Q2 2021 Iron Mountain Inc Earnings Call
Good morning, and welcome to the Iron Mountain second quarter Conference call.
2021earnings conference call.
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Please note. 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 Debbie good morning, and weapons of our second quarter 2021 earnings conference call.
On today's call, we've all heard of materials available on our Investor Relations website.
We are joined here today by Bill Meaney, President and CEO, and Barry Heightening, our EVP and CFO.
Today, we plan to share a number of key messages to help you better understand our performance, including our Q2 outperformance the increased momentum in the business our updated outlook for 2021 financial guidance. The continued growth in our data center of Bad news and the strong performance in our growth areas.
After prepared remarks, well open up the line for Q&A.
70 at the anniversary of this month I am extremely proud of what our team has accomplished in growing our relationships with our large and diverse customer base. In spite of the continued challenges due to COVID-19.
Mountain years across the globe have conquered every obstacle with tenacity and an innovative mindset all with the focus on accelerating growth and services to assist our customers.
Before we dive into a record the results and the positive momentum in our business I want to take a moment to reflect on the current situation with the pandemic in new variants still wrecking havoc in many parts of the world.
In addition to operational complexities, we're also dealing with the realities of of workplace and a world changed forever by the COVID-19 pandemic.
And Iron Mountain, we're thinking how we can move forward instead and getting back to normal all whilst remaining diligent to ensure the physical and mental health as well as the overall safety of our teams their families and our customers.
As I mentioned earlier this year, we celebrate 70 years of Iron Mountain.
It's a legacy with a rich inspired past, which continues inspiring the future.
Since that day on 24 August 1951, we have built evolved and expanded our trusted relationship with our customers to include not just the leading storage platform of physical assets, but now includes a rapidly increasing range of business services.
These new services are centered around data center co location information security data insights.
The disposition and business process management.
And today with this broad portfolio of services and storage capabilities, we of becoming innovative and global leader in our field with more than 225000 customers, including more than 95% of the fortune 1000.
A global footprint of more than 1450 facilities with a presence in 58 countries.
And 24000 dedicated mountain years across the globe.
And doing all of this with an energy sustainable way with 100 per cent of our data centers powered by renewable energy.
Many of the things about us have changed in 70.70 years.
What hasn't changed is our core values and commitment to building and delivering on the trust our customers have come to count on.
Over the last 2 quarters, we shared with you that we now have an expanded total addressable market or tam of more than $80 billion.
And against that expanded Tam we've identified the building blocks for growth that will enable future growth and success.
And in fact, you can already see evidence of this expansion through our year on year of digital service revenue growth together with secure asset disposition or iPad.
In this quarter versus a year ago. These business lines have grown over 37%, resulting in $25 million of incremental growth.
I want to highlight of few examples which illustrate our progress in helping our customers through utilizing new technologically enabled approaches and products to not only protect but unlock value from what matters most to them.
The first when I want to highlight is in Singapore with a multinational banking and financial services Corporation.
We won a 750000 dollar annual recurring revenue digital mailroom contract over their current service provider.
At first the bank didn't believe that Iron mountain could solve this need for them as the head only known us for the support to support their storage and scanning requirements.
However, the account team pursued the opportunity and highlighted iron mountain strength, you utilizing a new technologically based approach, which allows us to assist in managing the very start of much of the information entering the bank, while securely facilitating a hybrid office and Homeworking model.
As we are already this customer's partner for business process outsourcing and processing much of the banks critical information the mailroom as of key additional service, which will yield for the security and simplicity for the bank.
Turning to another area of representing part of our expanded Tim I want to touch briefly on secure iPad.
Think of this as an area, where we apply are highly secure chain of custody with a service that allows our customers to dispose securely in an environmentally responsible way their assets, which are at the end of life.
We have continued to see good momentum in our secure iPad solution. Following a number of big wins last quarter.
We want a deal with 1 of the world's largest banks to recycle corporate laptops monitors and outdated equipment across over 400, corporate offices 4000 conference rooms, and 5000 retail offices, which we expect to generate annual run rate revenues greater than $5 million the.
This is of valuable offering given our expertise and chain of custody in compliance helping customers securely dispose of their equipment.
