Q4 2023 Americold Realty Trust Inc Earnings Call
Operator: Fourth Quarter 2023 Earnings Conference Calls. At this time, all participants are in a listen-only mode.
Fourth quarter 2023 innings conference quote.
Speaker Change: At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: The question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Kevin Reed, the vice president of investor relations. Thank you, and you may proceed, sir.
Speaker Change: If anyone should require operator assistance during the conference Keith <unk> on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: And I'd like to turn the conference over to your host Kevin <unk>, Vice President of Investor Relations. Thank you and you May proceed said.
Speaker Change: [noise] properly distributed.
Operator: Thank you for joining us today for Americold Realty Trust's fourth quarter 2023 earnings conference call. In addition to the press release distributed this afternoon, we have filed a supplemental package with additional detail on our results, which is available in the Investor Relations section on our website at www.ir.americold.com. This afternoon's conference call will be hosted by Americold's Chief Executive Officer, George Chappell, President of Americas, Rob Chambers, and Chief Financial Officer, Jay Wells. 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 to differ from those discussed today. A number of factors could cause actual results to differ materially from those anticipated.
Kevin: We have a file a supplemental package with additional detail.
Kevin: Which is available any investor relations section on our website at Www Dot I R.
Kevin: <unk> Dot com.
Kevin: This afternoon Scottsville associate by Miracles, Chief Executive Officer, Georgia, Belle President of America's about Chambers, and Chief Financial Officer, J wealth management will need to prepare Thomas after which we will open up the call to your questions.
Speaker Change: On today's call management prepared March maiden name forward looking statements.
Speaker Change: Are we looking statements address matters that are subject to risks and uncertainties that may cause the actual results to differ from those disgusted at a number of factors could cause the actual results to differ materially from those anticipated.
Operator: Forward-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 CORA, EBITDA, and AFFO. The full definitions of these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures are contained in the supplemental information package available on the company's website. Now, I will turn the call over to George.
Speaker Change: Forward 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.
Speaker Change: Management undertakes no obligation to update publicly any of them in light of new information or future events.
Speaker Change: During this call we will discuss certain non-GAAP financial measures, including court EBITDA at a F F L.
Speaker Change: The full definitions of these non-GAAP financial measures and reconciliation the comparable GAAP financial measures are contained in a supplemental information package available on the company's website.
Speaker Change: Now I will turn the call over to George.
George Chappell: Thank you, Kevin, and welcome to our fourth quarter 2023 earnings conference call. This afternoon, I will discuss key operational metrics and financial results for the quarter and for the full year. I will then discuss the current market conditions that are underpinning our 2024 guide. Rob will provide an update on our recent customer initiatives and growth activity, and Jay will provide a detailed walkthrough of our full year 2024 guide.
George: Thank you, Kevin and welcome to our fourth quarter of 2023 earnings Conference call. This afternoon, I will discuss key operational metrics and financial results for the quarter and for the full year I will then discuss the current market conditions that are underpinning our 20th 24 guidance <unk>.
George: <unk> will provide an update on our recent customer initiatives and grope activity NJ will provide a detailed walk through for a full year of 2024 guidance turning to our core business priorities.
George Chappell: Turning to our core business priorities, first, customer service continues to support strong occupancy in our portfolio. For the fourth quarter, our same store economic occupancy remained strong at 83.7%, which was a 53 basis points decrease over last year and a 30 basis point decline sequentially from the third quarter. As a reminder, we delivered four consecutive quarters of record setting economic occupancy in the mid 80s, including the first three quarters in 2023. Last year's fourth quarter economic occupancy was aided by a counter-seasonal inventory build as food manufacturers produced ahead of end consumer demand as they were seeing labor improvements, but this did not repeat this year.
George: Earth customer service continues to support strong occupancy in our portfolio for the fourth quarter. Our same store economic occupancy remains strong at 83.7%, which was 53 basis points decrease over the last year and a 30 basis points declined sequentially from the third quarter. As a reminder, we delivered four quarters and a.
George: Row, a record setting economic occupancy in the mid eighties, including the first three quarters of 2023.
George: Last year's fourth quarter economic occupancy was aided by a counter seasonal inventory build as food manufacturers produced ahead of in consumer demand as they were seeing labour improvements, but this did not repeat this year considering this the slight fourth quarter declined from prior year combined with four quarters in a row records.
George Chappell: The slight 4th quarter decline from the prior year, combined with 4 quarters in a row, record-setting economic occupancy in the mid-80s, continues to demonstrate our assets remain in very high demand, to further emphasize just how high the demand is for our assets. 2023 full-year same-store economic occupancy was 84.3 percent, which is an Americold full-year record significantly beating our last record same-store economic occupancy of 80.5 percent by almost 400 basis We are very proud of this achievement.
George: Economic occupancy in the mid eighties continues to demonstrate or assets remain in very high demand.
George: [noise] to further emphasize just how high the demand is for our assets 2023 full year same store economic occupancy was 84.3 per cent, which is in a miracle full year record significantly, beating our last record same store economical occupancy of 85% are you.
George: Almost 400 basis points, we are very proud of this achievement.
George: We also derive $52, 2% of Renton storage revenue from fixed commitment storage contracts in the fourth quarter, which is 180 basis points higher than the third quarters level and set another record for this metric of the miracles are high occupancy percentage and a rising fixed commitment percentages <unk>.
George Chappell: We also derive 52.2% of rent and storage revenue from fixed commitment storage contracts in the fourth quarter, which is 180 basis points higher than the third quarter's level and sets another record for this metric at Americold. Our high occupancy rates and rising fixed commitment percentages continue to highlight our ability to grow our market share. Second, turning to our priorities around labor management, during the fourth quarter, we achieved a perm to temp hours ratio of 75-25.
George: And you to highlight her ability to grow our market share <unk>.
George: Second turning to our priorities around labor management during the fourth quarter, we achieved a firm to attempt hours ratio of 70 525.
George Chappell: This is a 200 basis points improvement over our 4th quarter 2022 permanent labor levels and, on a sequential basis, roughly flat to the 3rd quarter 2023 due to seasonality when we tend to use more temporary labor in the second half of the year. Making the Year-over-Year Metric More Relevant. Additionally, we continue to make progress on turnover, ending the year at approximately 13 percentage points lower compared to the prior year. Compared to the end of 2019, a pre-COVID year, we ended December at approximately 9 percentage points higher.
George: 200 basis points improvement to our fourth quarter of 2022 permanent labor levels, and doughnuts sequential basis, roughly flat to the third quarter 2023 due to seasonality when we tend to use more temporary waiver in the second half of the year, making the year over year metric more relevant.
George: Additionally, we continue to make progress on turnover ending the year at approximately 13 percentage points lower compared to prior year compared to the end of 2019 pre Covid year. We ended December at approximately nine percentage points higher we are also introducing a new labour metrics, which is the total percentage of of miracles hourly.
George Chappell: We are also introducing a new labor metric, which is the total percentage of Americold's hourly workforce that has less than 12 months of experience. This metric, different than retention, should correlate very well to increasing productivity and warehouse services margins as it measures longevity at the hourly associate level necessary to delivering sustainable, reliable services. We ended the year with our percentage of hourly associates with less than 12 months on the job at 32%, down from COVID's high of 41% but still higher than our 2019 average of 23%. Continued progress in this area, along with the hiring and retention metrics we currently disclose, will provide the foundation for predictable, stable warehouse services margins for the future. Third, we continue to make progress on our in-process development projects. During the fourth quarter, we completed our customer-dedicated automated facility in Plainville, Connecticut, that supports a global retailer. At this point, all five of our automated developments that we outlined at the beginning of 2023 have been completed.
George: [noise] workforce that has less than 12 months experience with us.
George: Metric different than retention should correlate very well to increasing productivity and warehouse services margins as it measures longevity of the hourly associate level necessary to delivering sustainable reliable services performance. We ended the year with our percentage of hourly associates with less than 12 months on the job at <unk>.
George: 82%.
George: Down from Covid high of 41%, but still higher than our 2019 average of 23 per cent continued progress in this area along with the hiring and retention metrics. We currently disclose will provide the foundation for predictable stable warehouse services margins for the future.
George: Third we continue to make progress on our in process development projects during the fourth quarter, we completed our customer dedicated automated facility and planning to build Connecticut that supports a global retailer at this point all five of our automated developments that we outlined at the beginning of 2023 have been completed with the completion of these.
George Chappell: With the completion of these five facilities, Americold is the first and only coal storage company to deliver automated solutions at all three key nodes of the supply chain. Production Advantage, Major Market Distribution, and Retail Distribution, on our two customer-dedicated automated retail distribution facilities in Lancaster, Pennsylvania, and Plainville, Connecticut, while completed, are currently booming. Given the level of complexity and the importance of customer service to over 750 retail stores, we are being thoughtful in our ramp-up plan, and we are extending the stabilization. Combined, these facilities will redistribute over 75 million cases per year, and the level of testing and customer integration is the most complex in our portfolio. Rob will go into greater detail on this shortly.
George: Five facilities America is the first and only cold storage company to deliver automated solutions at all three key nodes of the supply chain production advantage major market distribution and retail distribution on our two customer dedicated automated retail distribution facilities in Lancaster, Pennsylvania, and Plainville kinetic.
George: While completed are currently wrapping.
George: Given the level of complexity and the importance of customer service. So it was 750 retail stores, we are being thoughtful and I wrap up plan and we are extending the stabilization dates combined these facilities will redistribute over 75 million cases per year and the level of testing and customer integration is the most.
George: <unk> and our portfolio, Rob will go into greater detail on this shortly <unk>.
George Chappell: Lastly, we continue to effectively reprice our warehouse business. For the fourth quarter, rent and storage revenue per economic occupied pallet in our same store on a constant currency basis increased by 3.4% versus the prior year, which was partially offset by the reduction of power surcharges in certain markets. Service revenue for three foot pallets increased by 9.1%. Turning to growth today, we are excited to announce an approximately $130 million greenfield development in Kansas City, Missouri, as part of our collaboration with Canadian Pacific Kansas City, or CPKC, one of North America's largest railroads. CPKC owns the first and only single-line transnational railroad linking Canada, the United States, and Mexico.
George: Lastly, we continued to effectively reprice out warehouse business for the fourth quarter rent and storage revenue for economic occupied palette and our same store on a constant currency basis increased by 3.4% versus the prior year, which was partially offset by the reduction of power surcharges in certain markets surface revenue put through.
George: Foot palette increased by 9.1%.
George: Turning to growth today, we are excited to announce in approximately 130 million dollar Greenfield development in Kansas City, Missouri is part of our collaboration with Canadian Pacific, Kansas City or C. P. K C. One of the one of North America's largest railroad companies C. P. K C owns the first and only single line.
George: National Railroad Lincoln, Canada, the United States and Mexico.
George: Our agreement with C. P. Casey is a strategic collaboration in which a miracle will build own and operate cold storage facilities on the land located on C. P. K sees the railroad network and this inaugural project in Kansas City, we intend to build a conventional facility that will support multiple cut.
George Chappell: Our agreement with CPKC is a strategic collaboration in which Americold will build, own, and operate cold storage facilities on land located on CPKC's railroad network. In this inaugural project in Kansas City, we intend to build a conventional facility that will support multiple customers' products coming from and going to Mexico, which will be transported on CPKC's railroad. This network solution provides a cheaper, faster, and more environmentally friendly process for CPKC and Americold's mutual food manufacturing customers to import and export their products. Additionally, in December, we announced our plans through our RSAJV to build a conventional multi-customer major market distribution center in Dubai at DP World's Port of Jebel Ali Free Zone for $35 million. This planned development will be the first of its kind to combine Americold's global temperature-controlled infrastructure with DP World's port infrastructure and end-to-end logistics solutions. This strategic combination will result in an unprecedented optimization of temperature-sensitive food flows in and out of the countries of the Gulf Cooperation Council and provide redistribution opportunities across the region.
