen very little benefit to date on. So, we feel pretty good in terms of where we stand versus our original outline.

Great, that's helpful. And then, just kind of a cleanup question here. On the AFFO for the year you guys came in and better how you mentioned. I think it's just some taxes but the thing you control most here is the CapEx side. Is that a delay of some plan to CapEx and that we're going to see in the future or have you been able to manage the business so that the CapEx is altogether and needed?

Let me just give you a quick example of one of the big drivers of CapEx improvement. I can't remember if I talked with this on the last call or not. But if you look at that what we spend annually on our fleets for example, a few years ago our operation seemed to do a great job putting in place new management tools for our drivers to improve fuel utilization; reduce wear and tear on the trucks. As we've gone back now and reevaluated the impact to that, we've realized that the quality of our trucks and the time that they can stay on the road is increased. So, we've been able to actually reduce the rate at which we replace trucks annually and goes around $15 million or $20 million of capital saving in and of itself this year.

I understand, thank you.

Thank you. And the next question comes from Andrew Steinerman with J.P.M.

Hi, good morning. This is Michael Cho for Andrew. My first question, just a quick clarification. Should we still assume the previously stated 2020 plans has not changed, that's right. I know you mentioned new long-term growth targets are coming but you're referring to something past 2020, right?

Yes, we will. I mean again, we want to keep those long-term targets out there and if you look at there what we've been talked about in the past in terms of growth rates of a dividend, how do we support that with AFFO and EBITDA, those general trends all remain on track. And we think our current business plan support those. And the only thing that we'd say, the only thing you need to make sure that you're doing is when you're looking at 2020 is first of all is to make sure that you're looking at the FX impact to that and adjusting those targets for that. We're not issuing 2020 guidance today.

But I make you a point is that the walk that Stuart just took Andy through. Since that we're still on the 2020 number correcting for the 5% at the end of 2020. So, what we expect that the momentum will continue to build in the business. So, exiting '20 we're sitting here at a little over 4% organic EBITDA growth as we sit here today which we think is really great progress because we started as you can find the story as we started less than 2% four or five years ago. So, we've got that up to a little bit north of 4% on an organic basis and we have lined aside in on track to exit 2020 at 5% organic EBITDA growth.

I had one other point as well, just that people don’t think we sort of walking back as on our leverage target as well, right, the original multi-year plan we've got in there either five times lease adjusted EBITDA if we issue the full 80m or 5.2 times target for the end of 2020 and that remains our target as well on our business plan.

Great, thank you. That's helpful. And just one quick on the datacenter side. You mentioned now that book digits organic revenue growth outlook for 2019. Can you give a quick comment on EBITDA contribution as well?

Go on, I'm sorry.

EBITDA, on datacenter.

Yes. So, I mean the EBITDA on the datacenter, we're sitting right now with the at the mid-40% range on the EBITDA margin. As that scale continues to grow, EBITDA numbers still sort of putting the infrastructure together from an integration standpoint. And also still incurring integration cost, we had a little over $2 million of integration cost in 2018. So, we're well in track to sort of getting back to the mid-50 margin and a 10% of total EBITDA by the end of 2020.

Understood, thank you.

Thank you. And the next question comes from MaryAnn Bartels from Merrill Lynch.

Hi, thank you for taking my questions. Most of my questions have been answered but I just wanted a clarification. So, on the leverage target, you said you would get down about 20 basis points the 5.2 time. So, I'm sorry can you clarify why that's not the five plus five times?

So, the 10 basis point to 20 basis points to expansion is or improvement is in 2019 rowed up to the 5.6 at the end of 2019. So, we'll get down to 5.0 -- 5.4 at the end of 2019 and then another improvement in 2020.

And I think to your point about the difference between the 5.2 and the 5.0, it's whether we run the ATM. So, as you know we have a $500 million ATM which we've draw down a little over a 60 million off. So, and we haven’t run that for over a year now. If we ran that, that would reduce the leverage by 0.2, if we don’t run the ATM, then instead of 5.0 it would be 5.2; would be the endpoint for 2020.

Got it. And is there a longer term target that you think is ideal for the business but how are we to, so?

I think what we've always said is that to us it's not about our ability to run the business or finance the business. And you could see that when we issue debt it's usually at the upper end of investment grade as it stands today. It's more where our covenants cut in. so, our covenants are at 6.5 and we think that ideally we would like 1.5 to 2.0 turns of daylight between wherever our covenants are and where our leverage is. Because it just gives us much more flexibility, whether it's looking at our own stock from time to time or if it's looking at opportunistic acquisitions, we just think that 1.5 to 2.0 turns between your covenants and where your debt levels are as ideal. So, we're not in a rush, that's why we our view is the right balance again from capital allocation as we continue to invest in growth in the business. We continue to grow the dividend and that still leaves us enough leftover that we can slowly tick down leverage to the targets that we set for ourselves. And over time that will continue to go down.

