Q2 2023 Americold Realty Trust Inc Earnings Call
Ladies and gentlemen, greetings and welcome to the Americold Realty Trust's second quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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Please press star zero on the telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Scott Henderson Chief Investment Officer.
Please go ahead Sir.
Good afternoon. Thank you for joining us today for Americold Realty Trust second quarter 2023 earnings Conference call. In addition to the press release distributed this afternoon, we have filed a supplemental package with additional details on our results, which is available in the Investor Relations section on our <unk>.
Web site at Www Dot Americold Dot com.
This afternoon's conference call is hosted by <unk>, Chief Executive Officer, George Chappelle, Chief Commercial Officer, Rob Chambers, and Chief Financial Officer, Mark Smirnoff.
Management will make some prepared comments after which we will open up the call to your questions.
On today's call management's prepared remarks may contain forward looking statements forward looking statements address matters that are subject to risks and uncertainties that may cause actual results from those discussed today.
A number of factors could cause actual results to differ materially from those anticipated.
We're looking statements are based on current expectations assumptions and beliefs as well as information available to us at this time and speak only as of the date. They are made and management undertakes no obligation to update publicly any of them in light of new information or future events.
During this call, we will discuss certain non-GAAP financial measures, including core EBITDA and <unk>.
Definitions of these non-GAAP financial measures and reconciliations to the comparable comparable GAAP financial measures are contained in the supplemental package available on the company's website.
Now I will turn the call over to George.
Thank you Scott and thank you all for joining our second quarter 2023 earnings Conference call. This afternoon, I will discuss some key operational metrics and financial results for the second quarter, and then comment on our outlook for the remainder of the year, Rob will provide an update on our recent customer initiatives and.
An update on our growth activity.
Mark will also provide some additional commentary on our second quarter results and a detailed walk through of our guidance for the remainder of the year.
Before I begin let me quickly comment on last quarters cyber security events.
I am pleased to report that this event is behind us from an operational standpoint, we are confident that the impact of the cyber security events on our <unk> per share is largely contained to the second quarter and that our guidance going forward takes any additional impacts into account.
Mark will provide a detailed bridge on how it impacted us during the second order and how we are taking this into account in our guidance for the remainder of the year.
As a note we have characterized direct cyber security costs below way with <unk> to provide a clean view of our operating performance.
Turning to our core business priorities, which we have made progress on since our last call.
First customer service continues to be a key priority for miracles for the second quarter, our same store economic occupancy increased to 84, 8% a very strong record setting second quarter level. We also derived 48, 5% of rent and storage revenue from fixed commitment.
George contracts in the second quarter, which is 240 basis points higher than the first board level and sets another record for this metric at Americold.
Lastly, our churn rate continued to remain low at approximately three 2% of total warehouse revenues consistent with historical churn rates. These key operational metrics illustrate that despite the cyber security event, we were able to perform at high levels for our customers.
Let me provide one example of recognition from a customer for strong customer service last month, we received an award from Yum brands for the successful launch of the new contract with Kentucky, fried chicken and a handful of our Australian sites.
<unk> linked award is given to KFC partners, who provide strong links to the company's supply chain acknowledgements like this demonstrate our strong commitment to customer service.
Second turning to our priorities around labor management during the second quarter, we achieved a perm to temp hours ratio of 70 624.
<unk> was six points higher than our second quarter 2022 levels and on a sequential basis, we improved by one point or the first quarter 2023 levels. Additionally.
Additionally, we ended June of 2023 at an annualized turnover trend approximately nine percentage points lower compared to prior year.
Compared to the end of 2019, our pre Covid year. We ended June at approximately 11 percentage points higher on a sequential basis, we improved our turnover rate from the end of March which was approximately 18 percentage points higher than pre COVID-19 levels.
As these data point show, we are making continued improvements on our perm to temporary she goes in turnover rates.
Third we continue to make progress on our development projects.
We recently completed our customer dedicated automated project in Russellville, Arkansas. This facility went live and we are now in the process of inbound product as we begin ramping up the stabilization. We also recently completed phase two of our automated facility in Atlanta, Georgia, and a few strategic food manufacturer.
<unk> customers have already committed to taking the space.
Additionally, today, we are announcing plans to launch an expansion project with RSA, our JV partner in Dubai.