George: Summers product coming from and going to Mexico, which will be transported on C. P. Casey's railroad. This.
George: This network solution provides a cheaper faster and more environmentally friendly process for C. P. K C. In America was mutual food manufacturing customers to import and export their product.
George: Additionally, in December we announced our plans through our RSA J V to build a conventional multi customer major market distribution center in Dubai at D. P worlds port of Jebel Ali free zone for $35 million.
George: This plan development will be the first of its kind to combine to miracles global temperature controls infrastructure with D P world's port infrastructure, and and to and logistics solutions.
George: [noise] strategic combination will result in an unprecedented optimization of temperature sensitive food flows in and out of the countries of the Gulf Cooperation Council and provide redistribution opportunities across the region.
George Chappell: These partnerships with CPKC and DP World illustrate Americold's unique ability to create value by collaborating with global leaders in adjacent areas of the supply chain. Our investment in these partnerships will grow significantly over the next few years as we continue to identify opportunities to jointly grow our business. We expect $500 million to $1 billion of development opportunities combined from these two strategic partnerships. Turning to our fourth quarter results, we delivered AFFO per share of 38 cents, a strong increase of over 31% versus the prior year's quarter, and a record level for quarterly AFFO per share.
George: These partnerships with C. P. K C N D P world illustrate America's unique ability to create value by collaborating with global leaders in adjacent areas of the supply chain.
George: Our investment in these partnerships will grow significantly over the next few years as we continue to identify opportunities to joint we grow our business, we expect $500 million to 1 billion of development opportunities combined from these two strategic partnerships.
George: Turning to our fourth quarter results, we deliberate F F. L for sure a 38 cents a strong increase of over 31% versus prior year's quarter and a record level for quarterly as a full for sure.
George Chappell: Our performance was primarily driven by our global warehouse same-store pool, which generated NOI growth of 8% versus the prior year on a constant currency basis. Our strong same-store pool results were driven by our pricing initiatives, record-setting fixed-commit levels, aggressive variable cost management, and improved warehouse services protocols. Throughput lines declined by approximately 760 basis points versus the prior year, improving the year-over-year decline sequentially by 140 basis points and consistent with implied fourth quarter guidance.
George: Her performance was primarily driven by a global warehouse same store pool, which generated NOI growth of 8% versus prior year on a constant currency basis.
George: Our strong same store pool results were driven by a pricing initiatives record setting fixed commit levels aggressive variable cost management and improved warehouse services productivity.
George: Throughput volumes declined by approximately 760 basis points versus prior year, improving the year over year decline sequentially by 140 basis points and consistent with implied fourth quarter guidance, while food manufacturers utilized promotional spending to bring more and consumers into the store the temporary changes to <unk>.
George Chappell: While food manufacturers utilize promotional spending to bring more end-consumers into the store, temporary changes in end-consumer demand and behavior due to the challenging economic environment continued to weigh on throughput volume. The bright spot for warehouse services in the quarter was our performance on margins. As you may recall, in the third quarter, despite the 900 basis point drop in throughput volume, we were able to deliver services margins of 2.8%, which was approximately 30 basis points better than the first half of the year through aggressive variable cost management. We accelerated this progress in the fourth quarter and overcame a 760 basis point drop in throughput volumes by achieving services margins of 6.1%. On a sequential basis, this is an incremental 330 basis point improvement versus third quarter 2023, which resulted in an incremental $10.5 million in same-store services NOI or roughly an incremental $0.04 in AFFO per share for the fourth quarter 2023.
George: Consumer demand and behaviors due to the challenging economic environment continued to weigh on through put volumes.
George: The bright spot for warehouse services in the quarter with our performance on margins as you may recall in the third quarter. Despite the 900 basis point drop in throughput volumes, we were able to deliver services margins of 2.8%, which was approximately 30 basis points better than the first half of the year through aggressive variable costs man.
George: Isn't she accelerated this progress in the fourth quarter and overcame a 760 basis point drop in throughput volumes by achieving services margins of 6.1%.
George: On a sequential basis. This is an incremental 330 basis point improvement versus third quarter of 2023, which resulted in an incremental $10.5 million in the same store services NOI or roughly an incremental four cents and after four per share for the fourth quarter of 2023 on.
George Chappell: On a year-over-year basis, the impact was equally impressive, with an incremental $11.1 million in same-store services NOI. These productivity improvements are quickly taking hold after two years of hard work and give us a high degree of confidence in achieving our target of 9% services margins during the second half of 2024, likely during the fourth quarter. Turning to our full-year results for 2023, we delivered AFFO for share of $1.27, which is the midpoint we guided to last quarter. Accounting for the $0.03 per share that we estimate will be lost during the cyber event in the second quarter, a full-year AFFO would have been $1.30, which is an increase of 17% over full-year 2022 or an increase of 19% when adjusted for the exit of a large retail customer, not third-party managers, in the fourth quarter of 2022.
George: A year over year basis, the impact was equally impressive with an incremental $11.1 million in the same store services NOI. These productivity improvements are quickly taking hold after two years of hard work and give us a high degree of confidence.
George: Cheating or target of 9% services margins during the second half of 2024 likely during the fourth quarter.
George: Turning to our full year results for 2000 twenty-three, we delivered AFL focus share of $1.27, which is the midpoint, we got to last quarter.
George: Counting for the three cents per share that we estimate we lost during the cyber event in the second quarter, a full year F. F. O would have been $1.30, which is an increase of 17% over a full year of 2022 or an increase of 19% when adjusted for the exit of a large retail customer in about third party managed business in the fourth quarter.
George: Of 2022 <unk>.
George Chappell: This exceptional performance was primarily driven by our global warehouse same store pool, which generated revenue growth of 4.3% and NOI growth of 12.8% versus the prior year, both on a constant currency basis. Our strong same-store revenue results were driven by a combination of record-setting same-store economic opportunities of 84.3%, which was almost 400 basis points better than any year in our history, our ongoing price initiatives, and improving services margins driven by increasing productivity. Our record-setting occupancy is attributed to two main factors.
George: This exceptional performance was primarily driven by our global warehouse same store pool, which generated revenue growth of 4.3% and NOI growth of 12.8% versus prior year, both on a constant currency basis or a strong same store revenue results were driven by a combination of record setting same store economic.
George: Tennessee of 84.3%, which was almost 400 basis points better than any year in our history.
George: Our ongoing price initiatives and improving services margins driven by increasing productivity are.
George: A record setting occupancies attributed to two main factors first are intense focus on customer service, which led to an enhanced when right on customer opportunities and second are enhanced commercialization efforts, which drove are fixed commits to record levels. In addition to new business our customers publicly recognized miracles performance for example, audible.
George Chappell: First, our intense focus on customer service, which led to an enhanced win rate on customer opportunities. And second, our enhanced commercialization efforts, which drove our fixed commits to record levels. In addition to new business, our customers publicly recognized Americold's performance. For example, Butterball awarded our Lowell, Arkansas facility with its Site of the Year Award.
George: All awarded are Lowell, Arkansas facility with the decided of the year Award. We appreciate this recognition and look forward to continued progress around up customer service initiatives.
George Chappell: We appreciate this recognition and look forward to continued progress around our customer service initiative. Before turning to our 2024 guidance, let me comment briefly on our recent leadership changes that strengthen our team and best position us for profitable growth. In January, we hired Jay Wells as chief financial officer. Jay is a veteran public company financial executive with more than 30 years of experience building and leading international businesses, and has considerable financial planning and transaction expertise. He joined Americold from Primo Water, a leading publicly traded water company operating across 21 different countries, including North America and Europe, where he served as chief financial officer from 2012 to 2023.
Speaker Change: Before turning to our 2024 guidance, let me comment briefly on our recent leadership changes that strengthen our team and best position us for profitable growth.
Speaker Change: In January we hired J wells as Chief Financial Officer.
George: J as a veteran public company financial executive with more than 30 years experience building and leading international teams and has considerable financial planning and transaction expertise. He joined America from Primo water, a leading publicly traded water company, which operated across 21 different countries, including North America and Europe.
George: Where he served as Chief financial Officer from 2012 to 2023, we are very excited to have J on the team and look forward to introducing him to the investment community over the next several weeks, we also announced that we rewind or executive leadership team to drive synergies in further enhance our customers experiences across geographies.
George Chappell: We are very excited to have Jay on the team and look forward to introducing him to the investment community over the next several weeks. We also announced that we have realigned our executive leadership team to drive synergies and further enhance our customers' experiences across geography, with Rob Chambers assuming the role of President Americas and Richard Winnall assuming the role of President International. Both Rob and Richard have been with Americold for many years, and these changes to our leadership structure will allow our team to more quickly and effectively implement strategic initiatives across all markets and locations to better serve our customers. Lastly, Kevin Reed recently joined Americold as our Vice President of Investor Relations. Kevin joins us from ICR, an investor relations consulting firm where we have worked with Americold and many other REIT clients over the years. We are very excited to have Kevin on board.
George: With Rob Chambers, assuming the role of President Americans and Richard went all assuming the role of President International both Robyn Richard of them with the Miracle for many years and these changes to our leadership structure will allow our team to more quickly and effectively implemented strategic initiatives across all markets and locations to better serve our customers.
George: Lastly, Kevin read recently joined Americold as our Vice President of Investor Relations, Kevin joins us from ICR and Investor Relations consulting firm, where he worked with the miracle that and many other re clients over the years. We are very excited to have Kevin on the team.
George Chappell: Now on to the current market conditions that are underpinning our 2024 guide. For the full year 2024, within the same store, we expect our economic occupancy to be slightly drawn from the full year 2023 level, which, as I commented on earlier, was an all-time record at 84.3%. Given the current economic environment, we expect lower throughput volumes on a full year over year basis. However, we expect this decline to be most pronounced in the first quarter, with a gradual improvement throughout the year.
George: Now onto the current market conditions that are underpinning R 2024 guidance for the full year 2024 within the same store, we would expect our economic occupancy to be slightly drawn from the full year 2000 twenty-three level, which is like commented on earlier with an all time record at 84 three per cent given.
George: Given the current economic environment, we expect lower throughput volumes on a full year over year basis. However, we expect us to climb to be most pronounced in the first quarter with a gradual improvement throughout the year from a pricing standpoint, we expect to continue to cover inflation to benefit from our normal course annual rate Escalations to re.
George Chappell: From a pricing standpoint, we expect to continue to cover inflation, to benefit from our normal course annual rate escalations, to reprice our longer-term agreements that come up for renewal, and lastly, to underwrite new business appropriations. From an operational standpoint, we expect to continue to see warehouse services markets improve. However, please note that the first half of the year may not be as strong as this recent fourth quarter of 2023, given the continued declining throughput volume of subsidies. Against this backdrop, we are guiding to a full year 2024 AFFO per share range of $1.32 to $1.42, with a midpoint of $1.37.
George: Price or longer term agreements that come up for Newell, and lastly to underwrite new business appropriately from an operational standpoint, we expect to continue to see warehouse services Martin's improve however, please note. The first half of the year may not be as strong as this recent fourth quarter of 2023, given the continued declining throughput.
George: <unk> assumptions against this backdrop, we have got into a full year 2024, a F F O per share range of $1.32 to $1.42 with the midpoint of $1.37 at the midpoint. This represents approximately 8% increase from 2023 and approximately five five.
George Chappell: At the midpoint, this represents an approximately 8% increase from 2023, and approximately 5.5% increase when adjusted for the $0.03 of lost earnings previously disclosed as a result of our second quarter 2023 cyber event. At the midpoint, same-store revenue growth is expected to be 4%, and NOI growth 8.3%, driven by our continued pricing initiatives, aggressive variable cost management, and improved warehouse services protocols. Lastly, before I hand it over to Rob, in line with our company value of giving back and our commitment to fighting hunger, we united with Feed the Children and their community partners to assist families across five states over the holiday. Food and essential personal items were delivered to 400 families in underserved communities in each state, benefiting 2,000 families in total.