Turning to our data center business, we want to share not only are continued growth and top and bottom line, but some recent exciting developments in the last month, which has led us to increase our guidance for expected 2021 leasing from 25 to 30 megawatts to over 30 megawatts non including additional leasing expected from the recent.
Acquisitions in Frankfurt in India.
Our increased guidance around leasing activity as of based upon the momentum we have seen in the business in the first half of the year as well as the pipeline.
Today, we announced not only the 3.6 megawatts of new leases, we signed in the second quarter, but also a 6 megawatt lease with the new logo to our platform that was signed post Q2 in northern Virginia.
Aiken together along with our strong results in Q1, we have recorded a total of 19 megawatts of new an expansion leases in the first 7 months of the year.
This is of great launching off point for the remainder of the year and we feel confident we will achieve leasing activity above the top end of our original guidance.
Turning back to Q2, it should be noted of the 3.6 megawatts, we leased in the quarter. The majority was in the retail on the enterprise segments. This resulted in attractive pricing for the quarter, which increased 14% sequentially.
Our strongest markets in terms of new an expansion leasing where Phoenix, Singapore in Northern Virginia.
Finally in terms of development you likely saw from a recent press releases are data center business is expanding rapidly in Europe.
We have a new 27 megawatt greenfield build in London adjacent to our existing London, 1 facility as well as the pending acquisition of of Multitenant co location data center in Frankfurt.
Taken together this will increase our total potential capacity in Europe to more than 88 megawatts and will provide access to important interconnection markets for new and existing customers looking for reliable flexible and secure data center location.
Has always sustainability continues to be a top priority and as part of our commitments, we will power of new buildings in London, and Frankfurt with of 100 per cent renewable energy.
Before I hand, the call over I also wish to touch upon some new product areas, which are leading to more growth in our traditional storage areas.
1 of these newer product offerings as clean start which is a service that helps customers navigate today's changing workplace requirements from Reconfiguring. The office of the social distancing 2 office closures are moving to a more digital way of working.
Since its inception, the clean start product is generated over $19 million in revenue and has uncovered 1.1 million net new cube over a 3 year period and.
In 2020, we decided to explain expand glean clean start globally with all regions engaged in growing the program.
Since taking the business globally, we have seen an acceleration in bookings specifically in the first half of 2021 clean start as delivered $5 million of new revenue or some 25% of the total revenue from this program since its inception 3 years ago.
The specific customer example, in this quarter includes a 1.8 million dollar deal with the leading global hotel chain over the next 5 years.
Due to challenges from the pandemic the customer needed solutions to help with compliance and storage of materials. This.
This customer has been with iron mountain for years at an individual hotel level and its corporate team saw the value in our scale breadth of offerings compliance expertise in risk reduction solutions.
This prompted the decision to deploy our services across 103 hotels, plus an additional 15, 1 off sites as required.
We were able to manage much more than just the of record storage also meeting the of destruction needs and providing image on demand services. All of this being done companywide at a scale unmatched by any other provider.
Another example would showcase showcases are innovative new products, which drive records volume and services growth is smart sort of our customers want to reduce costs and risks by defensively to store destroying records as they meet retention requirements, which is difficult to do if records of not stored by the destruction eligibility.
Date.
For example, many healthcare accounts store records by patient number or the last day to visit and not by retention requirement with smart sort, we organize the wreckage by destruction day, so the customer knows what they can destroy and when our team understood of pervasive customer problem took a customer centric approach and proactively came.
Up with the solution to solve it with the smart sort of just in the last year. We've had 10 healthcare vertical wins for smart sort with our most recent win with Johns Hopkins Medical Center. The agreement is a 5 year term, which includes a $1.2 million of smart move project, bringing an additional 160000 cubic feet of <unk>.
Inventory, representing over 4 million individual patient records.
Reflecting some of these successes total global volume grew to a record 733 million cubic feet. This quarter in spite of organic volume being down 10 basis points in the second quarter versus the first quarter total global organic volume was up 1.6 million cubic feet in the first half of the year and we continue to explore.
Organic volume to be flat to slightly up for the full year.
This expected organic volume together with continued strong price increases sets us up well for continued strength and organic storage revenue growth from our physical business areas.
