Q3 2024 Lineage Inc Earnings Call
Pam: Thank you for standing by my name is Pam and I will be your conference operator today. At this time, I would like to welcome everyone to the lineage 3rd quarter 2024 earnings conference call.
Online have been placed on mute to prevent any background noise. After the speakers remark, there will be a question and answer session.
If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.
If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Evan Burbosa, Vice President of Investor Relations. You may begin.
Evan Burbosa: Thank you. Welcome to Lineage's Discussion of the 3rd Quarter 2024 Financial Results. You want to meet today, our Greg Lamp Cool, Lineage's President and Chief Executive Officer, and Rob Kreci, Lineage's Chief Financial Officer.
Pam: Our learning presentation, which includes supplemental financial information.
can be found on our investor relations website at IR.1lingage.com.
Pam: Following Management's Prepare remarks, we'll be happy to take your questions.
Pam: Turning to slide two, before we start, I would like to remind everyone that our comments today will include four looking statements under federal securities laws.
Pam: These statements are subject to numerous risks and uncertainties as described in our findings with the SEC.
Pam: These risks could cause our actual results to differ materially from those expressed in or implied by our comments.
Pam: Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold.
Pam: In addition, reference will be made to certain non-GAAP financial measures. Information regarding our use of these measures and a reconciliation of non-GAAP to GAAP measures can be found in the press release that was issued this morning.
Pam: Unless otherwise noted, reported figures are rounded and comparisons of the third quarter of 2024 are to the third quarter of 2023.
Evan Burbosa: Now, I would like to turn the call over to our President and CEO, Greg Lempkow.
Greg Lempkow: Thanks, Evan. Good morning and thanks everyone for joining us today.
Greg Lempkow: Turning to slide three.
Pam: If this is our 1st earnings call, I'll kick off the call with a quick lineage overview. I'll then cover our 3rd quarter highlights and share some updates around capital deployment before turning over to Rob, who will provide insights into our business segment results and an update on our capital structure. He will also share our outlook for the remainder of the year.
Pam: Moving to slide 4, for those of you getting to know us for the 1st time, Lineage is the world's largest tech-enabled, temperature-controlled warehouse fleet, growing from a single warehouse to over 480 with more than 3 billion cubic feet of warehouse capacity and LTM adjusted EBITDA of 1.3 billion dollars.
Pam: We're the global leader in our space with high-quality assets in locations most critical to our diversified customer base. Lineage is also differentiated by our industry-leading positions in technology, data science, and automation, as well as our ability to grow rapidly over the last 16 years, completing over 115 acquisitions.
Pam: The cold storage industry is fragmented, and we are well positioned to continue to grow organically and through strategic capital deployment.
Pam: Next on slide 5, like the great compounders of our era, we generate strong, durable cash flows, driving future growth and attractive long-term returns.
Pam: For Lineage, the engine of our flywheel is our NOI and our same warehouse growth, which creates additional investment capacity. These strong cash flows paired with a tax efficient read structure help to create an efficient cost of capital, which we can deploy in accretive development projects and strategic M&A.
Pam: supporting future NOI growth. Our IPO in July only accelerated this flywheel by reducing our leverage and lowering our cost of capital, positioning us even better for long-term compounding.
Pam: Moving to our 3rd quarter highlights on slide 6, I think it's fair to say that successfully executing the largest IPO of the year and the largest re IPO of all time certainly tops our highlight list.
Pam: This was an important milestone for our company, and I want to sincerely thank the lineage team, our board of directors, and our bankers and advisors who worked so hard for so long to make the IPO a tremendous success.
Pam: I'd also like to thank our existing and new investors who recognized what a well-positioned, specially unicorn that Lineage is, as well as our embedded long-term growth potential.
Pam: Our IPO proceeds were used to pay down debt, bringing our leverage under five times, earning us investment-grade ratings at both Fitch and Moody's.
Pam: The IPO also positions us for future capital deployment, as we'll speak about more in a moment. Financially, in Q3, we delivered strong 20% AFFO per share growth, aided by our successful IPO and strong operational execution by the team.
Pam: Notably, we continue to successfully navigate market headwinds driven by customer inventory rationalization, high interest rates, and pressures from inflation limiting consumer demand as food prices remain elevated.
Pam: We have seen limited seasonal lift as occupancy levels remain steady, but below last year. In select markets, we are seeing some competitive pressures as speculative development and new supply has come online.
Pam: Despite these industry headwinds, we are well positioned to win given our number 1 market position, technology investments, long term relationships with over 13,000 customers.
Pam: leadership and automation, network effects, our global farm-to-fork service offerings, and our strong balance sheet. To that end, we believe we remain the acquirer of choice in the industry, ideally poised to take advantage of market opportunities.
Pam: As demonstrated in the quarter, we controlled the controllables and were able to deliver strong financial performance, further demonstrating our ability to perform well in various economic environments.
Pam: In the third quarter, we also achieved outstanding safety performance, which is our number one priority and first corporate value. We saw all-time best turn times, the metric that matters most to our customers. I can't say enough about how Jeff Rivera, our COO, and our entire global operations team are performing for customers.
Pam: We saw all time high customer service scores as reflected in our daily customer pulse surveys. We also saw strong productivity and warehouse margin expansion despite lower volumes.
