ABOUT THE EPISODE
Recently I interviewed Iron Mountain's (IRM) CEO, Bill Meaney. In this 39 minute interview, we discussed a variety of topics including the post-covid economy, the data storage business, the balance sheet, and the dividend.
Also, Meaney mentioned Iron Mountain's new branding initiatives, and to learn more about that topic CLICK HERE.
Thank you for listening.
Enjoy the interview (and transcript below):
Hello everyone. This is Brad Thomas with the Ground Up and I'm back again with another CEO round table interview. Today I'm joined with Bill Meaney. Bill is the CEO of Iron Mountain. Ticker symbol is (IRM). And Bill, it's good to see you today.
Good to see you, Brad. Thanks for having me.
You bet. Thank you. It looks like you're back in the office. I think last time you were at home. So a pretty clear message here that you are in your office. How are things going, I guess at a high level, in terms of Iron Mountain and the ... Obviously you've been working all through the pandemic because you have an essential business, but it's good to see you back in the office. So how are things going there at a high level?
At a high level, no complaints. We're blessed with our business model. I'm just grateful that I work for Iron Mountain, if you have to go through such a tough period. I think the last time I was doing this from home, but I'm going back and forth. I've been coming to the office pretty much since May. 96% of our facilities remained opened even during the depths of the crisis, obviously a hundred percent are open now. And I'd spent a fair amount of time also on the road seeing customers both in the United States and Europe.
No complaints, but we do think as a company that 2021 is going to be another COVID year. In other words, what we said with our guidance, when we gave guidance a couple of weeks ago for the year, and we said the 2021 from a macro economic standpoint and activity level is going to be the same as 2020 but just in reverse.
We had a record quarter in the first quarter of 2020, and then of course the rest of the year was COVID impacted. And we think the first two or three quarters of this year are going to continue at kind of the same trend line that we saw in Q4 of 2020 with a recovery in the backend. But no big complaints.
Sure. Well, of course, Iron Mountain is a highly diversified business model. We cover the company as you know. So one of the interesting things is I think you have your finger on the pulse of many different markets, many different customers across the globe. Can you touch a little bit about that? Give us some insight and kind of what you're seeing in the U.S. and some of the customers in the U.S. And also if you could just, a lot of people viewing or listening to this may not be as familiar, would you mind reminding the audience a little bit about your business model from obviously boxes to data center?
Sure. Happy to do that. If you look to Bright here, we are a very international company. We're 56 countries around the globe. I think we are by far the most international of any of the REITs. That spread gave us a little bit of a head start when it came to COVID because obviously we're dealing with COVID in China starting the end of 2019 December, definitely January of 2020. We were already responding and building in our protocols based on what we were seeing in Hong Kong, China, and eventually all Southeast Asia.
As a result, if you kind of look just again from a macro standpoint, those markets while they're still locked down, for instance, Hong Kong has very strict quarantine requirements right now. They had a small outbreak. Australia you can say the same, but they've actually been able to get their economies going again through very strict controls in terms of their borders. So whilst it's kind of not very easy for international travelers of business to go back and forth in terms of our local business and our business is generally local in those areas, those businesses is still booming.
And of course our data center business continues to also do very well as people are actually going more and more digital and online, which leads me to kind of more on the business process. We're celebrating our 70th year in business this year. And as you said, we started with the ubiquitous box, which everyone knows Iron Mountain for.
Is the gift that keeps giving. I mean, that's a 75% gross margin business. And what that means in a real estate term is let's say we incur cost at five or $6 a square foot on industrial real estate, whether we own it, or we lease it, and because we rent out air, we charge by the cubic foot is that turns out to be North of $30 a square foot in terms of what we get for rental income.
So that Delta, that margin, gives us a very, very healthy margin of that business. Paper is definitely not being used like it used to be historically is what we see that volume approaching 750 million cubic feet around the world is kind of flat. I think we were down maybe 1% last year in terms of 2020 in terms of physical volume, but adding three points of prices.