Also during the quarter, we announced an agreement with Canadian Pacific, Kansas City, where CP KC, one of North America's largest railroad companies.
C. P. Casey owns the first and only single line Trans National Railroad linking Canada, the United States and Mexico.
Our agreement with CP Casey is a strategic collaboration and which Americold will build own and operate cold storage facilities on the land located on C. Pkc's Railroad networks.
Similar to our recent DP world announcements, our agreement with CP Casey illustrates the miracles unique ability to create value by collaborating with global leaders in the supply chain.
Given our strong operating metrics and.
And the significant customer demand for cold storage, coupled with the best in class operating platform, we are turning to growth and we expect to be in a position to announce additional high quality expansions throughout the remainder of the year.
Lastly, we continue to effectively repriced, our warehouse business to offset inflationary pressures in our cost structure to protect margin dollars and to continue to move back towards historical warehouse margin percentages for the second quarter rent and storage revenue per economic occupied pallet, our same store.
On a constant currency basis increased by four 8% versus the prior year.
Service revenue per throughput pallet increased by 7% during the second quarter, we broadly are inflationary pressures in our business begin to moderate sequentially and we reduced power surcharges in certain markets moving through the third quarter. We will continue to take a surgical approach to our pricing initiatives to continue to draw.
Five margin dollars and increased margin percent.
Please note as the high inflation cycle is showing signs of moderating. We also expect our pricing growth will begin to moderate as we lap last year's decades high inflationary period and power surcharges continue to be reduced in certain markets.
Turning to our second quarter results, we delivered <unk> per share of <unk> 28.
This performance was primarily driven by our global warehouse same store pool, which generated revenue growth of three 9% and NOI growth of 13, 8% versus prior year, both on a constant currency basis our.
Our strong same store pool results were driven by meaningful economic occupancy growth and pricing initiatives, partially offset by reduced throughput volumes driven by the cyber security events and reduced pantry stocking by the end consumer which recently has been mentioned by several large food manufacturers and retailers.
For the second quarter, our same store economic occupancy increased 687 basis points over second quarter 2022 to 84, 8%.
As we have discussed we expected the second quarter economic occupancy to decline roughly 100 to 200 basis points sequentially versus first quarter.
And instead economic occupancy slightly increased.
However, we now expect the bulk of this decrease to occur during the third quarter.
The key drivers for this strong economic occupancy increase year over year are as follows.
First our fixed commitment contracts structures smooth out the seasonality in our business and increase overall economic occupancy while also providing certainty for our customers.
Second our food manufacturing customers continue to support inventory levels, ensuring better service levels for their customers.
And third our continued focus on customer service in combination with our strategically located mission critical infrastructure is enabling us to continue to win new business.
As a result of the progress we have made around economic occupancy and pricing in our same store pool, we are increasing our full year of 2023 <unk> per share guidance to a range of $1 20 to $1 30.
This guidance incorporates the progress we have made year to date.
And that we expect this progress to continue coupled with some near term headwinds that Mark will discuss later in the call.
Next let me comment on some strategic decisions that we've made after very careful consideration.
During the second quarter, we exited our ownership position in our Latam JV, which was formed to develop and acquire assets in Latin American countries other than Brazil.
Our recently announced agreements with DP World and see PKC provide better opportunities and lower risk approaches to invest in the region.
Second regarding our con Frio JV in Brazil, we received regulatory approval and were required to close on the transaction with our JV partner, who had previously exercised their put option requiring us to purchase all of their ownership interest in the <unk> JV.
This JV came to americold through the acquisition of agro merchants in 2020.
Since year end, we have been in the process of exploring strategic alternatives for <unk>, which is not aligned with our core business model as the business lapped significant real estate ownership.
Finally, let me comment on an ESG initiatives recently Americold in partnership with feed the children and the Atlanta, The Mayor's office of International an immigrant affairs and completed a four month initiative, where we work together to provide nearly 80000 pounds of food and essentials to families across Atlanta.
As well as Atlanta public schools. The goal of these efforts was to help reduce the stress of fluid and security that families face daily.
We are very proud of the work that Americold and our associates do in the communities in which we live and operate with that I will turn it over to Rob.