George: Per cent increase when adjusted for the three cents of lost earnings previously disclosed that as a result of our second quarter of 2023 cyber event.
George: At the midpoint same store revenue growth is expected to be 4% and NOI growth eight three per cent driven by our continued pricing initiatives aggressive variable cost management and improved warehouse services productivity.
George: Lastly, before I hand, it over to Rob in line with our company value of giving back in our commitment to fighting hunger when United with feed the children and their community partners to assist families across five states over the holiday season.
George: Food in the essential personal items were delivered to 400 families in underserved communities in each state benefiting 2000 families in total.
Rob Chambers: This initiative is part of our ongoing partnership with Feed the Children to focus resources on communities where we can have a meaningful impact, which will continue in 2024. With that, I will turn it over to Rob. Thank you, George.
George: This initiative was part of our ongoing partnership with feed the children to focus resources on communities, where we can have a meaningful impact which will continue in 2024 with that I will turn it over to Rob.
George: George.
Rob Chambers: As George mentioned, our company delivered strong results during the fourth quarter, economic occupancy at 83.7% for the same store pool and another quarter of record-setting fixed commitment percentage levels for our total warehouse. At quarter end, within our global warehouse segment, rent and storage revenue from fixed commitment contracts increased on an absolute dollar basis. $577 million compared to $420 million at the end of the fourth quarter of 2022, on a combined pro forma basis. We derive 52.2% of rent and storage revenue from fixed commitment storage contracts, which is an approximately 1,000 plus basis point improvement over the fourth quarter of 2020. Since our IPO in 2018, we have added over $379 million in annualized fixed storage revenue. A testament that speaks to both the benefits our customers derive from the structure, along with our best-in-class commercial practice.
Rob Chambers: George mentioned, our company delivered strong results during the fourth quarter economic occupancy at 83.7% for the same store pool, another quarter record setting fixed commitment percentage of levels for our total warehouse segment of.
Rob Chambers: Quarter and within our global warehouse segment rent and storage revenue from fixed commitment contracts increase on an absolute dollar basis.
Rob Chambers: $577 million compared to $420 million the end of the fourth quarter of 2022.
Rob Chambers: Combine pro forma basis, we derived 52.2% of rent and storage revenue from fixed commitment storage contracts, which is in approximately thousand plus basis point improvement over the fourth quarter of 2022 cents.
Rob Chambers: Since our IPO in 2018, we've added over $379 million, an annualized fixed storage revenue a testament that speaks to boat benefits our customers derived from the structure along with our best in class commercial practices.
Rob Chambers: Turning to price, for the fourth quarter, rent and storage revenue for economically occupied talent in our same store on a constant currency basis increased by 3.4% versus the prior year. Please note that during the fourth quarter, power surcharges decreased in certain markets, which was a headwind to our increase by approximately 100 to 150 bases. Service revenue for throughput pallets increased by 9.1%.
Rob Chambers: Earning the pricing for.
Rob Chambers: For the fourth quarter rent and storage revenue for economic occupied palette in our same store on a constant currency basis increased by 3.4% versus the prior year. Please note that during the fourth quarter power surcharge or decreased in certain markets, which was a headwind do our increased by approximately 100 to 150 basis point.
Rob Chambers: [noise].
Rob Chambers: Service revenue for throughput palette increased by 9.1%, we remain very focused on our pricing initiatives to ensure that we both offset inflationary pressures and price our business to reflect the value of the service we provide to our customers. We continue to take a surgical approach to pricing the renewal of existing business with embedded ran as galatian there were for.
Rob Chambers: We remain very focused on our pricing initiatives to ensure that we both offset inflationary pressures and price our business to reflect the value of the service we provide to our customers. We continue to take a surgical approach to pricing the renewal of existing contracts with embedded red escalation that reflects the current operating environment. And we continue to price new business with a forward view of our cost structure in the current market. Lastly, this past January, we implemented the majority of our annual general rate increases or GRIs. For, within our global warehouse segment, we had no material changes to the composition of our top 25, who account for approximately 49% of our global warehouse revenue. Pro Forma Base.
Rob Chambers: He likes the current operating environment, and we continue to price new business with a forward view of our cost structure in the current market rates <unk>.
Rob Chambers: Lastly, this past January we implemented the majority of our annual general rate increases are G. R is for 2024.
Rob Chambers: Within our global warehouse segment, we had no material changes to the composition of our top twenty-five customers who account for approximately 49% of our global warehouse revenue on a pro forma basis.
Rob Chambers: Our churn rate remained low at approximately 3.2% of total warehouse revenues, consistent with historical churn. Given our strong operating metrics, we are continuing to accelerate the underwriting process and evaluating development opportunities across the three primary areas of focus that George has mentioned previously, our CPKC and DP World collaboration, expansion projects, and customer-dedicated build-to-suit. Combining this macro backdrop along with our strength and development platform positions as well as to capitalize on these potential opportunities. Let me comment on today's... First, we are excited about announcing our plans to build a conventional multi-customer major market distribution. CPKC's intermodal terminal in Kansas City that will be approximately 22,000 pilot positions and 14 million cubic feet for a total of approximately 130.
Rob Chambers: Our churn rate remained low at approximately 3.2% a total warehouse revenues consistent with historical churn rates.
Rob Chambers: Given our strong operating metrics, we are continuing to accelerate the underwriting process and evaluating development opportunities across the three primary areas of focus but George as mentioned previously R. C. P. K C and D. P world collaboration expansion projects and customer dedicated build a suit developments.
Rob Chambers: Combine this macro backdrop, along with our strength and development platform positions as well to capitalize on these potential opportunities let me comment on today's announcement.
Rob Chambers: First we're excited about announcing our plans to build a conventional multi customer major market distribution center on C. P. Casey intermodal terminal in Kansas City that will be approximately 22000 power positions and 14 million cubic feet for a total investment to be approximately $130 million.
Rob Chambers: This facility will be anchored by some of the world's largest protein, dairy, and produce companies. We expect to break ground on this facility in the second quarter. The combination of the location of this facility and the value-added services we are offering is a first of its kind in cold storage, and we are incredibly proud of this. The unique services offered in this facility include inspection and free clearance of products shipping across the U.S. By utilizing our facility and the associated services we offer, along with CPKC's rail, our mutual customers get the benefit of reduced transit times and reduced transit costs, while at the same time utilizing less energy and reducing their carbon footprint. Also, in December, we announced our plans through our RSAJV to build a conventional multi-customer major market distribution This facility will have approximately 40,000 pilot positions in eight million years.
Rob Chambers: This facility will be anchored by some of the world's largest protein dairy and produce customers. We expect to break ground on this facility in the second quarter of 2024.
Rob Chambers: The combination of the location of this facility and the value added services. We are offering is a first of its kind in the cold storage industry, but we're incredibly proud of this accomplishment.
Rob Chambers: Unique services offered in this facility include inspection and free clearance a product shipping across the U S. Mexican border.
Rob Chambers: By utilizing our facility and the associated services, we offer along with C. P. Casey Israel, our mutual customers get the benefit of reduced transit times and reduce transit cause all at the same time utilizing less energy and reducing their carbon footprint.
Rob Chambers: Also in December we announced our plans through our RSA J V to build a conventional multi customer major market distribution center in Dubai or D. P World's court and juggle all aid free zone.
Rob Chambers: This facility will be approximately 40000 power positions in 8 million cubic feet and we estimate the total investment to be approximately 35 million U S dollars.
Rob Chambers: We estimate this total investment to be approximately $35 million U.S. The facility will be anchored by global food producers exporting products into the Middle East, North Africa, and India, along with local market producers and distributors. We expect to break ground on this facility in April, a combination of Americold's global cold chain infrastructure and value-added services. DP World's port and logistics infrastructure is expected to create a global end-to-end cold chain that unlocks unprecedented value for global food. Over the next five years, we expect $500 million to $1 billion of development opportunities from the CPKC and DP World partners. Second, as it relates to expanding... First, in the fourth quarter, we began ramping up volume in our newly expanded facility in Spearwood, Australia.
Rob Chambers: The facility will be anchored by global food producers exporting products into the Middle East North Africa, and India, along with local market producers and distributors, we expect to break ground on this facility in April of this year.
Rob Chambers: The combination of Americold global cold chain infrastructure and value added services, but D. P worlds port and logistics infrastructure is expected to create a global end to end cold chain unlocks unprecedented value for global food customers.
Rob Chambers: Over the next five years, we expect 500 million to a billion of development opportunities combined from the C. P. K C N D P world partnerships.
Rob Chambers: Second as it relates to expansions.
Rob Chambers: First in the fourth quarter, we began ramp being volume in our newly expanded facility and spear what Australia.
Rob Chambers: This automated expansion was completed on time and on budget, and it's supporting both food manufacturing and retail. The facility is ramping ahead of schedule, driven by both customer demand in the market and the high level of service the automation has provided. Second, we are making progress on our 11,000-pallet position expansion in Dubai and our RSAJB, which we broke ground on in the third quarter of 2023. And third, we are expecting to begin construction on our 37,000-pallet position expansion at our Allentown, Pennsylvania, site in the second quarter of 2023, in addition to the in-progress expansion. We are also currently underwriting several additional new expansion projects in markets where demand currently outstrips capacity, and we expect more announcements in the coming quarter. Our third development priority is our customer-dedicated build-to-suit facility.
Rob Chambers: Automated experience. It was completed on time and on budget and is supporting both food manufacturing and retail customers.
Rob Chambers: [noise] ramping ahead of plan driven by boat customer demand in the market and the high level will serve as the automation is providing.
Rob Chambers: Second we were making progress on our 11000 power position expansion in Dubai, and our our S. A J V that we broke ground on in the third quarter of 2023.
Rob Chambers: And third we are expecting to begin construction on our 37000 palette position expansion at our Allentown, Pennsylvania site in the second quarter of this year.
Rob Chambers: In addition to these in progress expansions. We're also currently underwriting several additional new expansion projects and markets where demand currently outstrips capacity.
Rob Chambers: Expect more announcements in the coming quarters.
Rob Chambers: Our third development priority as our customer dedicated build to suit facilities.
Rob Chambers: Pipeline here continues to grow and progress as customers refocus our efforts on long term planning, our longterm relationships with these customers physician as well the security's build to suit opportunities.
Rob Chambers: Finally, let me provide an update on our two recently completed customer dedicated automated facilities located in Lancaster, Pennsylvania complain go Connecticut as.
Rob Chambers: The pipeline here continues to grow and progress; customers refocus their efforts on the long term, and our long-term relationships with these customers, as well as the Securities, Bills, and Suits. Finally, let me provide an update on our two recently completed customer-dedicated automated facilities located in Lancaster, Pennsylvania, and Plainville. As a reminder, these retail distribution centers are highly automated sites for one of the world's largest grocery retailers that will serve approximately 750 individual stores in the Northeast and Mid-Atlantic, as you will see in our IR supplement on page 39.
Rob Chambers: As a reminder, these retail distribution centers are highly automated sites for one of the world's largest grocery retailers that combined will serve approximately 750 individuals stores in the northeast admittedly into Q S.
Rob Chambers: As you will see in our iron supplement on page 39, we've extended the expected stabilization days to the third quarter of 2025 for the Pennsylvania facility until the fourth quarter of 2025, and the Connecticut facility we.
Rob Chambers: It made this decision in consultation with our retail customer and we felt it was prudent to extend our ramp up times in our stabilization days due to the following two reasons.
Rob Chambers: <unk> the work being done inside these facilities individual case fixed election.
Rob Chambers: We've extended the expected stabilization dates to the third quarter 2025 for the Pennsylvania facility and to the fourth quarter 2025 for the Connecticut facility. We made this decision in consultation with our retail customer, and we felt it was prudent to extend our ramp-up times and our stabilization dates due to the following two reasons. First, the work being done inside these facilities is individual case pick selection, which is being completed by our automation.