We grew that business at over 2% organic revenue growth in 2020 in a COVID year. So we were able to get organic revenue growth from that. And because it is a mature business, you can imagine that it just gushes cash, which is a high paying dividend REIT stock. That fuels the dividend plus allows us to grow in the new areas.
So in the new areas, where do we really see the higher levels of organic growth? And I should say that this year we set guidance at four to 8% revenue growth, pre-acquisition for the company. That's a record in the last 10 years. So where's that growth coming from?
So yeah, we're continuing to grow revenue from the traditional side of the business, but our digital services, for instance, in 2020, which is really helping our customers on their digital transformation on how they use that information that we store, whether it's physical or digital, is that grew 8% organic revenue growth on our digital services portfolio in a COVID year.
Overall our service revenue was down because we still have quite a bit of services associated with people either picking up boxes or sending them back. But if you look at our pure digital revenue, which ended the year with about $270 million worth of revenue, that was growing at over 8%, and we expect that to grow another 50 million on top of that 270 this year organically.
That digital transformation business is really growing. And I say a big part of that is if you think about our customers, everyone says they have data lakes. Well actually, what most of our customers have is data ponds. What they need is they need something that goes across the top of that, that allows them to ingest physical assets, which we have a lot of, as well as ingest their digital assets from those different ponds, so that they can have really a data lake where they can seamlessly access their information and then analyze it or add value or create products to their customers. So that part of the business is growing really, really well.
And then the other end of the spectrum in terms of the digital version of our physical warehouse or industrial real estate is the data center business. In data center, we were relatively new entry five years ago. And last year we signed new leases in that, in the 15 to 20 megawatts range.
We guided a similar growth this year, which would have been about 15% growth rate, which is a pretty good clip in the third party data center space. And we actually signed up over 58 megawatts this year. It was really a terrific year, or I should say, 2020 was a terrific year for our data center business.
I'd be the first to say I'd rather not go through another COVID year is we came through that period. We learned a lot of things as a company, as a management team. We learned a lot about the things that our customers are really, where they were moving towards.
In some of that accelerate and that acceleration, we were able to capture with some of the products that we're offering. And so if you come out to this year, which is, again, I say, we're not expecting a rebound in terms of macro economic activity, but our products and services are more resonating with our customers today, which is what led to that four to 8% top line growth going into the 2021.
And the one thing I would just say, the thing that underpins that, that doesn't come out of a vacuum, it's not just that our customers have changed. If you go back five years ago, the total addressable market that our products and services were focused at, was about 10 billion globally, $10 billion market.
And it was growing low single digits, organic revenue growth. Today, the products and services that we've assembled over the last five years for our customers around seven key product areas is now a total addressable market of North of 80 billion.
So the products and services that we've developed on behalf of our customers over the last five years has increased our total addressable market or the target that our products and services are shooting at, by eight times. So eight times bigger markets. And those markets are growing at organic revenue growth rates in the 12, 13% range. So it's also a faster growing set of businesses that we're focused on.
Thank you, Bill. I've got to ask you this. This really got my wheels turning here. I'm in the financial newsletter business, research business, and very similar model we have is we have front end customers, which are your kind of your core storage customers and we upsell or upgrade into other products.
And the key to that for us, and I think for you and your firm is to take those running customers and move them up the channel to data storage. And I think, frankly, that in my opinion is one of the primary competitive advantages of your firm is your vast, call it Rolodex or your vast business model of all of these customers you have and be able to integrate into data.
Can you touch on that a little bit, because to me that is really where the true value, when I really just drill it down, Iron Mountain, really the value is taking that customer to the front end, all the way up to the data center, which is again, same thing in my business, it's how do you execute that? And obviously you're gaining scale in data centers so you can accommodate those front end customers. So, how does that work? How do you integrate and take that customer from the front end, close that loop to the data center product?