Thank you George as Jordan mentioned, our company delivered strong results during the second quarter, including a record setting second quarter economic occupancy level at 84, 8% for the same store pool and another quarter of record setting fixed commitment percentage levels for our total warehouse segment.
At quarter end within our global warehouse segment rent and storage revenue from fixed commitment contracts increased on an absolute dollar basis to $521 million compared to $379 million at the end of the second quarter of 2022.
On a combined pro forma basis, we derived 48, 5% of rent and storage revenue from fixed commitment storage contracts, which has an approximately 800 basis point improvement over the second quarter of 2022.
We are very pleased with this continued progress.
In particular, the meaningful progress that has been made this year and re commercializing our European platform as we transition more of that business to our fixed commitment structure.
Within our global warehouse segment, we had no material changes to the composition of our top 25 customers, who account for approximately 48% of our global warehouse revenue on a pro forma basis.
Our churn rate continued to be low at approximately three 2% of total warehouse revenues consistent with historical churn rates.
Given our strong operating metrics, we're continuing to accelerate the underwriting process and evaluating development opportunities, which include a mix of expansion and greenfield projects customer dedicated in major market distribution centers and conventional and automated facilities.
Combine this macro backdrop, along with our strengthened development platform positions us well to capitalize on these potential opportunities.
We are excited about announcing our plans to build a conventional multi customer expansion project on our Dubai site, and our RSA JV, which will be approximately 11000 pallet positions and over 2 million cubic feet.
We estimate the total investment to be approximately $11 million of which <unk> pro rata share is approximately $5 4 million U S dollars.
As a reminder, we announced the formation and investment into this JV on last quarter's call.
And we are a 49% owner of the RSA JV.
We expect to break ground on this expansion in the second half of 2023.
As for our current in process developments, we recently completed our customer dedicated an automated project in Russellville and phase two of our automated facility in Atlanta, We began inbound product into these facilities and ramping towards stabilization.
For Russellville, we're excited to continue growing with this national food manufacturing customer.
For Atlanta, both phase one and phase two of its automated facility. We are pleased to report that we have entered into multi year agreements with a handful of very large strategic manufacturing customers for both phases of the facility.
At this point, let me comment on our recent announcement with CP KC, one of North America's largest railroad companies.
Similar to Americold recent DP world announcements. This announcement illustrate the miracles unique ability create value by collaborating with global leaders in the supply chain such as best in class Railroad import owner and operators.
Anchored by railroad service the goal of the CPE KFC agreement is to bring together cold storage and value added services with intermodal railroad solutions connecting key North American markets.
Specifically, the one of a kind americold and <unk> solution will enable the pre clearance of frozen product traveling by rail between the U S, Mexico, and Canada, which will result in our customers, having meaningfully lower supply chain costs.
In a more efficient environmentally friendly mode of transportation.
In short <unk>, Casey and Americold will jointly serve our mutual customers for both cold storage and railway transportation.
On a case by case basis America gets the exclusive right to build own and operate cold storage facilities on CP Casey strategic nodes within its railway network and.
Concurrent with building a facility, we anticipate entering into a long term ground lease with the company.
<unk> gets the benefit of increased rail usage by our mutual customers utilizing both its railroad in Americold cold storage facilities.
This agreement provides both CPE Casey and Americold exclusive access to these collaboration opportunities while each deal will be at the discretion of each respective company and will be decided on a case by case basis. We're very excited about this announcement and look forward to working with CPE Casey on these opportunities.
Next during the quarter, we completed the purchase of one multi customer facility in Green Bay, Wisconsin that we previously leased for approximately $20 million.
This acquisition represented an attractive entry point significantly below replacement cost of an asset. We currently operate as we prefer to own versus lease our infrastructure.
Lastly, subsequent to quarter end, we completed the acquisition of one distribution facility in Brisbane, Australia for a total investment of approximately 36 million Australian dollars.
We acquired the facility Bacon and we expect to stabilize this property at a range of 9% to 10% over the next three years.
Americold already owns multiple facilities in the area and we are seeing significant demand in excess of the capacity of our existing portfolio.
Now I'll turn it over to Mark.
Thank you Rob.
Today, I will discuss the capital funding and accounting of our net investment activities, our capital position and liquidity.