In closing I want to say, thank you to the 24000 Mountaineers, who have done an outstanding job navigating through the pandemic I'm extremely proud of the relentless dedication to each other and our customers with the resilient business model ongoing market share growth and strategic investments to transfer.
From the company. We are excited about the significant opportunities ahead of us, which continued to exceed even our ambitious targets with that I'll turn the call over to Barry. Thanks.
Thanks, Bill and thank you for joining us the second quarter exceeded our expectations across each of our key financial metrics.
Continuing the trend we've seen over the last few quarters revenue continue to strengthen with a strong recovery and service revenue and activity levels.
Our core physical storage business performed well and we are seeing great progress in our growth areas.
The last thing that progress and the outperformance in the first half we increase the midpoint of our financial guidance.
Turning to our results for the quarter on of reported basis revenue of $1.1 billion grew 14% total organic revenue increase the 10%.
Organic service revenue increased $81 million or 26% and was ahead of our expectations.
Our team drove strong growth in both of our global digital solutions business and secure it acid disposition.
Total organic storage rental revenue grew 2.5% with continued benefit from pricing together with positive trends in volume.
Adjusted EBITDA was $406 million, we exceeded the projections, we shared on our last call as the team delivered better than expected project summit savings together with the revenue beat.
<unk> was $246 million or 85 cents on a per share basis.
If you recall last years <unk> benefited from of $23 million tax refund adjusting for this <unk> would of increased 8% year over year.
As we mentioned on our prior earnings call. <unk> also reflects an increase in recurring capex as we catch up on some projects that were deferred during the pandemic.
Our full year recurring capex guidance is unchanged.
Turning to segment performance in.
In the second quarter, our global room business delivered revenue of $993 million, an increase of $160 million from last year on an organic basis revenue increased 9.1%.
The team performed well with constant currency storage rental revenue growth of 1.9% or 1.6% on an organic basis.
Growth was driven primarily by pricing and volume.
We added about 4 and a half million cubic feet from our acquisition in Indonesia, which closed during the quarter.
Our traditional services business continued to recover from the pandemic with revenue growing 24% year over year and 4% from the first quarter.
Our global digital solutions business continued to display strong momentum growing 24% year over year.
Global Ram adjusted EBITDA was $430 million, an increase of $47 million a year on year.
Adjusted EBITDA margin declined 50 basis points year over year as a result of mix given the strong service revenue growth.
Sequentially EBITDA margin increased 110 basis points do the projects summit benefits and the contribution from pricing.
Turning to our global data center business, where the team continues to perform exceptionally well we book to 3.6 megawatts in the quarter and through the first half we have book to 12.6 megawatts.
Subsequent to the end of the quarter, we signed the 6 megawatt lease in Northern Virginia.
Based on the year to date performance and the strength of our pipeline, we increased our full year leasing target to more than 30 megawatts, which would represent of 23 per cent increase in bookings.
In terms of revenue as we projected growth accelerated sharply to 15% year over year.
We continue to plan for full year revenue growth in the range of low double digits to approaching the teams.
The combination of our strong prior year bookings and the teams leasing performance of year to day provides high visibility.
Adjusted EBITDA margin of 43.4% increased 60 basis points from the first quarter and was ahead of our expectations.
As compared to our prior outlook the improvement was driven primarily by timing related to the Frankfurt Buildout, we discussed last quarter, which has been modestly delayed.
As a result, we now expect more of the work associated with that project to occur in the second half, which will result in a temporary impact on segment margins on the order of 3 points relative to the second quarter level.
Turning to projects summit this quarter of the team delivered $42 million of incremental year on year adjusted EBITDA benefit.
With the strength of the team's performance of year to date, we now expect the year on your benefits from summit to approach $160 million with another $50 million of ear on your benefit in 2022.
Total capital expenditures were of $136 million of with 100 million was growth and 36 million was recurring.
Turning to capital recycling as we have said before we view of the market for industrial assets is highly attractive as a means to supplement our growth capital.
With that backdrop in the second quarter, we Upsized are recycling program and generated approximately $203 million of proceeds year to date, we of generate $250 million in proceeds compared to our previous guidance of $125 million.