It's a really good point, Brad, because if you think about it, the thing I always say our two biggest assets, three, including our people, I'm very partial towards my fellow mountaineers. If you think about business, non-people assets, the business assets are, that 75% gross margin box business that is the gift that keeps giving from a cashflow standpoint.
But the other part is the thing that you came to is that is the customer base. So we have 225,000 customers across the globe, 950 of those are the top 1000 companies in the world. So 950 of the fortune 1000 are our customers, and we have less than a 2% churn on that. So it means that on average, they've been with us for decades. If you do the inverse of that, it's 50 years.
Most of those customers have been with us almost since we started 70 years ago. And that is, to your point, just a huge base. And we recognize that. And in fairness, when I said that these products and services have positioned us, the other thing is we've changed the way that we go to market with our sales force. So one of the things that we stood up in 2019 to capture a lot of what I would call that product R&D that we did and listening to customers, is we created a global strategic account sales force, and we hired people in from Accenture, from SAP, from Salesforce, from IBM, from HP. So it's a very different conversation with the customer. So what we're saying is part of our summit program, which you and I have talked about, which is our transformation program, which obviously is a big cost out.
The other part is cultural, where it's saying really our North star is the customer. In other words, we're not worried about what we have in our briefcase, the product we want to sell. We want to say, what's the problem that they're trying to get solved? What's the job to be done for them? And then we marshaled those things.
And because of that access to the 950 of the largest customers who have the most complex problems, is they're looking for a range of services, which is the reason why we relaunched our brand this week. Because you'll see now in the new logo, it's a mountain range rather than a single mountain. The common thing is, what is the customer looking to do? And customers' part of their digital transformation is looking for a broader range of services.
So you mentioned data center, for instance. So on data center, 40% of our customer leads on data center come from our traditional sales force. So yes, we have a highly skilled, dedicated sales force for data center, and most of those people have Digital Realty, Equinix, QTS, CoreSite, CyrusOne in their resume. These are sales reps who have been in that area for a very long time, but 40% of the leads that they start working with come from either our traditional sales force or more and more from our global strategic accounts.
So to give an example of a global strategic accounts is just in the last month, so in the last three or four weeks, I've been on two sales calls with our global strategic accounts. One for a bank and one for one of the largest banks in the United States, large regional bank, and in the other one with a large U.S. insurance company. And we're dealing with the CTO and CIO of both organizations. Both of those organizations have just done a major acquisition. So major acquisition is a trigger event really for a number of things that they need to get done, problems they need to get solved.
And the discussion we had with them was everything about, how do they absorb that and create a data lake where they have all these ponds? How do they create more metadata so they can minimize the risk? And if they're acquiring things to make sure the assets that they're supposed to get control of, they've got visibility of, and the ones they want destroyed, get destroyed?
And how do they think about the backbone infrastructure that they're bringing on board in terms of data center? How much is going to go into public cloud? How much of it is going to go into private cloud, but in a modernized third-party data center, rather than trying to build their own data center? So, you start having those multi-facet discussions.
One thing that we're all benefiting from is from my predecessor is that he's built this company around that level of trust in customer access. What's changed with the company in the last five years is we've broadened our portfolio of things. So that rather than just solving a small sliver of the problem is we can actually go and have a broader conversation with the customer, which for customers, especially when they're under the gun, they appreciate.
That's very interesting. And again, this really is reflective of not only, I'm sure investors or potential investors to hear from that, but I've learned a lot just following Iron Mountain, because I've covered the company now for a number of years, since converting to a REIT, it's been a couple of years now. And one of the things you mentioned, the low churn rate, and to me that ties directly into customer service.
I didn't interview Howard Schultz, but I remember reading his book, former Starbucks CEO. I think the takeaway from his book is one of the two most important words of any business, customer service. It appears that based on fundamentals, I can see that your company has really done a good job with customer service.