Great. And then just lastly, in terms of how high you would go for the right datacenter or acquisition or any thoughts on that?

Well, it's really hard to talk about hypotheticals. We because look at we really like our plan. Obviously the area where the biggest demand for CapEx, don’t forget we have a 150 million of M&A built into the plan annually and another 250 million plus built in terms of expanding datacenters. So, it's not like we're constraining the business for capital. So, you put those two together, we got over $400 million that we're ploughing into growth and M&A for the business each year. So, and then if you said that we -- just in datacenter being the one that is probably the most obvious, is we with what we have in terms of Greenfield and sites that we've already started developing is we can take that to over to almost 350 megawatts. So, we got plenty of daylight in our plans, so it's really hard to respond to a hypothetical at this point.

Great. Well, thank you for taking my question.

Thank you.

Thank you. And the next question comes from Karin Ford with MUFG Securities.

Well hi, good morning. I wanted to see if can get a little bit more detail on the assumptions underlying the 1.75% to 2.5% organic storage revenue growth forecast. I think you said in your comments that you think volumes to be flat. Does the low-end of the range accommodate volume declines at all and what do you think is going to be the primary driver of the acceleration from the 1.9 you printed in the fourth quarter to 2.1% at the midpoint?

No. Good morning, Karin, this is Stuart. I think if you look at sort of the trends that we had overall, you get some variability from quarter-to-quarter and you got to remember our volume numbers is our trailing four quarters. So, when you get around to the end of the year, you're looking at total volume changes by market is what we put in the supplemental and you also then can come back into sort of implied price. If you look at sort of the buildup in the number and you look at developed markets and emerging markets both volume and pricing, actually don’t expect to see that much difference in trends in 2019 from 2018. So, we've talked about revenue management and our ups continue to upside in that program. And if you think about sort of what those are, it's not really pricing consistent with inflations, so we're not out there doing anything too crazy on that front. You will get some tick down from organic revenue growth in the data management business; we talked about that as well. And then, that will be offset by continued growth in the datacenter in the adjacent businesses where you're getting storage and service growth on both of those. Albeit in 2019, the data center cooler base or organic base will grow as the acquisition sort of move in to as we lap over the acquisition dates. So, I think very comfortable with the growth rates that we've put out there.

Thanks. Second question is where are EBITDA multiples on business acquisitions today and where are cap rates on real-estate acquisitions today?

We haven’t really done a lot of real-estate acquisitions today in that sense. I mean, the real-estate purchases that we've done are really opportunistic and it's more we've done some -- we will do some real-estate acquisitions in 2019 where we've got a couple of purchase options. Actually in California in a couple of record center that are well below market and that's in our plan will fund that with capital recycling from selling some other real-estate which is also in our plan. So, we'll continue to recycle capital opportunistically. If you look at sort of where multiples are creating in the business from a multiple of revenue basis and again we try to look at it actually including integration cost and things like that and we're still sitting sort of 3% to 3.5% shred, actually quite a bit little bit cheaper than that. And as a multiple of EBITDA six to seven times EBITDA and that's pre-synergies. So, our synergies will add another turn or so improvement on to those numbers.

On the capital recycling front, what's the spread do you think between dispositions and acquisitions this year?

As we talked about in the past sort of in the -- the spreads are -- you'll see the gains, we saw the gains actually that we recorded in the P&L in the fourth quarter from some real-estate sales. And we'll you'll see some nice numbers next year as well. I mean, cap rates on industrial real-estate and we did some evaluation work with the east still last year. You look at the real-estate portfolio that we own in just North America is for the excluding racking before racking is about $2.5 billion and that's on a six cap rate. I'd argue cap rates are actually probably below that given the markets that we're in. and we would primarily end-markets like Boston, New Jersey, California, Chicago, Dallas, we really try to own in the primary markets. And you'll actually see a selling, actually the real-estate we're going to sell or recycle is going to be more the secondary and tertiary markets.

Great. And then, just last question just a technical one on Page 7 of the slides. You show that the growth portfolio moves from about 19% of the revenue mix to 25% from the third quarter and fourth quarter. Was it just a reclassification or why that number moves so much?

That's more of a pro-forma just because we're lapping the IO EvoSwitch in Credit Suisse datacenter acquisitions. So, we were quite busy in 2018 and if you actually once those are all lapped, we're sitting at a 75/25 mix today.

Great, thank you.

Thank you. [Operator Instructions] And the next question is a follow-up from Nate Crossett with Berenberg.

Hi. I just wanted to ask about investment grade potential. I'm just curious to hear about any in our recent conversations with the rating agencies and how they are viewing the data center build out. And the reason I asked is because DLR has similar leverage levels and they have investment grades. So, --.