With our strong data center development pipeline, we are now expecting to generate full year proceeds of approximately $250 million.
Turning to the balance sheet at quarter, and we had approximately $2.1 billion of liquidity.
We ended the quarter with net lease adjusted leverage of 5.3 times slightly better than our projection and down from both last year and last quarter.
This marks our lowest leverage level since year and 2017.
As we have said before we are committed to a long term leverage range of 4 and a half to 5.5 times 4.2021, we expect to end of the year within our target range, an estimate we will exit of the year at level of similar to the second quarter.
With our strong financial position our board of directors declared our quarterly dividend of 62 cents per share to be paid in early October.
Turning to our outlook today, we are pleased to increase the midpoint of our 2021 financial guidance. There are 3 factors driving the improved projections <unk>.
First operational performance in the second quarter was better than expected and we had good momentum in our key growth areas.
Second we have identified additional benefits from projects summit, primarily related to opportunities that are commercial team has been able to uncover.
And third we have acquired a small records management business in Morocco that will add about $5 million in revenue.
Conversely, as compared to our prior guidance there are 2 headwinds I would call out.
First we divested our intellectual property management business in early June compared to our prior guidance. This represents a reduction of approximately $20 million revenue and $15 million of at the top.
Second since May the stronger U S. Dollar is more of a headwind by nearly $20 million per revenue and $7 million per EBITDA.
For the full year 2021, we now expect revenue of $441.5 billion to $451.5 billion. We now expect adjusted EBITDA to be in a range of 1.6 billion to $1.635 billion.
At the midpoint this guidance represents growth of 8%.
And EBITDA growth of 10%.
We now expect <unk> to be in the range of $970 million to $1.005 billion.
And <unk> per share of $3.33 to $3.45 at the midpoint. This represents 11 and 10% growth respectively.
Our guidance of seems global organic physical volume will be flat to slightly positive versus last year and with continued benefit from pricing, we anticipate low single digit growth in total organic store of revenue.
For services, we expect to maintain positive revenue growth 3 remainder of the year.
With the ongoing pandemic, we believe it is helpful to share our short term expectations for the third quarter, we expect revenue and EBITDA to both increase approximately $10 million sequentially from the second quarter levels.
We expect <unk> to be slightly in excess of $250 million in the third quarter.
In summary, our team is executing well we have seen positive trends in the macro environment in our pipeline continues to build the momentum we had entering the year has strengthened our addressable market continues to expand and we feel confident in our ability to drive growth.
We feel well positioned and look forward to updating on our progress during following the third quarter and with that operator. Please open the line for Q&A.
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The first question comes from here on the graph with Evercore. Please go ahead.
Yes. Good morning, the surfaces rebound was very strong in the corner and I understand it's based on some some new products, which you called out just wondering if there was more leverage as people returned to the office and some of your services businesses that have been held back from the pandemic of people.
Working from home.
They're more of leverage for those businesses to increase as.
People returned to office.
Good morning show of Thanks for the question. So first I appreciate the call out of it we were really pleased with the organic service revenue of approaching 26% in this quarter, which which of thought it was just a very strong result, and as you pointed out that was really driven by a lot of our new digital solutions, which was well north of 30 per cent growth. If you take iPad in digital services.
Of mine I think your question on the traditional service side is a good 1 because what we've seen actually has an increase in the backlog of incoming cube, which quite frankly, we haven't been able to get at in some countries because of continued rolling lockdowns or intimate and Lockdowns. So we do expect has some of the lockdowns get ease.
A bit on the traditional service lines that we know that there is a backlog of income and cube that we haven't been able to access the offices force. So I think there will be some in the medium term in that area.
How big it's hard to judge right now.
For the next question is from George tongue with Goldman Sachs. Please go ahead.
Alright. Thanks, Good morning, my questions on projects Summit, you mentioned that you're realizing additional benefits from project from the coughing you. The <unk> guidance and have you talked about expectations of 160 million savings with another 50 million the next.
<unk>, so how much of the upsides savings represent the pull forward from future periods, where would you say you know this is like your an increase in total savings from project from them and can you just sort of map out the entire time line of what you would expect to realize the full amount of <unk>.