Now, I want to tie that into the Project Summit. Obviously that was a pretty transformational deal for the company. Can you touch on that? I know that commenced prior to COVID, but now that's pretty much been completed. So can you take us through the beginning to the end of Project Summit?
Okay. Thanks Brad. Look, it's better to be lucky than good. I'm glad that we started Project Summit in November 2019, rather than not having it started before we got into COVID. The first thing that Wall Street recognized is they see the cost program. We've upgraded the savings a couple of times, but during the middle of COVID, we upgraded that to 375 million ongoing EBITDA improvement. That's a massive improvement to the EBITDA of the company. When we exited 2020, 200 million on an exit run rate was already in the camp. As you said, we're making really good progress. And when we exit this year pretty much everything will be implemented. Going into 2022, we'll have 375 million benefit versus where we were in 2019.
So that's a massive shift in terms of the profitability of the company. I alluded to getting into COVID is just think about the analytical teams that we had spun up to really understand every facet of our business. And then you have a drop in service revenue of up to 40% during the peak of COVID that gave us the analytical understanding of the way our business worked at a much deeper level in certain areas that we were able to react to that, and also take advantage of it.
We also changed some of our service offerings, not just temporarily in terms of COVID, but permanently in terms of making sure that people are directed towards getting their data back digitally rather than the box back physically. And that has benefits for our customers, but it also had huge benefits for us from a cost of delivery standpoint.
But I think the other aspect about it, which was, you mentioned about the transformation. The real transformation of the company is culturally, which is really what's also showing up in some of this revenue growth. Part of summit was standing up that global strategic accounts that I mentioned, and hiring a different type of sales rep or identifying people internally that had those skills. Number of our sales reps, I should say, our long-term mountaineers that have grown up in the company, but had that different mindset of what I would call problem solving rather than transactional selling.
The other aspect about it is really this thing about the customer being the North star and being maniacal about it. And I think as a company, it is fair to say we were much more operationally driven for years, rather than customer driven. That was because we really pride ourselves around the trust of our customers, and to be trustworthy, you have to have operational excellence. And we're not going to take our eye off the ball, but we had forgotten about sometimes who actually sent us that check. So that was part of the transformation.
The other part of it was, I would say, getting rid of levels of management where it doesn't add value. So the first thing we did in November 2019, we took out 45% of the vice-presidents and above, which people said, how do you do that? It was painful on a personal level for all of us, including myself, but it was the right thing to do. And we weren't two months into that, that people said, this is really the right thing to do, because what we realized is that we had built levels of procedures that really didn't add any value, but just slowed things down.
So you come into COVID and what we said to ourselves even pre-COVID in January 2020, when we actually got the enterprise leadership team together, we said, if this feels like the same company 12 months from now, in terms of speed, agility, the way we actually interact with customers, then we would have fail this Project Summit. Yeah, we will have gotten the 375 million. Our shareholders will be very grateful for that, but we will have failed in terms of really seizing our ability to grow with our customers and serve them in a better and more fuller way.
I think we're still on that. Culture is harder than costs, for sure. But I think when you see our revenue guidance, the confidence that we have around our revenue guidance this year, which is really a high mark in the last 10 years in terms of where we're setting it, is we're starting to make a difference in terms of the way the company acts and feels internally.
Right. If we could shift over Bill to talk a little bit about the balance sheet, capital formation. On several calls, we've discussed the sale leaseback monetization of your owned real estate. And of course you have completed a couple of tronches of sale leasebacks. I was kind of taken back with the cap rates there, were pretty impressive, frankly. I think they were in the fours. How to four handle there, which certainly a great time to be selling into industrial real estate right now, those kinds of cap rates. So can you talk a little bit about that particular part of the business model? What type of guidance do you have or do you have any guidance in regards to future monetizations and sale leasebacks or other real estate sales?
