I'm ready.
Okay, great. Well, it's a little after 8:35, why don't we begin? First off, my name's Calvin. I lead our communications banking practice at Morgan Stanley. I'm pleased to be joined here today by Iron Mountain, Barry Hytinen, he's the CFO, and Gillian Tiltman, who's the head of IR. Before we get started, first, let me just read the research disclosure. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. First off, thanks for coming, Barry and Gill. You're a new face to the conference this year, but I know Iron Mountain's an established leader and very recognizable brand.
I thought, first off, when most people think about Iron Mountain, they think about the document management and storage business. It might be helpful for some of the folks just to hear the overview of Iron Mountain, what you guys are up to and the different businesses you currently operate.
Okay. Thank you, Calvin, for having us. It's a pleasure to be at the conference here. Very well attended downstairs. Many people, congratulations on a successful conference post-COVID here. Iron Mountain is a roughly $5 billion revenue business. Last year we did $5.1 billion. That was up 17% on constant currency rates. We delivered a little over $1.8 billion of EBITDA, which was up about 15% on the same rates. Ours is a business that is, as you said, principally records management, but we have some very significant emerging growth-oriented businesses that are helping clients. When you look at our business, we've been around for over 70 years. We have very long-standing client relationships.
We have over 225,000 customer relationships around the world. We're truly a global organization. Most of our customer engagements are measured in decades. When you look at our business, we've had that kind of level of customer sustainability and tenure with clients. What we've been trying to do over the last many years, the team has been focused on how to expand and cross-sell into those clients additional products and services that can help them. We, the team recognized some years ago that in our core, which is very cash generative, it's a very high margin business, think in our storage business, think something like incremental margins of in the 70%-80%, and it's a very capital-light business. It throws off a lot of cash.
As a REIT, we pay a very, we pay a nice dividend, and we have a AFFO payout ratio target of low to mid-60s on that. Even with that, we still generate a tremendous amount of cash, and with growth in EBITDA, we've been deploying capital from the core into other growth areas, such as data center, such as Asset Lifecycle Management and Digital Solutions. It's important to note that each one of those, over the last several years has been growing at reasonably high rates. Think 20%-30% compounded growth rates in those areas for us, while our core has also been growing nicely.
In our core business, which is made up of physical storage of documents and other forms of client assets, that's been growing on a volume basis, flat to slightly up for some time now, and we've through generating additional value for our clients, we've had a revenue management program. You would see that in that core business, we've been accelerating growth in that, and we've been seeing very nice organic storage growth from things like revenue management and other activities, including digital services, where we broadened our offering to clients. That could be in the form of digital mail rooms. Usually our Digital Solutions start with some sort of scanning, and then we have branched out into broader applications on behalf of clients.
Beyond our core, as I mentioned a moment ago, we have a data center business. Data center for us today represents... Last year, it grew, you know, almost 30%, and it's been growing at a very high rate for several years. That's on a revenue basis. Bookings have been growing even faster. Our data center business is about 8% of revenue last year, but about 10% of EBITDA, so it's a higher margin accretive business for us. We've been seeing margins there over time we expect to get even better as we move toward more stabilized. Really, we're a relatively still new and developing data center company. We have sites around the world. Some of our most important sites are in Phoenix, Northern Virginia, London, Amsterdam, Frankfurt.
We have a new site in Madrid, and we've been expanding further around the world. Our data center business has really been growing strength to strength. If you look at our data center business, which I'm sure we'll talk about more, it really started as a more traditional colo retail business, and we've begun over the last several years winning with public cloud hyperscale players, and that's really ramped our growth. If you look at our MW of leases over the last several years, go back five years ago, we would've been leasing in the order of, like, single-digit MW. Last year, we leased 139 MW. This year, we have a further. I should say, last year, we also had a unique lease in there. It was about 72 MW build to suit.
X that item, we leased 67 MW, which was tremendous growth for us. This year, we've already guided to leasing at least 80 MW, so that's about 20% growth on top of the pro forma number for last year. Our data center business is strong. Our pipeline has been building, and some of the secular trends in data center is something that we really like. We've also been deploying capital into Asset Lifecycle Management, which is a space that we think is very unique in that it is a very fragmented market. It's a very big market, and it is one that really all of our clients need solutions for. This is in the disposal of physical assets such as PCs, servers, a host of other IT equipment.