Project savings over the next couple of years and we'd be related to that of the.
The the project from the savings.
How does your increased investment.
<unk> growth initiatives.
Pack the flow through of project summit savings in terms of margin experience of number to me. Thank you.
Okay, Hi, George it's Barry Thanks for the questions.
So we feel really good about the way the team is progressing with respect to project summit. The full program, we anticipate generating $375 million of benefit you'll recall that last year, we generate about $165 million of benefit and year to date together with last year's of program to date, where at about 250.
The $7 million of benefit we will end of the year with all of the run rate savings in the numbers. So we expect to be exiting the year at the full program benefit that leaves about $50 million of year on year benefit next year and so you you should be penciling something about 70.
Of incremental year on year benefit in the back half probably split pretty equally this year with that $50 million remaining so we feel great about the way the program is progressing.
The teams executing well you asked about investments what you will see as we certainly did as part of summit invest in certain areas like our commercial organization.
<unk> in our global strategic accounts organization, and you would see that in our SG&A expenses. This year. If you look at our SG&A year on year, it's up excluding stock compensation expense of about $16 million and actually more than all of that is in the commercial organization supporting growth and so we.
Both in the form of a increasing that organization as well as some variable cost of go along with the great sales performance year on year like variable compensation expense. So you are seeing those expenses in the numbers already and we expect that you will continue to see very good performance out of the team on summit. Thanks, Yeah. They I would just add to a very I think.
Barry's last part as important as the 375 as of net number. So obviously, we're making a lot of investments to transform the business, but the 375 is net of all of the investments we're making.
From the next question is from Shlomo Rosenbalm with Stifel. Please go ahead.
Hi, great. Thank you very much for taking my question I, just Wanna focus will be more of the services business, obviously that seems to be doing a lot better you have new products and things coming to market and I was just wondering is there some impact on the margin from the mix of the newer products just seems like the the more gross margin was.
Down sequentially. Despite higher revenue is dead kind of of ramp thing that's going on or maybe you could just give us a little bit more color on how how that's flowing true.
Sure Hey, Shlomo, it's very thanks for the question, we feel really good about the way the teams performing in our services organization as <unk> as you know the revenue was up a considerable amount of year on year and sequentially.
While the gross margin is of tick down call at 40 basis points I'll note that that is driven by the fact that revenue in that line outstripped our projections as I mentioned in the prepared remarks, and if you look at versus our projections last quarter for the quarter, we beat revenue by about $25 million round numbers the vast majority of.
Of that was in services. So we certainly did to maintain customer service and we did have some level of what I would consider like surge expenses related to servicing that uptick in demand and I think you should expect that that will even out as we move forward and the the.
The decline in gross margins about $1 million. So it's not a tremendous amount we feel good about the margin we're generating off the new product offerings to Bill's point on our global digital solutions and and our security asset disposition of those are very nice margins. The other thing I'll note is hour. If you if you work through the numbers in our <unk> and our services are.
On the EBITDA the EBITDA margin in that business was actually up 100 basis points sequentially and that was up 640 basis points of year on year. So we feel good about the way our services are performing thanks for the question.
The next question is from day Crawford.
Uhm Bahrenburg. Please go ahead.
Egg in the morning, a couple of data center of questions. If I may the.
The over 6 million of leasing of.
The megawatts of you did in July with that single Hyperscale lead you know maybe some detail on that and then also.
If you could talk about your outlook for pricing from the data center of business more specifically on renewals and mark to market over the next.
Few years, because I think there's been uhm crosscurrents in this day and your data center periods of said different things when it comes to that so I'm curious to hear what you're seeing in terms of the outlook for renewal pricing.
Okay. Good morning, 8 no I appreciate the question. So first on the 6 megawatts. Yeah. We're really pleased it's a it's a single customer for our northern Virginia campus of Hyperscale and it's a new logo to us. So on just a number of fronts is just the great. It's a great customer when.
And you know as you can see are we keep expanding capacity in our northern Virginia campus based on the pipeline that we see even beyond that so really congratulations to the team I think in terms of the pricing you noticed this month, we were up.
Slightly so we thought that was actually.