Okay. Thanks Brad. We really kind of look at the overall financial model of a company. First of all, it starts with the dividends. So we feel really good where the dividend is. We also feel that a combination of summit and the growth, that four to 8% revenue growth and the ability to grow AFFO is going to naturally glide us down to around the 60% of AFFO payout ratio in terms of our dividend. We entered the year around 80. So we feel really good in terms of that trajectory. When we look at capital allocation, we're continuing to have a lot of success in data centers. I said we signed up 58 megawatts this past year, in 2020. We've guided the market that will probably somewhere be around the 25 to 30 megawatts this year, as we go into 2021, which we feel pretty comfortable about.
We continue to find opportunities, especially in data center where we can further invest. We kind of think about capital allocation in those types of categories. Feel really comfortable where the dividend is. Obviously when we get down to around 60% of AFFO, the REIT rules are going to require us to continue to add to the dividend in line with AFFO growth, that's all good. We continue to say if there's opportunities to invest in data center, we want to be able to do that. So then you kind of take a pure, what I would call capital allocation framework, and you say, okay, where do I want to harvest cash and where do I want to put cash?
Both the CFO, Barry Hytinen and myself kind of are disciples of the book Outsiders, which is a very nice piece in terms of thinking about capital allocation. And our view right now, we have a large portfolio of industrial assets. A big chunk we own, some we lease, and we kind of look at where cap rates are with industrial real estate and we say the relative cap rates there versus data center, we just like that trade. And we don't need to own the industrial real estate asset in most cases to control it. We have a very kind of strategic view of which industrial real estate assets. Either we want to get out, and it's an infill opportunity, or we think we're just as happy to have a lease on that facility, which gives us longterm control. When you can get cap rates, four and a half and sub four and a half, I'd rather put my money in data center, when we have those kinds of trades.
We do put filters on it just to be clear is that we look at the location of that asset. We also look at our ability to reuse that asset as a data center. So in other words, if it's a industrial asset where we think it has good access to fiber, good access to power, in an area where a number of our data center customers are interested, quite frankly, we hang on to that site because we'd rather own it if we're going to turn it into a data center. With our 80 million square feet, or it's now approaching 90 million square feet around the globe, is we have a number of locations where we've had data center customers approach us and say, "We're looking for two, four, six megawatts in the Munich area. Do you have an industrial warehouse that you could convert to do that?"
We have a land bank for our data center business that's bigger than what we state in our data center segment reporting, because we look at all of our industrial real estate. You might say, well, why aren't you doing a sale lease back there? It's because we're hanging on to optionality for data center, potential data center down the road, but there's still a very big part of our industrial real estate footprint that we think given the relative cap rates, it makes sense to do that.
Yeah. We can kind of move over there and to maybe cost of capital. Obviously you're not a direct data center, pure-play data center REIT, but you do compete with Digital and CyrusOne and the others. One competitive advantage they have over Iron Mountain is the fact they do have a better cost of capital. Can you talk a little bit about that? I know you don't have the investment rated balance sheet, but of course you mitigate some of that risk through your diversified revenue streams and so forth. Can you talk about your cost of capital, particularly your leverage. Do you see the leverage going down and are you able to utilize any of these funds from the sale leasebacks to reduce your debt profile?
If you look at where our leverage is relative to the JP Morgan REIT index on leverage, we're kind of in the middle. We've made clear that our leverage range for us, ideally, is between four and a half to five and a half times lease adjusted EBITDA. We finished the year at five, three and change. Actually, if you modify, because we did a sale leaseback just before the end of the year, what we said is you should think about that as kind of like five, four and a half, five, five.
We ended the year at the upper end of our stated target range for leverage. We'll end up this year sub five, four. Don't forget in 2019, we were five, seven. So even in a COVID year, we've come from five, seven to I would say a print of five, three and change, but as a normalized, I would call that to say five and a half. And we're continuing to drive it down. We expect it to be sub 5.4 for 2021.