We think we're uniquely positioned to serve clients because it's very similar dynamics to why they trust us on the record side, which is about having a consistent process around the world, having a service provider like Iron Mountain that can service the client wherever they are. You know, we do business in dozens and dozens of countries around the world. We have very good coverage, and they know that they can trust us from a consistency of message. In Asset Lifecycle Management, we both play on the hyperscale decommissioning side as well as in enterprise IT asset disposition. We believe that we are already the largest player in that market, which again, is highly fragmented and growing, we think at a double-digit rate for the next five-10 years. It's a secularly growing part of the economy.
It's another one where we can cross-sell. Our big focus in our commercial organization, Calvin, is to take those strong client relationships that we've had for so many years that are built on trust and expand our relationship to service our customers that much better. It's a very interesting business and growing fast and I think has some very favorable dynamics. I should also note that from a capital structure, I mentioned earlier that we are a REIT, and we generate a tremendous amount of cash flow. We also have now successfully lowered the leverage of the company to the lowest level it's been at since 2017. Year-end leverage was about 5.1x under our bank covenant.
That's, a little bit of an overview.
Yeah. Thanks for that. I think it's pretty unique how you have those three separate businesses. I wanted to, before we double-click on those, maybe you could just talk about how they relate to each other and especially how it relates to your growth strategy and priorities for 2023. I know you talked about Project Matterhorn at your last Analyst Day. Maybe you could share some thoughts here.
The way the businesses interrelate is generally speaking, almost all of the client relationships we have have started on the record side. We have a longstanding record relationship with most of our clients. You look at in terms of, like, we have 95% of the Fortune 1000, for example, are client relationships. When we look at those client relationships, we're always looking for how we can expand it, whether it be in Digital Solutions. Frankly, as probably you all know, digital is an area that almost all of large companies and medium-sized companies are expanding with.
We've helped them with things like AI and machine learning as it relates to how to auto-classify records, how to make use of information that historically has been on a shelf somewhere, and they haven't been able to mine. We can help them through Digital Solutions to make that information turn into something that they can actually analyze. We have tools, including a CSP platform, that enables them to do that. That's an example of one area where comes into our Digital Solutions. On the data center side, we are also We are the largest rotator of tapes for on-prem data centers.
We can see when load is shifting from an on-site data center to either the cloud or Microsoft 365, and that gives us warm leads to talk to a client about when they've got a underutilized on-prem data center to potentially lease them some space in one of our colo facilities. There's natural cross-sells. In fact, I think about 40%-50% of our leads on the colo side come directly over from our core business on the data center side. It's a very good cross-pollination there. Our Asset Lifecycle Management business, particularly on the enterprise side, it's a very similar situation.
There's very strong warm leads coming over from our records business because we're servicing those clients on a weekly basis, if not more frequently, and we can handle their IT asset disposition requirements quite well, as I mentioned, on a global basis. In terms of Project Matterhorn, which you mentioned, that is our focus in the business on continuing to grow and at a very high rate. When we look at our total addressable market is very large. It's measured in well over a $100 billion total addressable market. We see ourselves as uniquely positioned to continue to grow quite meaningfully over the next several years.
If you haven't seen our Investor Day presentation from a few months ago, it's available on our website, and it goes through this in great detail in terms of what our longer-term projections are and how we're executing against that. Fundamentally, we have been reorganizing our company over the last several quarters to be a very commercially oriented organization. Historically, like a lot of companies, we were more general manager oriented, you had a, for example, a leader in a, in a given country or geography that was focused on doing everything from selling to operations to, you know, functional support. What we've done is we are migrating to a commercial organization that is singularly focused on working with our clients to sell them more and find opportunities for us to service them in a more substantial way.
That commercial organization is designed in such that we have global accounts, think about the Fortune 1000 and those largest relationships we have in banking and insurance, technology and other client verticals. We have a geographic organization that covers the remainder of our client relationships, which is literally measured in hundreds of thousands around the world. We think that that model, it's one that we've tested over the last couple of years. We've seen very significant success in it building pipeline and creating more conversion from pipeline into bookings. We've now been migrating that across our commercial organization. To support that, we've created a global operational organization that handles everything related to our services.