Rob Chambers: Which is being completed by our automation systems. This is a high level of complexity that is taking some additional time to achieve our desired surface levels and second it is taking additional time for these facilities to be integrated into our customers supply chain.
Rob Chambers: The decision on the timing of adding new volumes as one we made jointly with our customer and we are taking the necessary time to ensure a smooth transition.
Rob Chambers: While this change impacts our overall non same store pool NOI in 2024 due to the shift and timing we strongly feel that it would be appropriate approach and that is reflected in our 2024 guns.
Rob Chambers: This is a high level of complexity that is taking some additional time to achieve our desired service. And second, it is taking additional time for these facilities to be integrated into our customer supply chain. The decision on the timing of adding new volumes is one we make jointly with our customers, and we are taking the necessary time to ensure a smooth transition. While this change impacts our overall non-same-store pool NOI in 2024 due to the shift in time, We strongly feel that this is the appropriate approach, and that is reflected in our 2024 guidance. Please note that our stabilization and return expectations have not changed. And we look forward to servicing our customers and delivering on the expected returns outlined for these projects. In summary, 2023 was a year where we added tremendous value for our customers, and our customers responded by awarding us record levels of new business, which led to our infrastructure reaching record occupancy and commitment. Five new automated facilities were completed, and the announcement of three new developments.
Rob Chambers: Please note that our stabilization return expectations have not changed and we look forward to servicing our customer and delivering on the expected returns outline for these projects.
Rob Chambers: In summary, 20 twenty-three with a year, where we had a tremendous value for our customers and our customers responded by awarding this record levels new business that led to our infrastructure, reaching record occupancy and commitment levels five new automated facilities. We're completed the announcement of three new development projects the signing of our partner.
Rob Chambers: Ship deals with D V World M. C. P. K C and now the announcement of a new development in Kansas City.
Rob Chambers: We're able to continue to price the business to reflect the value that we're creating and deliver on both our customer service and our commercial objectives now I'll turn it over to Jay Thank.
Jay: Ralph before commenting on our 2024 guidance I Wanna say that I'm honored to have recently joined Americold, if CFO and I.
Jay: Look forward to working with the team to continue to strengthen the company's financial foundation and physician to business for future success.
Jay: I also look forward to getting to know the investment community over the next several months.
Rob Chambers: The signing of our partnership deals with BP World and CBKC and now the announcement of a new development in Kansas. We're able to continue to price the business to reflect the value that we're creating and deliver on both our customer service and our commercial value. Now I'll turn it over to you.
Jay: Moving to our balance sheet at the end of the quarter total net debt outstanding was $3.2 billion.
Jay: Yeah, a total liquidity of $797 million consistent of cash on hand and revolver availability.
Jay: Barnett that perform a core EBITDA was approximately five six times and as route discussed if announced our expansion in Allentown, Pennsylvania, and our Greenfield development in Kansas City, Missouri, both of which are expected to ramp up spending in the second quarter of this year. Please.
Jay Wells: Thank you, Rob. Before commenting on our 2024 guidance, I want to say that I'm honored to have recently joined Americold as CFO, and I look forward to working with the team to continue to strengthen the company's financial foundation and position the business for future success. I also look forward to getting to know the investment community over the next several months. Moving to our balance sheet, at the end of the quarter, our total net debt outstanding was $3.2 billion. We have total liquidity of $797 million, consisting of cash on hand and revolver availability. Our net debt for the former court IBRA was approximately $5.6 billion.
Jay: Please see page 39 of the Irish supplement for additional details utter development projects.
Jay: Turning to our full year 2024 guidance, we expect a F F O per share in the range of $1.32 to $1.42.
Jay: Before reviewing the individual components of this guidance that are set forth on page 42 of the iron supplement.
Jay: Let me quickly comment on the New 2024 same star poll for the global warehouse segment.
Jay: Our new poll is now 227 facilities, which is approximately 95 per cent of the total number of properties and our warehouse segments.
Jay Wells: And, as Rob discussed, we have announced our expansion in Allentown, Pennsylvania, and our greenfield development in Kansas City, Missouri, both of which are expected to ramp up spending in the second quarter of this year. Please see page 39 of the IRS Supplement for additional details on our development projects. Turning to our full year 2024 guidance, we expect AFFO per share in the range of $1.32 to $1.42. Before reviewing the individual components of this guidance, which are set forth on page 42 of the IHRSA,
Jay: Summary of the 2024 same store pool historic performance of 2023 is presented on page 38 of the iron supplement.
Jay: We have 10 facility et cetera, and our 2024 non same-store polls now turning to the individual components of our <unk> guidance and starting with our global warehouse segment.
Jay: Packed full year of 2024 same store constant currency revenue growth to be in the range of 2.5% to 5.5%.
Jay: Let me provide more detail around the key drivers of this growth.
Jay Wells: Let me quickly comment on the new 2024 same store pool for the global warehouse segment. Our new pool is now 227 facilities, which is approximately 95% of the total number of properties in our warehouse cycle. A summary of the 2024 same store pool historical performance for 2023 is presented on page 38 of the IRS.
Jay: Second the occupancy and throughput volumes, we expect economic occupancy to be in the range of flat to a decline of 100 basis points compared to 20 twenty-three as we are laughing a record setting your occupancy and are expected continued to see a temporary change in consumer demand in the first half of 2024.
Jay: Due to the challenging economic environment, partially offset by the benefit of recent commercialization efforts.
Jay Wells: We have 10 facilities that are in our 2024 non-same store pool. Now, turning to the individual components of our AFFO guidance and starting with our global warehouse segment. We expect full year 2024 same store constant currency revenue growth to be in the range of 2.5 to 5.5%. Let me provide more detail around the key drivers of this. With respect to occupancy and throughput volumes, we expect economic occupancy to be in the range of flat to a decline of 100 basis points compared to 2023 as we are lapping our record-setting year for occupancy and are expecting to continue to see a temporary change in end consumer demand in the first half of 2024 due to the challenging economic environment, partially offset by the benefit of recent commercialization.
Jay: We expect a slight decline in throughput volumes of one to three per cent.
Jay: As in consumer demand has slowed and basket sizes have shrek due to the current economic environment.
Jay: With respect to pricing, we expect constant currency red and storage revenue for economic occupied palette growth at the end of the range of 3% to 4%.
Jay: That's a currency service revenue for throughput pilot Grove to be in the range of 78%.
Jay: The pricing guidance reflects our continued pricing and power surcharge initiative to cover known inflation.
Jay: It also reflects our annual contractual escalation and G. R I setups and the commercialization of market based pricing for contracts that we underripe overdue.
Jay: For the full year, we're now expecting same-store constant currency at all I grow to be in the range of 6.5% to 10%, which is 400 to 450 basis points higher than the corresponding revenue growth.
Jay Wells: We expect a slight decline in throughput volumes of 1 to 3 percent as end consumer demand has slowed and basket sizes have shrunken due to the current economic environment. With respect to pricing, we expect constant currency rent and storage revenue for economically occupied pallet growth to be in the range of 3 to 4%. We expect constant currency service revenue for throughput pallet growth to be in the range of 7 to 8 percent. The pricing guidance reflects our continued pricing and power surcharge initiatives to cover non-inflation. It also reflects our annual contractual absolution and GRI step-ups and the commercialization of market-based pricing for contracts that we underwrite or relinquish.
Jay: The guards to the new 2024, not same-store, Paul as can be seen on page 38 of the iron supplement the new not same store pull generated negative $12 million of NOI for the full year 2000, twenty-three and positive $4.7 million of NOI on the fourth quarter of 2023 with the fourth quarter result.
Jay: It's been impacted by a short term reduction expense.
Jay: For the full year of 2024, we expect a new non same-store pull to generate NOI and their range of negative $3 million.
Jay: Outside of $9 million as.
Jay: As Rob mentioned earlier, we have extended the stabilization dates for Pennsylvania, Connecticut facilities too late 20th 25 at our guidance for collects the impact of this change.
Jay Wells: For the full year, we are now expecting same-store constant currency NLI growth to be in the range of 6.5 to 10 percent, which is 400 to 450 basis points higher than the corresponding revenue growth. With regard to the new 2024 non-same-store pull, as can be seen on page 38 of the IR supplement, the new non-same-store pull generated negative $12 million of NOI for the full year 2023 and positive $4.7 million of NOI in the fourth quarter of 2023, with the fourth quarter results being impacted by a short-term reduction in expenses. For the full year of 2024, we expect a new non-fame store pool to generate NOI in the range of negative $3 million to positive $9 million.
Jay: Turning to our management transportation segments ally for the full year. We expect these segments combined generate approximately $45 million to $50 million of NOI compared to approximately $48 million of NOI in 2023.
Jay: Turning to our SG&A, except for the full year inspect total SG&A that'd be in the range of $247 million to $261 million inclusive of $23 million to $25 million to stock compensation expense in $5 million to $7 million of Orion amortization.
Jay: Similar to how they exclude stock cop expense from our total SG&A expense well also exclude this amortization charged to arrive at what we call core SG&A expense.
Jay: For the full year, we expect core SG&A to be in the range of $219 million to $229 million. This range is higher than our 20th 20th report SG&A expense up to $103 million, primarily due to higher costs associated with investment in cyber security measures and additional investments resulting from project.
Jay Wells: As Rob mentioned earlier, we have extended the stabilization dates for our Pennsylvania and Connecticut facilities to late 2025, and our guidance reflects the impact of this change. Turning to our managed and transportation segments, NOI, for the full year, we expect these segments combined to generate approximately $45 to $50 million of NOI, compared to approximately $48 million of NOI in 2022. According to our SG&A expense, for the full year, we expect total SG&A to be in the range of $247 to $261 million, inclusive of $23 to $25 million of stock compensation expense and $5 to $7 million of Orion amortization. Similar to how we exclude stock compensation expense from our total SG&A expense, we will also exclude this amortization charge to arrive at what we call core SG&A.
Jay: Ryan moved to assess environment.
Jay: So you had a project Orion we continue to make good progress remain confident that project Orion will deliver the benefits previously discussed.
Jay: Turning to our interest expense for the full year, we expect interest expense to be approximately $141 million to $149 million.
Jay: This may inches higher than our 20th twenty-three interest expense of $140 million, primarily resulting from lower interest capitalization as he completed a significant number of developments last year.
Jay: With respect to for your cash taxes, we expect 20th 20th forecast access to be approximately $9 million to $12 million.
Jay: As a reminder, most of the corporate income taxes, we pay it a miracle relate to our international operations.
Jay: Turning to our maintenance capital expenditures for the full year, we expect this investment to be approximately $80 million to $90 million.
Jay Wells: For the full year, we expect Core SG&A to be in the range of $219 to $229 million. This range is higher than our 2023 core SG&A expense of $203 million primarily due to higher costs associated with investing in cyber security measures and additional investments resulting from Project Orion's move to a SaaS environment. Speaking of Project Orion, we continue to make good progress and remain confident that Project Orion will deliver the benefits previously discussed. Turning to our interest expense for the full year, we expect interest expense to be approximately $141 to $149 million. This range is higher than our 2023 interest expense of $140 million, primarily resulting from lower interest capitalization as we completed a significant number of developments last year. With respect to four-year cash taxes, we expect 2024 cash taxes to be approximately $9 to $12 million.
Jay: In 2024, they expect to announce development starts aggregating between 200 and $300 million. Please.
Jay: Please keep in mind that our guidance does not include the impact of acquisitions dispositions are capital markets activity beyond that which has been previously announced and please refer to the iron supplement for detail on the additional assumptions embedded in this guidance.
Jay: Before I tried to call back to George I want to discuss the 237 million dollar not cats goodwill impairment that we took in the fourth quarter of 2023 related to our European warehouse business the.
Jay: The goodwill impairment was driven by higher interest rates at a weakened macroeconomic environment in Europe.