I will then discuss the impact of the cyber event with regard to our second quarter results followed by an update on our full year guidance.
As Rob mentioned, we completed the purchase of two facility the.
The facility in Green Bay during the quarter and the facility in Brisbane subsequent to quarter end we.
We funded these investments through a combination of available cash and our multi currency revolver.
On the disposition front during the quarter, we sold a small $1 1 million cubic foot facility in Montreal, Canada for $10 million and Canadian dollars.
Next let me discuss the financial impact during the quarter related to transactions involving two of our joint ventures.
Latam JV income Korea.
As a result of our strategic exit from the Latam JV, we received proceeds of approximately $37 million U S dollars.
Reflected our initial basis in the investment in this JV.
Pertaining to our Brazilian joint venture <unk>.
We are required to complete the purchase of this company subject to our JV partners put option.
We are in the process of exploring strategic alternatives for <unk> and we have classified com frio as assets held for sale.
We have excluded <unk> results from a <unk> <unk> per share in the second quarter, and we will do so going forward.
Moving to our balance sheet at.
At quarter end total debt outstanding was $3 6 billion.
We have total liquidity of $455 million, consisting of cash on hand and revolver availability.
Our revolver balance was elevated by approximately $54 million as a result of the cyber incident, delaying our billings and cash collections we.
We have recovered this working capital in July .
Our net debt to pro forma core EBITDA was approximately six six times.
At this point, we have invested $277 million on development projects in process and have approximately $53 million remaining to invest throughout the year on the project as detailed on page 38 of the IR supplemental.
We expect to organically Delever as our same store portfolio continues to grow and our recently completed and in process developments ramp to stabilization.
Before I turn to our outlook and updated guidance components.
To comment briefly on how we accounted for the cyber security event in the second quarter results and provide a bridge to where we estimate the second quarter would have landed if the event would not have occurred.
Through the end of the second quarter, we incurred $19 million of costs directly related to the cyber incident inclusive of third party fees and expenses remediation costs incremental direct labor inefficiencies and customer claims all of which were reported in the acquisition fiber.
Incident in other net line.
We excluded these fiber related costs from our reported core EBITDA and <unk>.
We intend to recognize future insurance recoveries of these costs through the same line item.
Additionally, the cyber incident impacted certain facilities by reducing the normal throughput we would've profit.
We estimate the impact from lock volume during the cyber incident as follows and point out that these estimates have not been incorporated into our revenue NOI core EBITDA and <unk>.
Within our warehouse Beckman, we estimate approximately half of the 933 basis point decrease in same store throughput volume was driven by the impact of the cyber security events.
We estimate that this translates to approximately $15 million of loss services revenue.
We estimate the variable contribution margin against this law service revenue.
Approximately 60%, which translates to $9 million in estimated loss NOI equating to approximately <unk> <unk> per share and <unk>.
This <unk> has not been adjusted into our reported second quarter <unk> per share.
To summarize we reported 28 per share in <unk> for the second quarter of 2023.
Which does not include the impact of the lost services revenue and NOI within the same store pool.
Thus, while our reported second quarter <unk> per share is 28.
We estimate that it would have been 31, if the cyber event would not have occurred.
Now, let me discuss our outlook for the remainder of 2023.
As Jordan mentioned, we are increasing our guidance for the full year 2023, <unk> per share to be in the range of $1 20 to $1 30.
Please see page 40 of the IR supplemental for the key components underpinning this guidance.
For the avoidance of doubt this revised range excludes the previously provided estimate of impact to <unk> from lost services revenue and NOI of approximately <unk> <unk> per share.
We estimate our revised full year 2023, <unk> per share range would have been $1 23 to $1 33, if the cyber security events would not have occurred.
At this point I will comment on the primary building blocks to get the <unk> per share and provide a bridge for each as it relates to the full year.
Please note the comparisons described represent comparisons to the corresponding prior year results.
We are now expecting constant currency revenue growth in the same store pool for the full year to be in the range of 5% to 8%.
Year to date it was eight 1%.
This implies growth for the remainder of the year to be in the range of two 5% to 8% let.
Let me provide more detail around the key drivers of this growth.
For occupancy and throughput volumes for.