In our core, we have a lot of client touchpoints when we have our couriers, for example, go out to client sites, or when we go out and rotate tapes, or folks in the data center operating them, or on the IT asset disposition side, dealing with, client assets. As you would imagine, there's a lot to do there. We've created that operation function, which is singularly focused on servicing our client needs and really doing a great job from a customer satisfaction standpoint. Because, you know, as I've mentioned, one of the key tenets of our business model is to continue to have very successful client relationships and, and then thereby broaden our relationships with them.
Project Matterhorn is really about putting the client at the center of everything we do and growing much faster to go after that total addressable market. You know, I will say that last year, 2022, what you saw is significant growth out of the company, and that was a furthering of the prior year where we were growing. We've seen accelerating growth, and I think that's a testament to some of the early wins we're having out of our Project Matterhorn progress.
That's great. Maybe we can double-click on some of your businesses there. First off, on the document management business. I think you think of that as your core or even a legacy business. You know, organically, you've seen nice revenue growth and margin expansion. How do you think about the key trends and demand drivers for that business?
Yeah. Our core business, which is both our records management business that you mentioned, as well as our Digital Solutions, that's about 85% of the company's revenue today as of last year. If you look at the growth rates we were putting up last year and again furthering this year, you're seeing organic growth rates that have been accelerating. Think like going from mid-single digit to actually low double digit last year quarter by quarter, born out of strong revenue management as well as good volume trends on the business together with increasing Digital Solutions and scanning. That's a business that's been growing teens to 20% for some time now, and I think secularly, that's an area where our clients need more from us over time. We certainly expect it to continue to grow meaningfully.
In our Matterhorn projections, we expect that business to grow over a five year CAGR of something like mid-single digit in total. Frankly, as I've said before, I think that's a relatively conservative viewpoint in light of how successful the team is doing both recently and in the, you know, near-term pipeline. We feel very good about the core. I'll say from a, from an economic standpoint, as I mentioned earlier, it's a reasonably high margin, gross margin business. Think 70%-80% on the records management business. In total, that business from an EBITDA standpoint is low forties. It's been improving further.
If you go back several years, the team has made very good progress on EBITDA margin in that business, and we see opportunity for it to continue to move higher, thanks to things like revenue management and productivity. We feel that the trends in that business are quite good.
It's probably also important to note that those long-standing relationships in records management with 225,000 customers enables us to cross-sell. Really, our sales team now with Project Matterhorn is incentivized to sell the mountain across all of the services.
Let's talk about your data center business for a little bit. You've done a nice job growing that organically and inorganically. What are the growth priorities there, and how do you see 2023 unshaping for that business?
Yeah. You know, our data center business, Calvin, is one that I think has done really quite well over the last several years. I mean, the team deserves a lot of credit because if you look at... You go back four or five years, we've gone from being almost a footnote to being a real meaningful player last year with the 139 MW of new leases that I mentioned. You just look at the trajectory we've been on. I think the important thing here is one of the important things is we're winning with the winners, right? We are, we start with like a 1 MW or 2 MW with a hyperscale public cloud player, and that's turned into a 5-MW implementation and then a 10, et cetera. They've been continuing to grow.
We're expanding our reach with those clients and going from 1 site to multiple site relationships. I think the dynamics on the public cloud side is that they naturally, as they are both opening their own sites as well as using third parties like us, they wanna have a relatively few number of relationships. So they'll be standardizing. We see more and more of that happening, such that they recognize that, okay, we have a trusted partner in Iron Mountain, that we build very high-quality data centers with significant setbacks, with the level of security that they need and the continuity of service and power and on-time construction. With that, I think we've really meaningfully made progress in our data center business. At this point, you know, I think it's strength to strength.
We see a lot of growth in the data center business this year coming, following tremendous growth last year. Pricing, importantly, has been quite good. It's been improving all of last year. I think at the beginning of the year, I suggest that we thought that mark to market would be kind of low single digit. It ended up being mid-single digit by the end of the year, and I continue to see very positive trends with respect to mark to market in 2023 and beyond. Some of the industry data would certainly suggest that. I will note that we are exposed to some markets that are particularly constrained as it relates to supply, so that's helpful to our business.
Churn has been quite low, lower than our expectations over the last several quarters, and I expect it to continue to be at the lower end of our long-term target for churn. We continue to win with more public cloud players. I feel quite well positioned with respect to data center. I will tell you that if you look at our business, we have the almost high-class problem of we're very pre-leased. When people have said to me, like, "Well, what are you deploying the capital against?" This year, to put it in perspective, we'll spend about $1 billion in capital investment is my guidance for this year. About $150 million, not quite, is recurring CapEx in the total company. That leaves about $850 million round numbers for growth.