Jay: Please note despite the goodwill impairment in 2023, we grew the European warehouse business NOI by approximately 32% and expect this business to continue to deliver strong results.
Speaker Change: Now, let me trying to call back to Georgia for some closing remarks. Thanks.
Georgia: Thanks, J there was a lot to be proud of in 2023, such as growing a F. F O per share 19% when adjusting for the impact of the cyber event and the exit of a large retail customer and a third party manage business, while setting records and economic occupancy in the fiscal make contracts completing five automated developments.
Jay Wells: As a reminder, most of the corporate income taxes we pay at Americold relate to our international operations. Turning to our maintenance capital expenditures for the full year, we expect this investment to be approximately $80 to $90 million. In 2024, we expect to announce development starts aggregating between $200 million and $300 million. Please keep in mind that our guidance does not include the impact of acquisitions, dispositions, or capital market effectivity beyond that which has been previously announced, and please refer to the IR supplement for detail on the additional assumptions embedded in this guidance. Before I turn the call back to George, I want to discuss the $237 million non-cash goodwill impairment that we took in the fourth quarter of 2023 related to our European warehouse business. The goodwill impairment was driven by higher interest rates and a weakened macroeconomic environment in Europe.
Georgia: And increasing services margins in the face of declining throughput all done with an eye towards the building reliable and predictable earnings.
Georgia: As we started 2024 on development strategy is coming to life with our two strategic partnerships delivering high quality growth opportunities that we are now turning into reality is.
Georgia: Evidence fire development guidance, we expect a very strong year for low risk accretive development starts our internal growth is underpinned by record setting occupancy him fixed commit contracts. In addition to services margin expansion supported by best in class Labor management processes and tools that will not only at tens of millions of warehouse service.
Jay: NOI, but do it in a way that's predictable and sustainable even as throughput is variable all of this is enabled by the best in class customer service 15000 associates around the World delivered day in and day out.
Speaker Change: You are associates I'd say, thank you for all that you do in support of our customers and our company.
Jay Wells: Please note that despite the goodwill impairment, in 2023, we grew the European Warehouse Business NOI by approximately 32% and expect this business to continue to deliver strong results. Now, I will turn the call back to George for some closing remarks. Thanks, Jay.
Speaker Change: Thank you again for joining us today, and we will now open up the call for your questions operator.
Speaker Change: Thank you.
Speaker Change: <unk>, we will be conducting Christian <unk>.
Speaker Change: He would like to ask a question can you <unk>.
George Chappell: There is a lot to be proud of in 2023, such as growing AFFO per share by 19% when adjusting for the impact of the cyber event on the exit of a large retail customer in our third party management, while setting records in economic occupancy and fixed-commit contracts, completing five automated developments, and increasing services margins in the face of declining throughput, all done with an eye toward building reliable and predictable earnings. As we start 2024, our development strategy is coming to life with our two strategic partnerships delivering high-quality growth opportunities that we are now turning into reality. As evidenced by our development guidance, we expect a very strong year for low-risk, accretive development starts. Our internal growth is underpinned by record-setting occupancy and fixed-commit contracts, in addition to services margin expansion supported by best-in-class labor management processes and tools that will not only add tens of millions of warehouse services NOI but do it in a way that's predictable and sustainable, even as throughput is varied. All of this is enabled by the best-in-class customer service our 15,000 associates around the world deliver day in and day out. To our associates, I say thank you for all that you do in support of our customers and our company. Thank you again for joining us today. And we will now open up the call to your questions. Operator.
Christian: <unk> question Q.
Speaker Change: <unk>, if you would like to move your questions on the queue.
Speaker Change: Mmm no.
Speaker Change: Limit your questions to one question and one for a Christian.
Christian: Participant.
Christian: <unk>, maybe we can send you for you to pick up the <unk>, one moment T mobile <unk>.
Christian: <unk> <unk> <unk> <unk> <unk>.
Christian: Hey, good evening, maybe just touching a little bit on throughput and particular area. Just the commentary up now it's being down yard ear. After maybe a third corner you guys about the potential build in the second half of the year, maybe get a little more clarity on that maybe the cadence I'm bad and also if you're seeing.
Christian: Any differentiation between your facilities, maybe at the upper end near the producer and then more deer, the like and consumer if there's any variability there.
Speaker Change: Yeah. Thanks for the question I would say no. There's no variation in terms of where the facilities are in the supply chain as you know the supply chain works pretty much in unison, but I would say on throughput we still expect a very weak first half of the year in a much stronger second half of the year you were right at the mid point, where where.
Speaker Change: Gardening at this point bound to 200 basis points year over year at the mid point, but we do think throughput is going to be a real challenge in the first half and getting all the way back in the second half was probably a pretty long part to be honest I I think we'd get most of the way back at least on what we know today and that's that's where the guy who landed.
Operator: Thank you. We will be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue.
Speaker Change: That's helpful, but maybe.
Speaker Change: Part pairing that a little bit with like the the occupancy commentary being down or flat to downplay, Italy next year is there any concern around through put maybe people starting to pay for expectation for cold storage demand and baby occupancy could bleed from here is we're looking out the twenty-five or maybe what what are the thoughts or customers are having an expansion set this.
Operator: Please note: Please limit your questions to one and one follow-up question. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from Nick. Nick from Bayard.
George Chappell: Please proceed with your questions, Nick. Hey, good evening. Maybe just touching a little bit on throughput and particularly just the commentary of now, after maybe the third quarter, you guys mentioned the potential build in the second half of the year. Maybe get a little more clarity on that, on maybe the cadence on that. And also, if you're seeing any differentiation between your facilities, maybe at the upper end near the producer, and then more near the end consumer, if there's any variability there. Yeah, thanks for the question, Nick. I would say no, there's no variation in terms of where the facilities are in the supply chain.
Speaker Change: <unk>.
Speaker Change: Well I can occupancy as you know we set a record a year over year at 80 or 84% of 400 basis points from our previous side, we're clearly stealing market share across the network I mean, the the frozen food industry has been growing at that rate. So we've stolen a lotta market share over the last four quarters.
Christian: With four record Occupancies, and where a guy who can just 50 bps down at the midpoint from a record Occupancies. So we'll have our second best record at me and say I guess with this guy. So we don't have occupancy concerns at all and we do believe that wind throughput comes back we'll see a lot of demand for increase bills we'd.
George Chappell: As you know, the supply chain works pretty much in unison. But I would say on throughput that we still expect a very weak first half of the year and a much stronger second half of the year. You're right, it's a midpoint where we're guiding at this point down to 200 basis points year over year at the midpoint. But we do think throughput is going to be a real challenge in the first half. And getting all the way back in the second half is probably a pretty long putt, to be honest. I think we can get most of the way back, at least on what we know today. And that's where the guy landed.
Christian: Just announced expansion in Pennsylvania is you know we have our C. P. K C. Billed for is kicking off in D. P world opportunities across the world. So we're very bullish on our development opportunities, we're very bullish on our occupancy throughputs. The weakness it has been but we think second half of the year. We finally make some progress coming back.
Christian: I mean, the only thing I would add is our development pipeline remains Ah well over a billion dollars. So it's is is robots as it's ever been.
Speaker Change: Thank you. The next question comes from like an email from Sneaky Morgan.
Christian: Christians.
Sneaky Morgan: Yeah, Hi, I guess on the development front can you give us a sense is too should we be thinking of all new development for the foreseeable future coming by the two development partnerships and really only expansions being on balance sheet is that the right way to think of it.
George Chappell: That's helpful, but maybe pair that a little bit with the occupancy commentary being down or flat to down slightly next year. Is there any concern around throughput? Maybe people are starting to taper expectations for cold storage demand, and maybe occupancy could bleed from here as we're looking out into 2025? Or maybe, what are the thoughts your customers are having on expansions at this point? Well, occupancy, as you know, we set a record year-over-year at over 84 percent, up 400 basis points from our previous high. We're clearly stealing market share across the network.
Speaker Change: No no that's not the right way to think about it Mike for instance, I'm a C. P. Casey development. It was on balance sheet. The the J visa or only right now with a couple of D. C World Ah developments, one J V. We started in Dubai, The second goes into our Dubai, Bill, but you sure.
Speaker Change: Even think of the D. P world builds as all GB. So D P World and C. P. K C opportunities you should think of is just you know developments through another strategic partnership with like a customer builder and expansion you know, we announced some expansion customer dedicated bills, they're a lot in the pipeline rubbed.
George Chappell: I mean, the frozen food industry isn't growing at that rate, so we've stolen a lot of market share over the last four quarters with four record occupancies. And we're guiding to just 50 bips down at the midpoint from a record occupancy. So we'll have our second best record occupancy, I guess, with this guy. So we don't have occupancy concerns at all.
Speaker Change: Quantified the pipeline and in their our customer dedicated bills I don't think many customers are are are really going hard on bills at the moment with throughput where it is and and a consumer that blacks are the disposable income. They once had so I I I would expect customer build developments probably not in the first half of the year.
George Chappell: And we do believe that when throughput comes back, we'll see a lot of demand for increased bills. We just announced an expansion in Pennsylvania, as you know. We have our CPKC bill first kicking off, and DP World opportunities across the world. So we're very bullish on our development opportunities. We're very bullish on our occupancy. Throughput's the weakness.
Speaker Change: There's certainly still in the pipeline and when the economy and the consumer gets a little more healthy we expect those to roll in right along R. D. P World in C. P. K C developments and Ah expansions, we still have underwriter writing.
Speaker Change: Got it okay. Thank you.
Speaker Change: Alright does that complete your question.
Speaker Change: Okay.
Speaker Change: Yeah. Thanks.
George Chappell: It has been, but we think in the second half of the year, we will finally make some progress coming back. And the only thing I would add is our development pipeline remains well over a billion dollars. So it is as robust as it's ever been. Thank you.
Speaker Change: Okay. Thank you. The next question comes from <unk>.
Speaker Change: Hi, there so I noticed you're projecting on much faster stabilization timeline for the new Kansas City project versus your other international projects.
George Chappell: The next question comes from Mike Mueller from J.P. Morgan. Please proceed with your questions, Mike. Yeah, hi, on the development front, can you give us a sense as to whether we should be thinking of all new development for the foreseeable future coming via the two development partnerships and really only expansions being on the balance sheet? Is that the right way to think of it? No, no, that's not the right way to think about it, Mike.
Speaker Change: Could you walk us through the reason need there and do you expect similar Lisa timeframe for most of your other C. P. K C projects or D. P World project.
Speaker Change: I think there's a C P. Casey projects should follow a similar timeline to Kansas City, because they're they're all gonna fall into a certain category of of very high turn almost crossed stocking type operations, where you are taking truckloads of of product and containers and reloading and.
George Chappell: For instance, the CPKC development is on the balance sheet, the JVs are only right now with a couple of DP World developments, one JV we started in Dubai, the second goes into our Dubai build, but you shouldn't even think of the DP World builds as all JVs, so DP World and CPKC opportunities you should think of as just, you know, developments through another strategic partnership, just like a customer build or an You know we announced some expansion customer dedicated builds; there are a lot in the pipeline. Rod just quantified the pipeline, and there are customer dedicated builds. I don't think many customers are really going hard on builds at the moment with throughput where it is and a consumer that lacks the disposable income they once had, so I would expect customer build developments probably not in the first half of the year, but they're certainly still in the pipeline, and when the economy and the consumer get a little more healthy, we expect those to roll in right along our DP World and CPKC developments and expansions we still have I got it.
Speaker Change: Restaging onto rail and vice versa or on the way back from Mexico. So I would I would expect the facilities and the C. P. K C environment to all match, a certain profile and match the C. P. Casey stabilization Ah dates fairly close it's not that they're not going to be identical, but it is going to be very similar.
Speaker Change: They will have almost nothing in common with with the D. C World initiatives, that's a different dumb supply chain solution driven by a different supply chain process oversee versus over rail, but they in turn will look very similar because of their satisfying a different needs. So I'd say within each partner they'll look very similar but there aren't.