For the full year, we expect economic occupancy to increase by approximately 400 to 500 basis points year to date economic occupancy increased by 722 basis points.
This implies the economic occupancy increases throughout the remainder of the year by approximately 80 to 280 basis points.
We expect to continue benefiting from recent commercialization efforts translating into higher fixed commitments and new business wins combined with softer throughput volumes.
For the full year, we now expect the decline in throughput volumes of 3% to 4%.
Year to date throughput volume decreased by five 5%.
This implies throughput volumes decreases throughout the remainder of the year by approximately <unk>, 5% to two 5% as end consumer demand continues to slow and basket sizes shrink due to the current economic environment and as a result of the amount.
Of product moving through our overall portfolio, while certain facilities were impacted by the cyber security events.
For pricing.
For the full year, we expect constant currency rent and storage revenue per economic occupied pallet growth to be in the range of 6% to 7%.
Year to date increased by seven 5% this.
This implies growth for the remainder of the year to be approximately four 5% to six 5%, primarily reflecting the impact of the wrap of pricing previously put into place.
Also for the full year, we expect constant currency service revenue per throughput pallet growth to be in the range of five 5% to seven 5% year to date increased seven 8%. This.
This implies growth for the remainder of the year to be approximately 3% to 7% due to the strong performance in the second half of 2022.
For the full year, we're now expecting same store constant currency NOI growth to be in the range of 15% to 20%, which is approximately 1000 to 200 basis points higher than the corresponding revenue growth year.
Year to date same store constant currency NOI increased by 19, 9%.
This implies growth for the remainder of the year to be approximately $10, 5% to 20%.
We are expecting the primary driver of NOI growth to come from economic occupancy.
Please note. The following guidance metrics are provided on an actual dollar basis not on a constant currency basis.
Turning to the non same store pool for the full year, we expect the non same store pool to generate approximately zero to $5 million in NOI.
Year to date, the non same store pool has generated a loss of approximately $5 2 million in NOI.
This implies the remainder of the year to be in the range of approximately $5 million to $10 million and NOI.
Turning to our managed and transportation segment NOI.
For the full year, we expect these segments combined to generate $43 million to $50 million of NOI year to date. These segments generated approximately $24 million of NOI.
This implies the remainder of the year to be in the range of approximately 19% to $26 million.
Turning to our SG&A expense for the full year, we expect total SG&A to be in the range of $231 million to $241 million inclusive of $22 million to $24 million of stock compensation expense.
Year to date, SG&A expense was $117 million inclusive of $12 million of stock compensation expense.
As a reminder, we exclude stock compensation expense from our total SG&A expense.
To arrive at what we call core SG&A expense, which is what truly impact <unk>.
For the full year, we expect core SG&A to be in the range of $209 million to $217 million.
Year to date core SG&A was $105 million.
Our SG&A run rate reflects the in year impact of spend related to additional cyber security measures.
Turning to our interest expense for.
For the full year, we expect interest expense to be approximately 151 for $158 million consistent with our previous guidance.
On to our cash tax expense, which is the number that impact <unk>.
For the full year, we expect this expense to be approximately $7 million to $10 million year to date, it was $4 million.
Turning to our maintenance capital expenditures for the full year, we expect this investment to be approximately $80 million to $90 million year to date, it was $39 million.
We expect to announce development starts aggregating between $100 million to $200 million.
Please keep in mind that our guidance does not include the impact of acquisitions dispositions or capital markets activity beyond that which has been previously announced finally, please refer to our IR supplement for detail on the additional assumptions embedded in this guidance now.
Now, let me turn the call back to George for some closing remarks.
Thanks, Mark as the operational and financial results of the second quarter highlight our core business continues to grow and perform above expectations.
Exceptional customer service driving record occupancy and fixed commit contracts.
Hiring and retention continuing to improve sequentially developments continuing to launch on time and expanding our strategic alliances to include Canadian Pacific, Kansas City Railroad.
Reflect the strong operational performance of today and our capabilities for achieving growth in the future.
In closing I'd like to thank the 15000 Americold associates around the world for their hard work and dedication in servicing our customers every day. It is their efforts that provide the foundation for our future.
Thank you again for joining us today, and we will now open the call for your questions operator.
Thank you.
Ladies and gentlemen, we will be conducting a question and answer session.