Good trend I think generally what we we're we're blessed being in that sense of the relatively new comer to the data center of space. So we don't have as many historical customers that were originally sold in it at higher than what today market prices are so most of our customers because we've been growing very quickly over the last few years Ah relatively new customers that.
What I would call.
New and.
The new pricing levels. So we don't have as much pressure as some of our older peers that of have that with the exception we'd called out the last few quarters from time to time, when we did acquisitions. We knew we were requiring some customers that had been it with our with our acquired companies for a long time and that those were rolling off. So so generally we feel pretty good where we.
Or on pricing you noticed that this quarter, we were on the 3.6 megawatts, we were up quarter on quarter on pricing of that was really more about mix that we were highly focused on co location or retail enterprise customers, which obviously come at higher pricing. So so generally we don't see a big change in the pricing on Cussed.
<unk> that we've acquired or brought into facilities that we've acquired.
The next question is from Michael from Christina <unk>. Please go ahead.
Yeah. Thank you. Thank you for the questions. The just wanted to refocus on the on the room business for for a moment and tell me that you made a comment change the backlog of.
Of incoming cube, the scene of love to get more thoughts there on you know how that might impact of volume moving forward, but can also thinking about the last quarter.
What about the getting to me kind of commentary just on the on the volume trends you seem uhm what are the the growth additions to churn COVID-19, how how acquisitions also impact of the volume of the quarter.
Thanks. Thanks for the question good morning, I I think that a couple of things I would say, it's the first of all if we look at on the the records management business, we see of very Uhm. If you look at quarter on quarter over the last day 4 of 5 quarters, we see kind of pretty much the same kind of transit bumps up and down so we don't see a big change in terms of.
The net volume trends in that part of the business I do think that because of the the shutdowns that I referred to earlier in the number of our countries. We have seen a significant increase in backlog waiting for people to be able to get back to office to allow us access to to bring that in so that's that's positive but if you just look overall on our terms.
Of our total physical storage business, we're really pleased with the how that that's coming up because if you look across the portfolio of our physical storage businesses. The first year is the first half of the year, where we're up uhm organically in terms of volume we expect the second half of the year in terms of our physical storage business to continue that trend. So.
For all of the year, we say flat the slightly up but.
We're we're up slightly in the first half and we expect the second half to look the same and then we had the normal price increase on top so we feel really good in terms of where we are we're we're sitting on the general trends in the trends within each of those segments of our physical storage business seem to be.
Seem to be relatively consistent.
I think there will be of short term uptick once we can access some of the boxes that were that had been ordered for us to pick up but I think that's more to do with a a 1 off.
Transition as we hopefully get out of the Covid.
Again, if you have a question please press darvon 1.
Our next question comes from Rob Somone with Hershey Management. Please go ahead.
Hey, guys. Thanks, a lot for taking the question..1 of my question is already answered, but you know your company. Obviously has a a larger work force than a typical of <unk>. So I was wondering and you touched on some of the you know the cost and how it's expected to even out over the balance of the year.
But I was wondering if you could just talk a little bit about the either the lack thereof that you know you guys are able to source new employees retain employees and also to what degree of way.
<unk> are are are moving up and do you expect that to accelerate in the back huh.
I appreciate the question. So maybe what we'll do is I'll I'll answer the first bit in terms of the acquisition of employees because it's a really good point and then I'll, let Barry comment on the inflation that we see across our business not just on on labor I will just say inflation for us generally is our friend because we have such high 70.
5 per cent 70 to 75 per cent gross margin business, then obviously and we were able to price pretty aggressively against that so it's generally creates a a tailwind towards our our margins.
On accessing talent is luckily, we're blessed with a very strong culture. So if you look at our employees and I'm I'm, referring mainly to our front line employees, who really are the the heart and soul of the company of these are the people that you see our trucks out on the road or people C. R folks coming into the facilities or the the people to keep the lights on in our data centers.
They are.
Yeah, very long term employees culture is very strong and we are very low churn for of service company and probably 1 of the lowest churns in the industry. So we're blessed day, we don't have a lot of outflow of employees stepping said the growth that we're seeing in the number of our service areas as well as our data center means that we are actively going out there and.