Speaker Change: Similarities to Ah amongst apartment as if that makes sense.
Speaker Change: Okay, Great. That's very helpful. And then just shifting gears a bit.
Speaker Change: To food production Lions Uhm broadly speaking, where do you think production lines are today vs optimal levels could producers start cutting back on production William is the slow down and demand <unk>.
George Chappell: Okay. Thank you. All right, does that conclude your question? Yes, thanks. Thank you. The next question comes from Jessica Zane from Green Street. Please proceed with your questions, Jessica. Hi there.
Speaker Change: Well I would say right now production volume, Missouri.
George Chappell: So I noticed you're projecting a much faster stabilization timeline for the new Kansas City project versus your other conventional projects. Could you kind of walk us through the reasoning there? And do you expect a similar lease-up time frame for most of your other CPKC projects or DP World projects? I think that the CPKC projects should follow a similar timeline to Kansas City because they're all going to fall into a certain category of very high-turn, almost cross-docking type operations where you're taking truckloads of product and containers and reloading and restaging onto rail and vice versa on the way back So I would expect the facilities in the CPKC environment to all match a certain profile and match the CPKC stabilization dates fairly closely. They're not going to be identical, but they're going to be very similar.
Speaker Change: Very low levels I mean, we have the weakest time of the year, which is the first border with a very weak consumer. So I would say production volumes are very low we have said that in the second half of the year, we expect to pick up in consumer demand and a corresponding pick up and and manufacturers are producing and that's the way we lived out of the.
Speaker Change: Laid out our guidance what I will say is coming out of Cagney. This week, which is where a lot of major food produces have their first annual investor confidence.
Speaker Change: There was a settlement pretty much across the board that manufacturers thought the second quarter could be a little better than than we see it that's relatively new news. We we think if that were to occur that helps us a lot.
Speaker Change: And would be incremental to what we're looking at today because again, we're skewed more towards the second half of the year. So that's relatively new news just this we got a cab cagney, but I was very pleasantly supply surprised to read those those comments coming out Academy and see if there is some kind of consensus around maybe.
George Chappell: They'll have almost nothing in common with the DP World initiatives. It's a different supply chain solution driven by a different supply chain process over sea versus over rail. They, in turn, will look very similar because they're satisfying a different need. So I'd say within each partner, they'll look very similar, but there aren't very many similarities amongst partners, if that makes sense.
Speaker Change: A better second quarter than we were planning on so that's probably the the bright spot in all of this but again, that's coming out of Cagney. This week, so it'll be interesting to see how things shape up in the coming weeks.
George Chappell: Okay, great. That's very helpful. And then, just shifting gears a bit, to food production volumes. Broadly speaking, where do you think food production volumes are today versus optimal levels? Could producers start cutting back on production volumes as the slowdown and demand persists? Well, I would say right now that production volumes are at very low levels. I mean, we have the weakest time of the year, which is the first quarter, with a very weak consumer.
Speaker Change: Thank you.
Speaker Change: <unk> keeps confused with your question for me.
Speaker Change: Okay. Thank you Uhm, Hey, George how are you can you walk us through the the trends in throughput in in four Q that you're so kind of you know on a monthly basis.
Speaker Change: And then you know kind of what you saw into January when I listen to the the food manufacturers sort of what's called the October November time period, you know they saw a bit of improvement.
George Chappell: So I would say production volumes are very low. We have said that in the second half of the year, we expect a pickup in consumer demand and a corresponding pickup in manufacturers' production. And that's the way we laid out our guidance. But what I will say is coming out of CAGNY this week, which is where a lot of major food producers have their first annual investor conference, there was a sentiment pretty much across the board that manufacturers thought the second quarter could be a little better than we see. That's relatively new news.
George: So I'm just trying to understand you know how you are sort of still down about 7% to 8%.
Speaker Change: Versus.
Speaker Change: Their numbers being much better.
Speaker Change: Yeah no. Good good question, Samir I would say the way it materialized and I and I I think I know, where you're going in terms of the L. A re conference that we attempted I I personally wasn't there, but obviously I understand the messaging so when we get into the fourth quarter October and the first part of that.
George Chappell: We think if that were to occur, that would help us a lot and would be incremental to what we're looking at today because, again, we're skewed more towards the second half of the year. So that's relatively new news just this week out of CAGNY, but I was very pleasantly surprised to read those comments coming out of CAGNY and see that there is some kind of consensus around maybe a better second quarter than we were planning on. So that's probably the bright spot in all this, but again, that's coming out of CAGNY this week. So it'll be interesting to see how things shape up in the coming weeks. Thank you.
Speaker Change: November looked really good I mean, it looked really good and even going into Thanksgiving. It looked a reasonably good and then what we saw in the network was going into December it was very clear to us that manufacturers were geared up to produce pretty much what they could sell in 2023 and once they cross that boundary, which would typically be.
Speaker Change: Somewhere in the in around the middle of December they shut it down really hard because there was no motivation.
Speaker Change: Ah I believe on on their part to produce anything that was just going to go into inventory. They would have much rather had the production volume this year than last year. So I think that the earlier in the quarter of all of October probably happen November was consistent with exactly what what you just said and what we saw and that would really surprised us with a P.
George Chappell: The next question comes from Samir Khanal from Evercore. Please proceed with your question, Samir. Yes, thank you. Hey George, how are you?
Speaker Change: Pretty hard shutdown the second half of December and that took the numbers are a little south I will say as we said in the script on a year over year basis comparison wise sequentially improved 140 bits. So there there was a improvement in the quarter. It wasn't sequential because of the last month, but on a year over year basis.
George Chappell: Can you walk us through the trends in throughput in 4Q that you saw kind of, you know, on a monthly basis? And then, you know, kind of what you saw into January, because when I listened to the food manufacturers in, sort of, let's call that October, November time period, they saw a bit of improvement. So I'm just trying to understand, you know, how you were sort of still down about seven to 8% versus their numbers being much better. Yeah, no, good, good question, Samir. I would say the way it materialized, and I think I know where you're going in terms of the L.A. re-conference that we attended. I personally wasn't there, but obviously, I understand the messaging. So when we get into the fourth quarter, October and the first part of November, it looked really good. I mean, it looked really good.
Speaker Change: 240, Q3, the improvement was there so not as much as we had hoped and not as much as we saw it in the first half of the quarter, but it it did materialize if you look at it year over year.
Speaker Change: Okay got it and and I guess my follow up for a second question here is I know, you're hitting records and occupancy here.
Speaker Change: <unk> why why wouldn't occupancy continue to go up here and you know given given you know you're pretty bullish about the overall business.
Speaker Change: Commits continue to go up.
Speaker Change: Different understand how you get to that decline of 100 basis points of documents.
George Chappell: And even going into Thanksgiving, it looked reasonably good. And then what we saw on the network was that, going into December, it was very clear to us that manufacturers were geared up to produce pretty much what they could sell in 2023. And once they crossed that boundary, which would typically be somewhere around the middle of December, they shut it down really hard because there was no motivation, I believe, on their part to produce anything that was just going to go into inventory. They would have much rather had the production volume this year than last year. So I think that the earlier in the quarter, all of October, probably half of November, was consistent with exactly what you just said and what we saw.
Speaker Change: I just think that look we had a a wreck you know we blew away the record right of our our economic occupancy really 400 basis points I you know, what we Wanna see a throughput pick up and and we Wanna see turns pick up when we want to see you know I you know all the above LDL bumps pick up I mean, that's what we're looking for occupant.
Speaker Change: See I think we're at levels, where we're not gonna see a huge growth and quite frankly, keeping within 50 points of Iraq 50 basis points for the record. We just said I I think it is quite an accomplishment so.
George Chappell: And what really surprised us was a pretty hard shutdown in the second half of December, and that took the numbers a little south. But I will say, as we said in the script, on a year-over-year basis, comparison-wise, sequentially improved 140 bits. So there was improvement in the quarter. It wasn't sequential because of the last month, but on a year-over-year basis, Q4 to Q3, the improvement was there. So not as much as we had hoped and not as much as we saw in the first half of the quarter, but it did materialize if you look at it year-over-year. Okay.
Speaker Change: I I the secret now is to get the throughput going I don't think there's any any motivation for manufacturers to build more inventory at this point. They it would appear to us they have plenty and certainly retailers are no longer saying more inventory is needed in the system, but we need I believe now is higher throughput and the Archie.
Speaker Change: And so you'll take care of itself that the fact that we're not the climbing I think is a testament to our assets in the market share was stolen.
Speaker Change: From competitors our goal is to keep it. This year is is really I think what we need to do an occupancy and then get the throughput going and and the severity of you remember a lot and we mentioned this a little bit in Georgia is prepared remarks, I mean, there was a counter cyclical bell. This time last year and so it's kind of coming out of the gate early.
George Chappell: And then I guess my follow-up or second question here is, I know you're hitting records for occupancy here, but why wouldn't occupancy continue to go up here? You know, given, given, you know, you're pretty bullish about the overall business, fixed commits continue to go up. I'm just trying to understand how you get to that decline of 100 basis points in occupancy. I just think that, look, we had a record, you know, we blew away the record, right, of our economic occupancy, really 400 basis points. You know, what we want to see is throughput pick up, and we want to see turns pick up, and we want to see, you know, all the inbounds, all the outbounds pick up. I mean, that's what we're looking for.
Speaker Change: The cough is it is a pretty challenging one first quarter of the year.
Speaker Change: Mmk and the next question comes from Michael <unk> Michael.
Michael: [noise] yeah. Thanks could you provide some more color on the slower ramp up that you're seeing in the non same-store NOI pool, I know that the pools changing versus the guidance would you provide in 2023 and that might be a lot of it but is it also like the delay in the stabilization of in Lancaster in Plainville is that like kind of the reason why you're seeing more of a <unk>.
George Chappell: Occupancy, I think we're at levels where we're not going to see huge growth. And quite frankly, keeping within 50 points of the record, 50 basis points of the record, as we just said, I think is quite an accomplishment. So the secret now is to get the throughput going. I don't think there's any motivation for manufacturers to build more inventory at this point. It would appear to us they have plenty, and certainly retailers are no longer saying more inventory is needed in the system. What we need, I believe, now is higher throughput, and the occupancy will take care of itself. The fact that we're not declining, I think, is a testament to our assets and the market share we've stolen from competitors.
Michael: If trends within those NOI results.
Speaker Change: Yeah, I'll hinted to Rob for a little more detailed like but I think you just stated what I wanted to clarify if not the not the same store pool. It. It's two properties in the non Same-store pool, which are very complex I think I mentioned 75 million cases, a year distributed when there.
Speaker Change: When they are fully wrapped up in the retail space, where it's palette in in 100 per cent of cases out et cetera, and so Rob I'll go into more detail, but I just wanted to clarify its two properties in the non same-store pull the rest of the non seem so a pool is performing very very well. That's that's exactly right I mean, so so our to our customer dedicated facilities and.
George Chappell: Our goal to keep it this year is really, I think, what we need to do in occupancy and then get the throughput going. And Samir, if you remember a lot, and we mentioned this a little bit in George's prepared remarks, I mean, there was a counter-cyclical build this time last year. And so just kind of coming out of the gate early, the comp is a pretty challenging one in the first quarter of the year. Thank you.
George Chappell: And Ah, Pennsylvania in Connecticut.
Speaker Change: The most highly automated facility that we we have in our network 100 per cent cashback selection. Those are facilities that are directly servicing retail stores. So service level is incredibly important and we just made a joint decision with our customer that it's it's appropriate to make sure that.
George Chappell: The next question comes from Michael Carroll from RBC Capital Markets. Please proceed with your questions, Michael. Thanks.
Speaker Change: We take the necessary time to ensure a smooth transition in in the highest possible service levels. So we just anticipate ramping those facilities throughout the course of this year, which is a bit slower than prior expectations.