If you would like to ask a question. Please press star and one on the telephone keypad.
Formation tone will indicate your line is in the question queue.
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All participants using speaker equipment, it may be necessary to pick up yet.
Before passing the stock east.
Ladies and gentlemen, a reminder.
With your question to restrict to one question and one follow up question Paul participants.
One moment, please while we poll for questions.
Our first question comes from the line of Samir Khanal Evercore.
Evercore ISI. Please go ahead.
Hey, George.
With occupancy up for the year I mean, I guess, how are you thinking about.
With that said not for the balance of the year, you gave an idea, but really over the next let's call. It 18 months I mean.
Do you think you can even push economic occupancy even higher in 'twenty four I guess, what's the sort of the new high watermark, we should consider that.
Knowing that you're already back to sort of <unk>.
<unk> in 2019 levels at this point.
Yes.
We've said, we know we can get into the low 90 percents on economic occupancy because we have facilities at that level now so we know that base.
Based on similar facilities executing at that level, we can get there I think the opportunities are really economic occupancy in Europe as we commercialize that business, that's starting to contribute now in a much higher fashion and.
Our goal remains to get above 50%, our short term goal and longer term, Rob I think we said 60 overtime well into the sixties.
So we think there's plenty of opportunity over the next 18 months.
Okay got it and I guess just in terms of a follow up maybe provide a bit more color on expenses.
So that sort of helped your NOI growth in the quarter as well, so maybe a bit of color on that would be great and that's how you'd think about expenses over the next.
Let's call it the next six months and into next year. Thanks.
Yes.
So as I mentioned in the guide and when you look at the overall NOI growth, what you're seeing is stronger cost control both with power starting to come down I think you heard us mentioned that in the prepared remarks in that we see that in our actual power result, we see improvement in labor as we've seen.
Labor metrics improved since the beginning of the year. So I think overall you see it is just much more disciplined cost control some favorability for some power market starting to come back from the very extreme highs that we saw late last year.
I think those things overall, we're starting to see cost controls calendar.
Thank you.
Our next question comes from the line of Michael Carroll with RBC capital markets. Please go ahead.
Yes, Thanks, George I wanted to circle back on your comments regarding occupancy is there a specific reason that the 100 to 200 basis point decline that we previously expected and <unk> didn't occur.
And I want to make sure I got this correct. We now expect that one to 200 basis point decline will occur and <unk>.
That's correct, yes as far as the region that would have been in North America with.
Input we received from several large manufacturing.
Our partners in <unk>.
Commercial that we're pulling forward maintenance and we're telling us of downtime in the second quarter.
<unk> said it did begin to materialize late in the quarter very late in June .
So we do think it will occur in the end, we believe it will happen in the third quarter at this point.
And then when we're looking at the sequential trend I mean should we still expect that one to 200 basis point decline in <unk> compared to <unk>.
I know that we always talked about the seasonal build in <unk> should be higher so should we expect a smaller decline going into <unk> because of that that's going to offset.
The deferred maintenance that some of these customers are going to be performing.
Are you thinking about it the right way, Mike we should see a sequential increase in inventory through the third quarter that happens every year and we do believe it will happen this year and we should see the.
The 1% to 200 basis points due to manufacturing downtime that we've talked about that will probably wash out to higher occupancy in the third quarter and if you look at our guide for the remainder of the year.
We do guide up the second half of the year and occupancy part of it is in the third quarter. So it could be the timing of this 100 200 basis points now gets washed out with the seasonal build of inventory that will occur sequentially second quarter to the third quarter.
Thank you.
Our next question comes from the line of Craig Mailman.
<unk> with Citi. Please go ahead.
Thanks.
I wanted to George hit on the Brazilian.
J D you real quick.
So what is the kind of the cash cash usage here in.
In the near term, what's the you know.
Kind of the process look like to monetize that and are there buyers.
From for this type of asset right now given the capital markets environment.
Uh huh.
Our intention Greg it's held for sale, we're going to we're working hard to sell it there are buyers interested we have a process ongoing.
Other that makes it all the way to a sale or not is to be determined but as of now we have interest in.
Working the process with the intention of selling it as soon as we can.
And so just it sounds like you guys are kind of pulling this.
From a SSO.