Yes, we do want to continue to drift down in that range. The reason why the range is so wide isn't about investment grade, it's about optionality. In other words, if you're a four and a half, you have more optionality if you see an investment that you'd like to make. We're very comfortable in our current range. And if you look at the pricing of our debt, I don't think we're at a big disadvantage versus the Cyrus as a core size to the sense, because people really like our bonds. We did a lot refinancing in 2020, right during the midst of COVID and we're financing at rates that are kind of at the upper end of investment grade.
We're not investment grade, but we like the pricing on our bonds, when we go out to the debt market. We don't see a big issue there, but you should expect the way our financial model works. We continue to walk and chew gum at the same time. We will continue to drift that down. Payout ratio will come down even faster, and we're continuing to invest the 300 odd million a year in data center. The sale leaseback, that helps, gives us some of the fuel in the tank.
The other thing that our peers don't have on the data center is that box business, which is a 75% gross margin business, which just gushes cash, and we put very little money into it. Maintain the service, but we don't have to expand facilities because from a volume standpoint ... This year, the volume organically would be slightly up, especially if adding consumer, but it's manageable from a CapEx standpoint. We're generating a lot of cash in that business. We have some assets that we can recycle and we feel really good about the way the financial model is working.
On the equity side, you're right, but we don't have to equitize these assets. So we don't have to run the ATM or go out and place equity to fund and still delever over time. In fairness, we think some of these things, even if we could equitize them, I'm not sure that's the right trade to do it because we think that we can access the debt markets and we generate enough cash internally that we should just fund them directly. Internal cash we are equitizing them, but we're not issuing stock to do that.
Sure. Maybe closing question, Bill, and I always like to close with, I think, for the most important part of that conversation for the retail investors, of course the dividend. And of course the yield is not as high as it was a couple of months back, which is good. We've seen recovery trade there, but still some value there with the shares. And obviously the high yield is reflective of that. So as you try to, in your words, talk and chew gum at the same time, you got a pretty good record there of dividend increases. I forget the number, I think it was perhaps 10 years or something in a row of increases, really as you converted to REIT.
And again, do you possibly look at increasing just a marginal half a percent just to maintain that record? I know you're trying to get that payout ratio down. I know the dividend is sustainable, but I guess, what are your thoughts on trying to even a modest increase going forward versus just stay at the same rate? How important is that dividend record?
And I asked you that question because, obviously in COVID we've seen a number of companies cut number of REITs, cut their dividend. I think the list is 70 or so now. Hopefully the worst is over, but I also have to admire those companies that were able to increase those dividends even through difficult times.
I'm looking at companies like Realty Income, which has that 27 or eight year track record, who did increase the dividend. And Federal Realty is another one that we cover that had a payout ratio over a hundred percent in the fourth quarter, but they continue to pay out that dividend because they are a dividend keen with 50 plus years of dividend increases. So I'm just curious, how important is that dividend growth? And again, I know you're not going to have a huge growth pattern going forward because of the fact you're trying to reuse that payout ratio, but what are your thoughts there?
Well, it's a great question, Brad. I guess what I would ask investors to kind of take a step back and say, okay, look at the total return in the business. So this is a business that if you think about we're a beta 0.9 or so, typical kind of REIT, which says that we should be kind of in the seven to 9% TSR rate, between dividend plus EBITDA growth or AFFO growth, multiple flat.
That should be roughly the mantra, anything over that is an over performance. People coming in at a six and a half percent dividend yield, I said that we're growing ... To getting about Summit, which is obviously a massive growth to AFFO, but even on a normalized basis going out, four to 8% revenue growth, you should be thinking about the leverage on that is going to be similar rates or slightly better on AFFO growth.
So that four to 8%, because of the leverage in the company, in terms of operating leverage, I'm not talking about debt leverage, but operating leverage, should yield more than four to 8% AFFO growth. You take the midpoint, that's 6%. On a 6.5% dividend, you're approaching 13% TSR. Look, I'm the salesman. Everyone sells. My argument is that the company is still grossly undervalued from a capital asset pricing model framework. So that's the starting point.