Of that, the vast majority, think, say, three-quarters, is going into data center. That's going in to construct facilities that are pre-leased. Because if you look at my under construction table, it's 85% of it is pre-leased, is gonna be a rough estimate. We continue to win new business and then have to construct. That's the situation. Years ago, we would've been building a little bit more to spec, but at this point, we are really constructing to pre-leased opportunities, which gives us a high degree of certainty. I will also say that returns have been good, you know, from a standpoint of both hyperscale cash-on-cash returns as well as the colo. Naturally, colo's a little bit higher, but it takes a little longer to lease up.
We've had good mix. I think as we move forward, we will likely see more and more of the growth coming from some of those larger tenants.
That's on the organic side for the data center business. How do you think about inorganic opportunities? I saw you made a small acquisition in Madrid last year of land. How does that fit into your inorganic strategy?
Well, we consider ourselves, and we are one of the truly global players in the data center market. We have several sites in North America, we've got several sites in Europe, and we've got a few in Asia. We've recently made investments in India as well. You're correct, we bought a small location in Madrid, which we think ultimately can be a relatively quite large facility, a series of data centers for us. The way that plugs in is it's based on what our clients need. We look at the pipeline when we talk to our clients about where they need space over the next few years.
Madrid was an area that we think is very uniquely positioned in light of both the power dynamics there, you know, it doesn't have exposure to some of the other things that some of the other markets in Europe have. We think from a standpoint of where the cloud players will be, that's an area that we can continue to foster our existing relationships to build our capability in data center. From an M&A standpoint, Calvin, we really like the locations we have. We've got a lot of land, we're developing it. In terms of our total capacity, we can be, with what we have today, round numbers, 750 MW operating over time as we construct, but I expect us to be much larger because we are continuing to look for land.
Acquisitions of the sort like what Madrid was, which was essentially, a very small operating site that we can then develop. We're very focused on development returns. You shouldn't expect us to kind of like go buy like a stabilized asset. That is not sort of where we think we can create value for shareholders. We're very much about finding locations that we can continue to develop, both of what we already have, to be clear, as you point out, that's the primary focus. To augment that with new land or either small or developing sites that we could bring our strong relationships to.
Let's switch gears to the last business, the Asset Lifecycle Management or ALM business. I think you made a larger acquisition there a year ago with ITRenew. Maybe you can talk a bit more in detail about the thesis for getting into that space and then just the challenges or opportunities you see, concurrent.
For folks that don't know the Asset Lifecycle Management space that well, this is a market that's measured in tens of billions of dollars in terms of total addressable market. It's highly fragmented. I think the largest player in the space is Iron Mountain, and that's measured in a few hundred million of revenue. There's a lot of small ITAD vendors out there that are servicing relatively large clients. We think that there's an opportunity to do what we did on the record side. In fact, the records management industry looked a lot like the Asset Lifecycle Management industry a few decades ago before Iron Mountain rolled up that space. We think that there's a really compelling opportunity to help clients. Many of our clients need a global solution for their IT asset disposition.
We, Bill, our CEO, and the team entered the ITAD space about five years ago. That was on the enterprise side, working for large multinationals who have been our clients on the record side. Since then, that business has been growing, think, like, 25%, 30% compounded since those early day investments. It's still a relatively small portion of our business, but we want that business to be a much larger. We think that there's an opportunity to really win there, as I was referring to. You are right that about a little over a year ago, we entered the hyperscale decommissioning portion of the Asset Lifecycle Management. That, think about the large public cloud data centers.
They have gear in those that they generally renew or refresh due to power requirements or just, you know, new technologies that are coming up and improving the servers. They're renewing that gear about every, depending upon the public cloud player, somewhere between four and six years, something on that order. The data center, of course, the physical infrastructure is there for decades, but the gear inside they need to refresh. That's where we come into play. We will wipe that, those servers for them if they'd like it wiped, and then we will physically decommission the servers, putting the chips there, the DRAM there, et cetera. Because that gear is not basically at its end of life, it still has value. It has residual value to others.