I just want to clarify something you guys kept saying that the cyber was excluded but Denmark lets say numbers would've been higher if the cyber hadn't happened. So just wanted to see if that's a.
A terminology switch says as I think about that for <unk>.
Much of it is from Brazil, possibly being excluded versus kind of better operations that you guys are seeing.
Yes.
So a few things I think the core of the overall business that you saw and what we reported in our 28 <unk> is being driven by occupancy that we're seeing in pricing that we're realizing principally in our same store portfolio as it relates to cyber we had certain one time remediation cost.
That were directly related to the event those were pro forma are excluded from that 28.
So they did not impact the 28 cents earnings piece from cyber that is not in the 2008.
The fact that we missed revenue and the NOI from that revenue of approximately three <unk>, which was the missing piece of revenue that actually would have taken our reported <unk> from the 28 <unk>.
Up to 31.
But per GAAP, we can't report that missing revenue or.
Profit.
Thank you.
Our next question comes from the line of Nick Feldman with Baird. Please go ahead.
Hey, good evening, guys just going off that.
Cyber security on the service side, it looks like NOI margin the same store pool at about 4%, so flat sequentially without that disruption I guess like longer term, where are we trying to push those service margins.
I know you've talked about maybe pushing at the 10%, but have you begun discussions on that and what kind of what it's been the customer feedback.
Yes, the first.
To get back to pre Covid margins, which we said were high single digit.
That's not within our control, we've largely price fee and inflation related to the services margin, we now have to get back to the productivity level. So.
I would say pricing largely complete might be some minor pricing left but largely complete productivity so getting.
The associates to work at the same throughput if you like from that they used to be able to work back pre COVID-19 is the real.
Is the challenge and that takes time.
Got to assemble a workforce you've got to train them.
Got to get them to work safely together and we said that's a three to six months exercise the hiring has gone well the retention is getting both sequentially better and better year over year. So those two key components are coming into line nicely and now we just need to do the training and go through the time it takes for a person to get come.
On our environment and comfortable to work safely and productively. So we expect to see improvement in the second half of the year, whether we can get all the way to ask it nine or 10% by the second half of the year is it's probably doubtful that we should make progress on the 4%.
And then maybe just on that throughput.
Obviously, the smaller basket size makes sense are you seeing any of the throughput from like the upper end of the bucket are you seeing slowing on that end as well or is it just mostly on the consumer end.
Just mostly on the consumer and I mean manufacturers have continued to support high inventory levels.
So they can provide excellent customer service to their customers and it's just the outbound if you like to retail customers that slowing down due.
Due to consumer buying habits easing in less disposable income et cetera pretty much. The same story, we've been telling that for two or three quarters.
Yeah.
Thank you.
Our next question comes from the line of Mike Mueller with JP Morgan. Please go ahead.
Yes, hi.
Two quick ones. One are you seeing any lingering impact in Q3 from the.
From cyber talking more of the <unk> impact not the not the <unk>.
No we're not Mike we built.
Our guidance reflects anything.
That is coming.
Q2 was cyber, but I would say the bulk of the large percentage, 90% plus has been incurred in the second quarter, we have factored it into our reported results, obviously and we've factored anything beyond that that we are aware of into the guide for the remainder of the year.
Got it Okay, and then on the comment of it.
<unk> more expansion announcements in the back half of the year is that just was that a comment just tied to specific expansions or should we be think new development announcements as well as expansions.
Yes, it could be a combination of both.
To be honest with you I mean, our pipeline our development pipeline.
Which I would say right now is very robust as a mix of both expansions and greenfield opportunities.
Across.
All of our geographies there is a mix of automated and conventional facilities and our pipelines are where we're excited about it and it will be a combination of both.
Thank you.
Our next question comes from the line of Vince <unk> with Green Street. Please go ahead.
Hi, good evening.
One do you see the developments with Canadian Pacific and DP World commencing in just you know how much capital could you see allocating to these type of projects are these partnerships over the next several years.
Yes, so we're actively.
Actively underwriting developments with.
With both partnership so I think in the coming quarters, we will have announcements associated with both.
When we think about the.
The amount of capital that could be deployed on those types of facilities I think we've said before.
DP World has 80 plus ports that they operate at.
Hi.