Rob Chambers: Could you provide some more color on the slower ramp-up that you're seeing in the non-same-store NOI pool? I know that the pool's changing versus the guidance that you provided in 2023, and that might be a lot of it. But is it also like the delay in the stabilization of in Lancaster and Plainville?
Speaker Change: So why is it taking so long to ramp up those buildings.
Rob Chambers: I can't remember a few delayed the stabilization on a couple of those projects already is this something different of while you're adult delaying the stabilization again.
Rob Chambers: Is that kind of the reason why you're seeing more of a flattish trend within those NOI results? I'll hand it to Rob for a little more detail, Mike, but I think you just stated what I wanted to clarify. It's not the non-same-store pool. It's two properties in the non-same-store pool, which are very complex.
Rob Chambers: Nah.
Speaker Change: I would say it is something different I mean, the original reason why we had to delay. These projects that that was just simply because of the logistics of getting the components over into the country from from Europe. During Covid. So they were slower to come out of the ground because of Covid delays now what we're focused on is making.
Rob Chambers: I think I mentioned 75 million cases a year distributed when they're fully ramped up in the retail space, where it's palleted and 100% cases out, et cetera. So Rob will go into more detail, but I just want to clarify that it's two properties in the non-same-store pool. The rest of the non-same-store pool is performing very, very well. Yeah, that's exactly right. I mean, our two customer-dedicated facilities in Pennsylvania and Connecticut are the most highly automated facilities that we have in our network, 100% case pick selection. Those are facilities that are directly servicing retail stores, so service level is incredibly important. And we've just made a joint decision with our customer that it's appropriate to make sure that we take the necessary time to ensure a smooth transition and the highest possible service levels.
Rob Chambers: Sure that we're providing the right level of service as we we burn and the equipment, which is very very complex. So you know these are it's two totally different reasons for why the the projects are are are later to be delivered now than they they the original expectation, but as I said in the prepared remarks, we.
Rob Chambers: Still have extremely high degree of confidence in what we will deliver on our stable are expected stabilization where terms.
Speaker Change: Okay, and then just the last one real quick I know George and your prepared remarks, I think you said that the C. P. K C. N D. P World relationships, you see 500 to a billion.
Rob Chambers: So we just anticipate ramping up those facilities throughout the course of this year, which is a bit slower than prior expectations. So why is it taking so long to ramp up those buildings? I can't remember if you delayed the stabilization on a couple of those projects already. Is this something different from why you're delaying the stabilization again? I would say it is something different.
Speaker Change: Dollars of opportunities there on the development side, what is that number pertain to us that current projects, you're considering today or is that just the longer term target.
Rob Chambers: It's a combination of both Mike I mean, we have the two we announced the Dubai bills, which is a J V with our partner RSA and obviously the a C. P. K C. Kansas City build if you look at the pipeline. We're working on right now that would get you up close to let's say the three four or $500 million.
Rob Chambers: I mean, the original reason why we had to delay these projects a bit was simply because of the logistics of getting the components over into the country from Europe during COVID. So, they were slower to come out of the ground because of COVID delays. Now, what we're focused on is making sure that we're providing the right level of service as we burn in the equipment, which is very, very complex. So, these are two totally different reasons for why the projects are later to be delivered now than the original expectation. But, as I said in the prepared remarks, we still have an extremely high degree of confidence in what we will deliver on our expected stabilization return. Okay, and then just last one real quick.
Speaker Change: <unk> and we're scratching the surface on the pipe when we we we don't have the the pipeline fully built out for either partner. So when we say 500 to a billion with we're probably halfway there already just based on what we're researching and and underwriting and building the business cases war and the next trying to get two of them.
Rob Chambers: Billion are opportunities that we haven't even started to uncover yet so it's it's a really it's a really great relationship with both partners. They have some very good market intelligence on where we should hunton and so far it's been very accurate as you can see from two bills and <unk>.
George Chappell: I know, George, in your prepared remarks, I think you said that the CPKC and DP world relationships you see 500 to a billion dollars of opportunities there on the development side. What does that number pertain to? Are those current projects you're considering today? Or is that just a longer-term target? It's a combination of both, Mike.
Jay Wells: Typically short time with two strategic partners. So we're very excited about it we feel really good about the pipeline, we quoted and we're seeing really quality opportunities. So that's how we get to the 500 to a billion.
George Chappell: I mean, we have the two we announced, the Dubai build, which is a JV with our partner RSA, and obviously, the CPKC Kansas City build. If you look at the pipeline we're working on right now, that would get you close to, let's say, the $300 million, $400 million, $500 million range, and we're just scratching the surface on the pipeline. We don't have the pipeline fully built out for either partner, so when we say $500 million to a billion, we're probably halfway there already just based on what we're researching and underwriting and building the business cases for. And the next tranche to get to a billion are opportunities that we haven't even started to uncover yet. So it's a really great relationship with both partners.
George Chappell: Mmm Mmm Mmm next question comes from Bill <unk> to take a quick question Sir.
Speaker Change: Good evening George is the the weakness of the consumer surprising you at all.
George Chappell: [noise] I would say bill is surprisingly at all I'm old enough to have been through this maybe once or twice before and I would say no I've I've seen volume decline in the face of a significant macroeconomic issue before the consumers are sensitive to spending it takes a pretty big.
George Chappell: Swings and the economy for it to show itself is as wide as it has in this environment, but you know the look of interest rates and inflation alone I think we can all understand how disposable income is is that the levels. It is and people have to make choices and part of that is spending less at the grocery store and on on.
George Chappell: They have some very good market intelligence on where we should hunt, and so far, it's been very accurate, as you can see from two builds in a relatively short time with two strategic partners. So we're very excited about it. We feel really good about the pipeline we quoted, and we're seeing really quality opportunities. So that's how we get to the $500 million to a billion. Thank you.
George Chappell: Discretionary spending, which which aren't happening so that's consistent with what all our manufacturing partners of thing consistent with what our our retail partners a thing with <unk> with calls out the second half of the year as I've said before it's not typical for the first half of the year for the food business to see a big.
George Chappell: Your next question comes from Bill Crow from Raymond James. Please continue with your questions, Bill. Good evening.
George Chappell: George, is the weakness of the consumer surprising you at all? I would say, Bill, it's surprising, you know, I'm old enough to have been through this maybe once or twice before, and I would say, no, I've seen volume decline in the face of a significant macroeconomic issue before. Consumers are sensitive to spending, so it takes pretty big swings in the economy for it to show itself as wide as it has in this environment. But, you know, if you look at interest rates and inflation alone, I think we can all understand how disposable income is at the levels it is, and people have to make choices. And part of that is spending less at the grocery store and on discretionary spending, which aren't happening.
George Chappell: Influx of demand there are very few holidays to senator that around and and that's why the second half of the year is typically a better time of the year to see a recovery, but again I'll mentioned that cagney. This year was hell. That's the biggest food investor confidence of of the season and several large manufacturers were more bullish on the second quarter.
George Chappell: And then the second half so there's a little bit of hope there and.
George Chappell: That we see in the early recovery than we've built into our guidance, but that's very new news and it remains to Kathleen how it plays out.
Speaker Change: And and you can give me a shortly answered this but I want to repay framed that question just a little bit.
George Chappell: So that's consistent with what all our manufacturing partners are seeing, consistent with what our retail partners are seeing. And we've called out the second half of the year. As I've said before, it's not typical for the first half of the year for the food business to see a big influx of demand. There are very few Hall of Fames to center that around, and that's why the second half of the year is typically a better time of the year to see a recovery. But again, I'll mention that Cagney this year was held.
George Chappell: Does the consumer's reaction to disk County.
George Chappell: At the retail level is that different than what you've seen before because it didn't seem to stimulate demand like attached before.
George Chappell: No it wasn't different than I've seen before I think it did stimulate demand quite frankly, if you look at year over year, we went down 900 bps in the third quarter year over year down 760 bps in the fourth quarter saw an improvement of 140, Bips I think without the promotional spending that that every large Ah man.
George Chappell: It's the biggest food investor conference of the season, and several large manufacturers were more bullish on the second quarter than the second half. So there's a little bit of hope there that we see an earlier recovery than we've built into our guidance, but that's very new news, and it remains to be seen how it plays out. And you can give me a shorter answer to that, but I want to reframe that question just a little bit.
George Chappell: Factor of calls out by the way and their and their releases because it it was not an insignificant amount of spending.
George Chappell: No I think I think it it did what it was supposed to do and I think it would have been worse than I've. Just described had they not done it.
George Chappell: Does the consumer's reaction to discounting at the retail level, is that different than what you've seen before? Because it didn't seem to stimulate demand like it did before. No, it wasn't different than I've seen before.
Speaker Change: Thank you. The next question comes from <unk>.
George Chappell: I think it did stimulate demand, quite frankly, if you look at year over year, we were down 900 bps in the third quarter, year over year, down 760 bps in the fourth quarter, so an improvement of 140 bps. I think without the promotional spending that every large manufacturer called out, by the way, in their releases, because it was not an insignificant amount of spending. No, I think it did what it was supposed to do, and I think it would have been worse than I just described had they not done it.
George Chappell:
George Chappell: George maybe just pulling up with all this discussion and commentary from some of your producer customers.
George Chappell: I mean.
George Chappell: It doesn't feel like much has changed for the consumer feels.
George Chappell: Feels like there's ebbs and flows when your your customers ramped production events throttled back I mean, how do you feel confident that the back half of the year give me sort of Elizabeth visibility goodness. This this ramp up the consumer outlook improved significantly.
George Chappell: Thank you. The next question comes from Craig Mailman from Citi. Please proceed with your questions, Craig. Hey guys,
George Chappell: Jordan, let me just follow up on all this discussion and throughput and commentary from some of your producer customers. I mean, it doesn't feel like much has changed for the consumer. You know, it feels like there's ebbs and flows and when your customers ramp production and then throttle it back. I mean, how do you feel confident that the back half of the year, with sort of limited visibility, is gonna see this ramp unless the consumer outlook doesn't improve significantly? I'm basing it on a couple of things, Craig.
Craig Mailman: I'm basing it on a couple of things Craig one is the sentiment of our largest customers both retail and manufacturing.
George Chappell: And two is the economic environment, hopefully improving in the second half with interest rate reductions plans at least that at one time, a little more bullish I get that but Ah still plan to the second half of the year that would free up disposable income for consumers generally that feels consumer confidence and that.
George Chappell: One is the sentiment of our larger customers, both retail and manufacturing. And two is the economic environment, hopefully, improving in the second half with interest rate reductions planned, at least at one time a little more bullish, I get that, but still planned for the second half of the year, that would free up disposable income for consumers. Generally, that builds consumer confidence, and that generally builds throughput increases in our customers. So it's based on the economic news of interest rate declines, which again may be a little less bullish than it once was, but still, people are saying in the second half of the year it'll come. And it also comes from coming into the part of the year when you should see natural growth with the summer grilling season and then the holiday season.
George Chappell: Generally builds throughput increases and in our customers. So it's based on the economic news of interest rate declines, which again may be a little less bullish than it once was but still people are saying in the second half of the year it'll come and it also comes from coming in to the part of the year when.
George Chappell: You should see natural growth with some grilling season, and then the holiday season. So it's it's based on a number of factors in our in our largest partners and and the economic news, we still we still believe will happen.
Speaker Change: Okay, and then for the guidance perspective.
George Chappell: So it's based on a number of factors in our largest partners and the economic news we still believe will happen. Okay, then, from a guidance perspective, it sounds like the GNA increases are predominantly IT spending related to some kind of cyber initiatives. Is that kind of sticky GNA that you guys are going to be spending year in and year out now, and you're not going to back out related to the incident? Yeah, I'll hand this one to Jay. Go ahead, Jay. Yeah, Craig, nice to meet you.