Now, on your question, in terms of dividend growth, both Barry and I have been very clear is that our goal is, we think if we look at our REIT peers who are investing a lot of CapEx, and we look at last year, we had over 58 megawatts of new sales on data center, our investors, when they're looking at total shareholder return, which is a combination of AFFO growth and dividend, are going to want us to continue to invest in that. To me, that kind of combination, so the way I kind of think about it is if you say the clearing price is somewhere between a seven and 9% TSR, you can do the maths in terms of where our share price appreciation can go, and you can turn that into a dividend yield.
We don't want to do anything that's going to slow down that growth in AFFO, because we think that there's actually, because of the ... Our argument is the stock being mispriced right now. There's real expansion on that. I mean, a long way of saying it is that we do think that it's not going to take us very long to get to the low sixties and payout ratio. It may not meet your kind of question in terms of timeframe.
We're not giving long range guidance, but you can do your own modeling based on Project Summit and just the overall growth in the business. But you'll find that we get to a forcing function where the requals are going to require us to start growing dividend in line with the AFFO growth. So we feel pretty good where we are, but to do kind of symbolic changes in the dividend, we think that distracts from the story.
No, I hear you. Well, I got a trade off here, and remember, I've got an army of retail investors behind me here watching the video and reading my articles. So here's the trade-off, we could pay monthly dividends instead of an increase. The average Joe and average Jane who are reading and watching, they would like to get that monthly dividend. So there's a trade off for you to think about is maybe that monthly dividend company. Perfect time you got this branding in place now.
But again, I really appreciate. I think the bottom line here, the big takeaway, at least for me, is I think the dividend is sustainable at that level. You're obviously pushing it down. I've got a lot of people asking me every day about inflation and how REITs are going to be impacted by inflation.
And I think let's close with this, because I think this is important, especially for Iron Mountain, a company that has the ability to increase your core revenue quite easily. You've got so many customers, so you can move that needle a lot easier, especially these companies like Realty Income and the Net Lease REITs, they don't have that capability. closing thoughts, touch on how your business could be impacted with inflation conditions?
I appreciate the question, Brad, because I think you're right. I mean, if you look at the REIT sector generally, it typically trades off as bond prices increase or fixed income increase, because people see it as a competitor.
We actually think that we stand out in the REIT sector because to your point of what we can do with price. So thing I've always said is I do inflation dances, not on a personal basis, but from a company standpoint, because I go back to the box business where I said last year we pushed three points of price increase across our box business, and it's a 75% gross margin business.
So guess what? It's always easier to push disproportionate price increases in higher inflation environment. So in some of like Latin America, we achieved much bigger bottom line improvement from pricing because they have hyperinflation. So it's much easier to mask that.
People are actually much more understanding of those types of price increases. So think about what that does when you have a 75% gross margin business. So the way we get our price increases today is because of the likes of UPS and FedEx. Everyone knows the pressure on eCommerce companies and courier companies. They're generally pushing four points of price.
So we come in and we said, we want three points. And people said, okay, that sounds reasonable. The difference is, of course, 3PL companies are probably on a 10% margin product. We're on a 75% margin product. Getting that three points of price is generally margin expansion, the way our mechanism works. Long way of answering your point is that we know that it's a drag on the REIT segment in general, because of the way people think about bond prices versus REIT, because we are an income oriented stock. But for us, it gives us an ability to really outperform on AFFO growth because of what we can do with price.
Sure. Exactly. Exactly. Well, Bill, thank you so much for your time. It's good to see you again. We'll definitely catch back up with you later in the year, hopefully as this recovery continues. It's getting better every time we get on the call. Let's check back in here in a couple of months.
Well hopefully we'll both be back before July. So anyway, take care Brad. All right. Thanks.
Thank you. Bye-bye.