You just say that to make me jealous, don’t you Nate?

No. just give me a sense -- I feel like, good.

No, it's I can look at a number of my peers across the REIT sector they have similar leverage levels and in better ratings that we do. We've been having ongoing discussions with both S&P and Moody's in a very healthy way, as our business had shifted from historically business services we became a REIT. We're continuing grow the datacenter business. I think Moody's actually has put out a report and published that we've moved over to their REIT team and so I think we're making good progress, we're having great dialogue with them. And I think they over time will give us more credit for the REIT like durability of the cash flow that comes out of the business.

And the only thing I would just add to that to Nate is that we've done like totally -- we're both focused that we would love to be treated like digital. The other part for us is we still want to de-lever because of this free space that we have where our covenants, our covenants are set at 6.5 why that's historical but that is what it is. One thing I would say is we're already getting kind of upper end of investment grade pricing when we go out and issue debt. So, we're already getting the benefit, it's just that rating agency is just all rated that way. So, you actually see our debt get priced is we're not far off but it would be nice to have the rating as well.

Yes. Our debt investors give us credit for the strength in the balance sheet and cash flow.

That's helpful, thanks.

Thank you. And the next question also is a follow-up from Sheila McGrath with Evercore.

Yes, I was wondering given your storage locations in North America are close to many major metropolitan areas and you have the trucking and logistics expertise. I'm wondering if there is a way to capture some additional demand for your storage base from last mile demand or is that what flex the industrial company that you've referenced before, is that kind of a last mile offering?

That's a great question, Sheila. So, it's kind of I would say three things that and I kind of highlighted it and will try to incorporate that so the people can see the total volume that we're storing rather than just purely the records information; the 690 million cubic feet of records that we are storing, doesn't include these things that we're already doing like under the flex program which is exactly which has similar margins by the way or revenue per square foot as our core business. We also have a similar type of operation in Amsterdam where we're doing both last mile customs and delivery for a number of the large global e-commerce platform just well as local post European postal offices. And the third area which I also alluded to is and we've talked about a few times is that we continue to like certain aspects of the Wallet consumer storage which is a logistics heavy portion of the consumer storage market. So, we think those three areas are areas that will continue to add volume to our network. And we our intention is to be able to incorporate that in the number, so you see it because right now it's hard to actually see the level of impact.

The thing I'll just add on quickly to, and when you think about how do we leverage our real-estate and locations, our logistics know how our asset tracking. And you can really see it in our Art business as well and entertainment services where we're doing a lot of specialized transport packing tracking of unique items and a number of the major auction houses have outsourced their back office to us for us to handle that for them. So, how do we keep expanding that and growing that, we think that's an interesting area.

Great. And if you could quickly comment on the pre-leased development pipeline and datacenters moved up especially in New Jersey, just comment on the leasing activity there?

Yes. Now, let me again, we had a strong fourth quarter leasing activity. We're a little over a 20% pre-leased in the development pipeline. And as Bill mentioned, we had a large global bank take additional space at that location and we continue to see good leasing pipeline in almost all of our markets.

Thank you.

Thank you. And the next question comes from Yugo Weiwei [ph] with JP Morgan.

Thank you. Good morning. I had a follow-up question on that investment rate question that was just asked. As on the financial policy perspective, do you want to be investment grade or are you working towards becoming an investment creative company?

What I would tell you is that unfortunately I don't control the ratings. The rating agencies do. I mean we want to operate the business a heading in a direction that we think is prudent for us to be able to continue to grow and run the business. But I wouldn't say that there's something that we're aspire to. We want to keep those types of metrics, but it'll be up to the rating agency to figure out what they do.

So from the company's perspective respective of what the rating agency says you're sort of not managing the balance sheet to become of investment grade. You want to remain in high yield.

I think yes, I would say we want to manage our balance sheet consistent with they being able to fund a business and not that different than other REITs and if you look at their balance sheet structure I think we're pretty close to that today.

And then sort of the lease versus owned mix, are the agencies I think in the past have had an issue with that as a way to compare to other REITs lease versus owned is that still an issue from their perspective or have they moved on?

I would say first of all, let me refer you back I think it was the May REIT presentation that's on our website from last fall where we disclosed some of the valuation of our real estate in a little bit more detail. We've done that a couple of times and obviously we shared that with the rating agencies as well and so there's some detail in there. The important point here is that you have to look at it on a percentage of value versus a percentage of square feet. So while it looks like we own 30% of our overall square feet if you look at it from a valuation perspective the markets that we own or the markets you want to be in and control real estate so from a valuation perspective we're over 50%.

And are the agencies come around to that way of thinking you think?

I think the Moody's changing the ratings team is maybe a sign of that.

Great, thank you very much. That's all I had.

Great, thank you.

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