George Chappell: It sounds like the DNA, increasing it's predominantly I T spending related to kind of cyber initiatives is that kind of sticky DNA that you guys are gonna be seven year, and the year out now and and you're not going to back out related to the incident.
Jay Wells: Yeah, I'll I'll handle this one to J go ahead, yeah, Yeah, Craig nice to nice to meet Ya. It really is it's for additional sub security looking will continue to be an expense. So on that side sticky and related to project Orion. We're moving from basically a server based type I T approach to.
Jay Wells: It really is, it's for additional cybersecurity, which will continue to be an expense. So on that side, it's sticky. And related to Project Orion, we're moving from basically a server-based IT approach to, you know, the cloud. And under the general accounting rules, you can capitalize it if you put it on a server and can touch it, but you don't capitalize it if you put it in the cloud. So it basically is going to be continued expenses because we're in a SaaS environment going forward. Thank you.
Jay Wells: You know the cloud and under the General accounting rules you can capitalize it if he put it on a server and can touch it but you don't capitalize that if you put in the cloud. So basically has been it'd be continued expenses are because we're in a <unk> environment going forward.
Speaker Change: Thank you and the next question comes <unk>. Please could you repeat your question.
Speaker Change: Thanks, <unk> hi, everyone.
Jay Wells: So your economic I can see that the little bit year over year put your physical out since it was down over 400 basis points.
George Chappell: The next question comes from Kim Ding Kim from Tourist Security. Please proceed with your question. Thanks. Hi everyone.
Speaker Change: So a couple of questions one doesn't that physical declines eventually.
Rob Chambers: So your economic occupancy dipped a little bit year over year, but your physical occupancy was down over 400 basis points. So a couple of questions. One, doesn't physical occupancy decline eventually have a way on economic occupancy? Obviously, if customers have just less inventory to store, I would imagine it would weigh on it.
Rob Chambers: Hello.
Rob Chambers: No way on economic apathy, obviously if customers.
Rob Chambers: Have less inventory to store I would imagine it would weigh on it.
Rob Chambers:
Speaker Change: Yeah. So it means that within one person.
George Chappell: Yeah, so let me stay with that one for a second. Yeah, I would tell you, Ki Kim, that in the first quarter, particularly but the first half of the year, you should always see a gap between economic occupancy and physical occupancy because, almost by definition, when you go to a fixed-commit contract with us, you're reserving space for the second half of the year. I mean, with most of our customers, that's true. There may be some that aren't as seasonal as others, but for most of our customers, they would be paying for space in the first quarter and then sometimes the first half of the year that they intend to use in the second half of the year.
Speaker Change: Yeah, I I I would tell you if even that in the first quarter, particularly but the first half of the year you should always see a gap between economic occupancy in physical occupancy because almost by definition. When you go to a fixed contract with us you're reserving space for the second half of the year I mean with with most.
George Chappell: List of our customers that's true there may be some that aren't a seasonal as others, but for most of our customers. They would they would be paying for space in the first quarter and then sometimes the first half of the year that they intend to use in the second half of the year. So I'll turn it over to Rob for a little more detailed but it's not unusual and you should not expect really.
Rob Chambers: So I'll turn it over to Rob for a little more detail, but it's not unusual, and you should not really expect economic occupancy and physical to be very close in the first quarter. Yeah, and I would just add that as we look out over the course of the year, the conversations we're already having with our customers about either renewals of existing fixed commitments or the transition from a transactional environment into a fixed commitment scenario, we're very confident that that percentage is going to continue to increase the amount of contracts under fixed commitments. So even if we see a little bit of a dip in physical occupancy, I think we'll overcome that through the continued progress that we'll make in moving customers onto our fixed structure. And how much is the European slowdown or the farmer protests seem to be growing? How much is that impacting your business? Not at all.
Rob Chambers: Economic occupancy in physical to be very close in the first quarter, Yeah, and and I would I would just add that you know as as we look out.
Rob Chambers: Over the course of the year, the conversations were already having with our customers about either renewables of existing fixed commitments are there the the transition from from transactional environment into a fixed commitments scenario. We're very confident that that percentage is gonna continue to increase our fixed or the amount of car.
Rob Chambers: Attracts under fixed commitment so even if we see a little bit of dip in the physical occupancy I think will will overcome that through our continued progress of Omega moving customers onto our our fixed structure.
Rob Chambers: And how much is a European a slowdown or a farmer protest just seemed to be growing and how much is that impacting your business.
Speaker Change: Mmm not at all I mean, right now I think is is J mentioned, we're very happy with the European business, we actually grew and a lie and our European business last year, 30%. We plan on growing another 20 per cent this year and to make a further point on the business. So we ended the year this year on an NOI basis.
George Chappell: I mean, right now, I think, as Jay mentioned, we're very happy with the European business. We actually grew NOI in our European business last year by 30%. We plan on growing another 20% this year. And to make a further point about the business, we ended the year this year on an NOI basis, I think it was close to $10 million higher than when we bought the company.
George Chappell: I think it was close to 10 million higher than when we bought the company I mean, so we've grown the business pretty significantly since we bought it I mean, the impairment is a calculation that J explain but we're very happy with the business with growing and a y year over year, which you'll see in the results are pretty significantly it's generating more profit.
George Chappell: So we've grown the business pretty significantly since we bought it. I mean, the impairment is a calculation that Jay explained, but we're very happy with the business. We're growing NOI year over year, which you'll see in the results. It's generating more profit, significantly more profit than when we bought it. And we're on a very nice glide path in Europe, very bullish on it. And if I can just squeeze the third one in, and go back to the DNA topic, you know, your DNA in 2018 was 115 million. And your guidance in 2024, looking at 255 million. I'm just curious, like, There doesn't seem to be a ton of scalability or economies of scale with your GNA.
George Chappell: Significantly more profit than when we bought it and we're in a very nice glidepath in Europe very bullish on it.
George Chappell: And if I can squeeze the third one is going back to the G N a topic.
George Chappell: <unk> 2018 was 115 million and you for your guidance and twinkling forward looking at 255 million I'm just curious like.
George Chappell: There doesn't seem to be kind of like scale ability or no economies of scale with a G. Any any kind of brought observations I know, they're cyber security and your transition.
Jay Wells: Any kind of broad observations, I know there's cybersecurity and your transition to the cloud, but it just seems to be running hotter than I would say most people expected. I can't take you all the way back to the beginning, but I can tell you that the two pieces we called out this year, I think we were very transparent on for a number of quarters. We talked about cybersecurity investment back in the second quarter of last year, and we talked about that going into SG&A, and we talked about our software being cloud-based, which from an accounting standpoint means that the expense of that goes into SG&A and out of CapEx or OffEx.
Jay Wells: Transition to the cloud, but it just seems to be running.
Jay Wells: Hotter than I would say most people expected.
Jay Wells: I can't I can't take all the way back to the beginning but I can tell you that the two pieces we call. Though this year I think we're very transparent on for a number of quarters. I mean, we talked about cyber security investment back in the second quarter of last year, and we talked about that going into SG&A and we've talked about.
Jay Wells: About our software being cloud base, which from an accounting standpoint means that the expensive that goes into SG&A and out of capex or opex. So.
Jay Wells: I I, just you know I I don't have the data in front of me to go out of the way back as far as we'd like but I can tell you. The recent increases are exactly around the two things we have highlighted for a couple of quarters now.
George Chappell: So I don't have the data in front of me to go all the way back as far as we'd like, but I can tell you that recent increases are exactly around the two things we've highlighted for a couple quarters. Thank you. The next question comes from Joshua Dennerlein from Bank of America. Please proceed with your questions.
Joshua Dennerlein: Thank you. The next question comes from just Gonna need to think of the name can I. Please proceed with your questions.
Joshua Dennerlein: Yeah, Hey, guys just a follow up on the throughput comments that you're flagging like a slowdown in mid December call. It just Ah 2024 guidance assume like Ah Ah pick up starting Q1from that minus 7.4 or or I guess kind of what's the trajectory that your model or.
George Chappell: Yeah, hey, guys, I'm just a follow up on the throughput comments that you're flagging with a slowdown in mid December, call it just the 2024 guidance assume like a pickup starting in one cue from that minus 7.4 or I guess kind of what's the trajectory that your model is factoring into guidance? I would say that certainly not 1Q, we don't expect, and we're not modeling an improvement. 2Q, we're modeling the slightest of improvements, mostly because we do see that Memorial Day and then going for the summer should provide a natural lift. Now, that could be better for the reason I mentioned earlier about Cagney and a lot of the manufacturers there, large manufacturers, being more bullish on the second quarter throughput than I just described, but that's where our guide is, and then the second half of the year is where all the growth is, so that's, which gets us to our mid of down 200 bps.
George Chappell: [noise] into guidance.
George Chappell: I would say that I'm certainly not one cube, we don't expect where we're not modeling an improvement to queue. We're we're modeling the slightest of improvements mostly because we we do see that memorial day, and then and then going for the summer should provide a natural list now that could be better for the <unk>.
George Chappell: Reason I mentioned earlier Cagney and a lot of the manufacturers there large manufacturers being more bullish on the second quarter throughput than I, just described but that's where our guide is and then the second half of the year.
George Chappell: Is where all the grosses, so that's that which gets us to our mid of down 200 bits. So again, it's a it's a it's really a second half recovery in our guide and if the Cagney recent news is real that would be incremental to the guy because we do not have a lot of improvement in the.
George Chappell: So again, it's really a second half recovery in our guide, and if the recent news about Cagney is real, that would be incremental to the guide because we do not have a lot of improvement in the second quarter, very little. Okay, okay. No, that's helpful.,,, And then I just want to move back to a question that was on the occupancy guide. You know, it sounds like the assumption is like flat to down. I think in the past, you've kind of made me messaged me. Bill Dockman seeded, and that was kind of driven by your kind of view of driving a higher profit per box. Just kind of trying to reconcile the two comments here. Is this this kind of like, optimal occupancy for your boxes, or not?
George Chappell: Second core very little.
George Chappell: Okay. Okay no that's helpful.
George Chappell:
George Chappell: And then I just wanted to.
George Chappell: And back to a question that was on the occupancy God you know it sounds like.
George Chappell: Because sumption has like flat to down I think in the past you've kind of made me a message that you could build occupancy it and that was kinda driven by like you're kind of view of driving a higher profit per box just kinda trying to reconcile the two comments here because this is just kind of like the <unk>.
George Chappell: More occupancy for for your boxes or [laughter].
George Chappell: No, no, we've said we can get to the low 90s, and we can. It's simply that... setting the record we have, which is, again, I've mentioned it a couple times, which is really stealing share. I mean, the frozen food industry did not grow 400 pips in the second half of last year. So when you consider it that way, it had nothing to do with our ability to get to the low 90s
Speaker Change: No no. We we we've said we can get to the low nineties and we can it's it's it's simply that.
George Chappell: Setting the record we have which is again I've mentioned it in a couple of times, which is really stealing sure I mean, the frozen food industry did not grow 400 bps in the second half of last year. So when you when you consider it that way it has nothing to do with our ability to get to the low nineties. We know we can do that.
George Chappell: We know we can do that. We just don't know how much further we can go in this environment, setting the record we set and doing it the way we did. You know, we're going to attempt to keep growing it, there's no question. But I think after the 400-pip improvement, at any time in our history, we're just wondering how far we can go in the short term. That's all.
George Chappell: We just don't know how much further we can go in this environment setting the record we set and doing it the way. We did you know we're gonna attempt to keep growing it. There's no question, but I think after the 400 bip improvement and and you know at any time in our history. We're just wondering how far we can go in the short term that's all.
Speaker Change: Thank you very much.
Operator: Thank you very much. Ladies and gentlemen, we have reached the end of the question and answer session. This does conclude today's conference, and you may now disconnect your lines. Thank you very much for your participation.
George Chappell: <unk> you have reached the end of the question and answer session.
Operator: <unk>. Thank you very much for your participation.
Operator: [music].