We then sell that into secondary sources that would use it, in a circular model, so reusing the CPUs or reusing the DRAM, that sort of thing. That's a relatively, compared to our total business, a lower margin business because it's a revenue share, but it's in a sort of a consignment type of inventory, so we don't have pricing risk in that way, which is, which is a nice feature of the business. It is, kind of think a mid-teens kind of margin. We think that can grow over time as we get more scale because the business is still relatively small, and we have a lot of, if you will, capacity to process.
As your question alluded to, that is a market that has been a little more challenged over the last year, what with the intense China lockdowns, because a lot of that gear tends to decommission into China where they use the material to make secondary servers or gaming units, what have you. We really like the dynamics of the Asset Lifecycle Management industry. We have set expectations, I think, that are quite prudent for this year, which is that in our guidance, we assumed essentially the revenue would be just slightly up equivalent to the prior year.
In light of what has recently gone on in China, which is the zero COVID policies being relaxed, they're going away, we think in time things will start to open up and supply chains will start to open up, and that will then lead to an opportunity for us to be in a particularly advantaged space because we are already the leading vendor to some of the largest public cloud players in North America and Europe. In fact, we have an exclusive relationship with one of the largest public cloud players for decommissioning their sites in North America. We have exclusive relationships with some of the other public cloud players in Europe. So we think Asset Lifecycle Management is a space that can grow at a very high rate for us, Calvin, over many years.
Think like hundreds of millions of dollars of incremental revenue, over the next five years.
Maybe I'll see if there's any questions, from the audience. Oh, okay.
All right. Thank you. You talked about AI earlier in the context of your core business, but what are you seeing on the data center side of things as a driver of future demand, and what does that mean for design of new data centers?
I think it is clearly a demand driver. You know, we are seeing what everyone else is probably seeing, is that there's so much focus on AI, which is, as well as other, you know, technologies that are driving compute, that we think that the players that we're dealing with on the public cloud side, as well as some of our more enterprise clients, they're going to need that much more space. They're gonna need more MW. We do see it as a demand driver. I will say that it's probably an incremental driver for us going forward because I think we're at the early stages of AI.
When you think about other applications that are going to require data center space, think about self-driving cars and all of those other applications, that's one of the reasons why we think the data center is a secularly growing space and one that we're going to clearly be allocating more capital to going forward. Completely agree. On the design side, generally speaking, we are very focused on bringing to market sites that the clients can do whatever they need with. You know, in terms of the gear that's being placed in there, that is based on the client. We're giving them access to very well-constructed, secure facilities with power, and we're making sure that we're nimble enough from a standpoint of NEP to facilitate whatever they need.
You know, clearly as technologies adapt, we can refresh our sites to the extent it need be. You know, we don't see AI specifically changing our construction.
Can I ask just on the documents management business, as Digital Solutions continues to grow and as the business shifts in that direction, is there further opportunity to optimize the owned real estate portfolio within that part of the business? A second question on data center as well, is you referenced the cash flow level returns. Can you talk about like at steady state, cash and cash returns relative to the core business and how you think about that from a capital allocation perspective?
Okay. I'll try to keep this quick 'cause I know we're out of time, actually. From a standpoint of optimizing the owned portfolio, it is something that we've been selectively doing over the last several years. We've had what we call an industrial recycling plan, that has resulted in, from time to time, us selling small portfolios of some of our facilities. Those are generally in the form of sale-leasebacks because generally speaking, we like the footprint of our record sites today, and we will likely be in with relatively few exceptions, if we're consolidating to a new site, for example. Generally speaking, anything that we would sell, we'd be in for decades longer. We've been doing those in the form of sale-leasebacks.
In light of what's gone on in the market and cap rates being, you know, moving where they've been, I haven't assumed much in the terms of industrial recycling this year in 2023. Last year, to give you a sense, we did about, I think, $185 million of capital proceeds. There is clearly more opportunity. I'll tell you, just linking it to the second part of your question, though, on data center, we also see that there are distinct opportunities in our record centers to convert them from record sites to data center sites. There are some specific examples where we have opportunities in some of the key metropolitan locations. Think like Southern Florida, a variety of other locations around the world, because, you know, as you probably know, we have literally thousands of record sites.
While not all of them, in fact, relatively few would be good prospects for converting, there are some where we have distinct client interest. I can see that we have the other group coming in, so I'll keep the answer to that for now, but we can talk about your other questions separately. Thank you everyone for joining us today. Thank you, Calvin.