Acquiring talent and I'll be honest, it's tough sometimes but our biggest reference are hard core employee growth. So we haven't seen a situation, where we haven't been able to to grow with the demand except of the backlog I mentioned, because we just can't access facilities and you know there has been some short term.
That's the very called out in terms of we had to use some expedited labor in a couple of cases, so that we could meet the demand, but but generally we feel that our culture has been our friend in terms of of being able to acquire the necessary talent Roberts very thanks for the recent pickup of coverage we appreciate that.
On your question is related to inflation I'll say that the the beginning of the year I would say we were quite prudent with respect to our guidance on on inflation. Obviously, that's the topic that's very much in the popular culture right now we the 1 of the reasons, we can be confident in our guidance and increase the midpoint today is that what we are seeing.
<unk> is not out of outside the realm of what we baked into a regional guidance and if you look at our cost of service label of for example, you actually see that we're generating productivity verbal sequentially and year on year and so we feel good about where we are and I appreciate the the interest. Thank you.
From the next question is from Eric <unk> with Wells Fargo. Please go ahead.
Hi, Thanks for the question wondered on the on the capital of recycling front. So you guys are the $250 million this year and it seems like cap rates continue to be pretty attractive in the kind of low 4 per cent range. So if I recall I think you have just north of 2 billion of industrial real estate in your portfolio of how much that over time do you think you could potentially.
Really sell and given the attractive valuation environment. I mean, do you think you could do even more of the near term than you had previously guided thanks.
Hi, Eric it's very thank you for the question. We certainly continue to view the market for cap of recycling on industrial assets is quite favorable that's 1 of the reasons why we did complete the transactions that I spoke about in the prepared remarks, we have doubled the level of recycling for this year that we had in the original guidance you recall it.
It was originally 125 and I've just increased it to 250.
Most of that is already done I might add so you can put that in the model.
<unk> from the standpoint of going forward you are thinking about it the right way, we've got a large portfolio and we see the opportunity to Opportunistically continue to recycle of <unk> relatively small amount without giving forward guidance and we'd historically said you something on the order of 100 million a year, maybe even $125 million a year.
As of planning posture, obviously are recycling efforts are facts and circumstances driven both based on what's out there in terms of cap rates as well as what we need from a development pipeline I will say that 1 of the benefits of our businesses in light of the growth in EBITDA and the cash generation of our core business, which is just.
The Mendes, we see the opportunity to continue to fund our our development both from internal growth of EBITDA in cash generation as well as the sort of modest recycling. So that's the way I would think about it and I appreciate your interest.
Next we have a follow up question from Shlomo Rosenbalm. Please go ahead.
Hi, Thank you very much for letting me back in here 1 of <unk> just a question in understanding the volume of physical volume trends in the aggregate. There's just over 5 million of of volume from business acquisitions in the quarter and I was trying to it does it does it all in the room business and if I kind of assumed.
That it looks like the room sequentially went to elbow of 2.8 billion 2.8 million.
I'm just trying to understand the last the last quarter, we kind of leveled out a little bit and it seemed to come down a little bit more this quarter and interest trying to get a sense of is there you know the stabilizing trend of continued trend with the little bumps here and there and then just the basically trying to understand that and with the.
The understanding that the other businesses seem to be outgrowing. It in terms of the adjacent business and consumer of other but I'm just trying to get a sense of the <unk> side.
Hi, Shlomo the spirit. Thanks for the question. The let me clarify that of the 5 million about 4 and a half million dollars in the core that's from the small deal. We did in Asia, which is about 4 and a half million of cute. The rest is in the adjacent business category and so when you work that through the model you should find that the core was down just about 30 basis points, which to your <unk>.
<unk> is an of bills earlier comments very consistent with what we've been seeing even a little bit better than where we were let's say of year year and a half ago in terms of sequential performance. We continue to feel good about our core business and expected as we got it earlier to be flat to slightly down on an organic basis for the full year at.
And in light of the dynamics that Bill mentioned in terms of the <unk> of backlog for incoming cube.
And likely for the pandemic to continue to ease over time, we expect that that performance will continue to bump along and maybe even slightly improve so we feel really good about where we are there.
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