We had a development on 5% to 10% of those ports.
We would be we would we would consider that partnership of success when we think about the Canadian.
Pacific Network. They have they have 30 plus nodes in their network and for US kind of the same thing 5% to 10% of those nodes, having in Americold cold storage facility built on them would be would be a great success for us.
That's helpful like how different are the cold storage facilities in these kind of key supply chain node differ from the rest of your portfolio, whether its production and van Andrew distribution like I'm, just trying to get a sense like is there a little bit of kind of learning with some of these developments, where you maybe want to complete.
One before you start the next one or is this pretty similar to the other facilities you own just.
Higher barrier location.
I would say they are pretty similar I mean every facility has a certain nuance. These facilities may have a slightly higher component of value added services associated with them that we wouldn't make need to make sure that our facility design.
Cared for.
I would not say, there's any substantial amount of.
Learning or nuances to them, where we would want to build one learn from that model before we build the next we know how to build these facilities and we can handle more than one at one time.
Thank you.
Our next question comes from the line of key bin Kim.
<unk> Securities. Please go ahead.
Thanks, Hi.
So UBS just raise wages for full time workers to $49 an hour I was wondering if you had any thoughts on a possible impact to your employee base or your tenants employee base and if there could be up for what the effect on wage inflation.
No I think for US we've seen wage inflation moderate as we said all inflationary impacts seem to be moderating at the moment Mark mentioned sunpower.
Primarily in Europe , coming off surcharges et cetera, but coming back to wages are hiring is going well.
Our retention is going well, we now have more permanent hours in cars for monitoring permanent associates in the system than we ever had at 76% of the workforce.
Going back to pre Covid that was never higher than 70%. So hiring is going well retention is getting much better and that tells us that wages have normalized at least for the time being where we are and we don't see any impact from the UBS agreement at least not yet and we don't expect to see any.
Okay and on <unk>.
It looks like the basis for that entire joint venture was a $135 million.
Can you help me understand like did you have to pay the remaining 80% you didn't at all and.
And was that the write off.
And tied to that I was wondering if there was a similar dynamic for Super Frio.
Yeah, I'll hit that so.
We had basis out of an existing 22% of that entity. When we closed on the acro acquisition. The put loss that you saw flow through the face of the peak.
P&L was $57 million, so that was an incremental cost for the 78% that we didn't known and then the balance was.
Working capital investment, we made into that business, which is roughly another say $22 million $25 million. So.
That was the entire basis of our investment in <unk> Super Frio very different business owns significant amount of its real estate and that arrangement does not have any put arrangement there.
Thank you.
Our next question comes from the line of Anthony Powell.
With Barclays. Please go ahead.
Hi, good evening.
And about how the.
CDK deal came to fruition and it seems like a great opportunity for you to develop over time was that a competitive process to come to them that they come to you maybe some more background there would be super helpful.
Yeah, not not a competitive process.
It was one that.
Was nurtured over over the last year year, and a half we stayed close to <unk>.
As they went through their merger and acquisition process.
We were very intrigued by the solution that they created through the merger of their business and.
And so it was just a collaborative conversation when we talked about how the customer overlap that we that we have today.
We could use to create create value create value for us and create value for our customers and this this solution that we're going to be able to offer I think there's going to be a great benefit to our mutual customers in <unk>.
We're excited to get started but nothing competitive it was just something that was developed.
Over the last year or so.
Great. Thank you and now we've got some questions from some clients about about newer competitors, who are more automation based who are saying they are cheaper than.
Some other legacy I guess.
The competitors in the space and who are maybe serving some of the larger customers are you seeing any market competition from some of these.
Newer I guess.
More automated.
Operators and if so how are you yeah answering that competition.
Well one thing I would say is we also provide highly automated solutions.
Three of which have gone live just this year already one more automated facility will go live this year. So I don't think there is anybody out there that can build an automated facility more reliably than weekend.
So Rob you're probably closer to the competition, though yes, I would just point to our record economic occupancy a record fixed commitments and our continued low churn rate.
Demonstrate that from from an American standpoint, we continue to gain share.
Thank you.
Ladies and gentlemen, as there are no further questions.
The conference of America Cold reality Trust has now concluded.
Thank you for your participation you may now disconnect your lines.
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