Pam: Additionally, we continue to win new business, helping to offset the industry hazards. Thank you and great job to our global sales and commercial finance teams.
Pam: We awarded equity or cash IPO bonuses to our team members around the globe, making the majority of our team members owners of the company.
Pam: We were proud to be awarded our 100th patent, underscoring our commitment to remaining the industry's innovation leader as we are a tech and data science driven company.
Pam: We also declared our first quarterly dividend, representing an annualized rate of $2.11 a share.
Pam: Lastly, we continue to fuel our long-term growth flywheel by deploying over $350 million in growth capital, including our acquisition of Coldpoint Logistics closed November 1st. We remain well positioned to continue to execute on our attractive pipeline opportunities moving forward.
Pam: On slide seven, we continue to execute on our significant pipeline of greenfields and expansion projects.
Pam: In September, we successfully opened what we consider to be the most state-of-the-art and innovative cold store in the world in Hazleton, Pennsylvania. The facility has fully automated full pallet, layer pick, and case pick capabilities and is driven by our patented LinOS technology and algorithms.
Pam: I would like to thank our network optimization, project management, operations, engineering, technology, and our data science team for delivering another complex project on time and on budget.
Pam: On the M&A front, we fired up our acquisition engine after pausing for the IPO. Our first post-IPO acquisition was Loop Knotty for $66 million, which fits perfectly into our strategy of mission-critical, hard-to-replace assets strategically positioned in port locations.
Pam: The business is in the port of Antwerp, which is the second largest port in Europe and supports our sustainability efforts by producing 80% of the energy it consumes with on-site renewables.
Pam: Moving to slide 8, we're excited to announce the largest deal since our IPO, Coldpoint Logistics, which we closed on November 1st for $223 million.
Pam: The acquisition expands Lineage's existing presence in the strategic Kansas City area and enhances our ability to provide an efficient solution for customers along the protein corridor with direct access to major U. S. ports via on-site rail.
Pam: Coldpoint is expected to earn $16 million of EBITDA in 2024 and is well aligned with our investment criteria, with an excellent management team, attractive locations, high quality, young and owned assets, and of course it's financially accretive.
Pam: On behalf of our over 26,000 team members around the world, I'd like to formally welcome the Luke Naughty and the Coldpoint teams into the Lineage family.
Pam: Now, I'll turn the call over to our CFO, Rob Cresci, before answering your questions.
Rob Cresci: Thanks, Greg. Good morning, everyone. And thanks for your interest in lineage.
Rob Cresci: Starting on slide 9 and looking at our financial results for Q3, our total revenue for the quarter was $1.3 billion, up 0.5% versus prior year.
Pam: To 24.9% as our team continues to execute well with strong and labor productivity driving margin growth and a flattish top line environment.
Pam: Our adjusted funds from operations for AFFO for the quarter was up 52% to $208 million.
Pam: aided by the substantial interest savings generated by our debt reduction post-IPO. Importantly, AFFO per share was 90 cents, a 20% increase versus prior year. Overall, as Greg mentioned, a very strong operational quarter.
Pam: Next slide.
Pam: Look at our global warehousing segment, which represented 87% of our total NOI in the quarter. Total segment revenue grew 1.3%, and total segment NOI increased by 4.4% to $383 million, delivering warehouse NOI margin of 39.4% and 120 basis point increase.
Pam: Sane Warehouse NOI grew 2.4% on top of last year's 11% Q3 growth, so nice to see a quarter of Sane Warehouse growth against another challenging comp.
Pam: Looking at a few of the KPIs, our same warehouse economic occupancy was 84.1%, which is down 190 basis points versus last year, but flapped sequentially to what we saw in Q2.
Pam: Physical occupancy was 77.6%, which ticked up slightly sequentially. Our same warehouse throughput talents decreased by 1.7% versus last year, but were flat sequentially.
Pam: So, to summarize, overall demand is stable, but down versus prior year as our industry continues to rebalance after the supply chain disruptions over the past few years.
Pam: We have seen less than typical seasonal occupancy increases, which is a trend we expect to continue through the fourth quarter.
Pam: On the operational front, we continue to drive labor efficiencies and our energy operating expenses remain well managed, reflecting our commitment to cost management and sustainability.
Pam: As a reminder, labor and power are our two largest operating costs. We continue to control the controllables well and are positioning the business for strong operating leverage when volumes increase.
Pam: We are grateful for our outstanding operating and sales leaders who are dedicated to serving our customers and our team members as we continue to transform the global food supply chain.
Pam: Next slide.
Pam: Shifting to slide eleven.
Pam: In our global integrated solution segment, which represented 13% of our total NOI in the quarter, we saw a slight decrease in total segment revenue, which came in at $363 million, down 1.6% year over year. Additionally, our total segment NOI was down 11% to $56 million, and segment margin decreased 170 basis points to 15.4%.
Pam: As a reminder, our Global Integrated Solutions Segment offers value-added solutions for our customers, which helps to benefit our warehousing business.
Pam: The declines in the GIS segment are primarily driven by the challenging demand environment for transportation due to lower volumes and excess capacity. Notably, transportation costs are significantly higher than warehousing costs for the majority of our customers.
Pam: Our farm-to-fork solutions drive efficiencies across their supply chains, deepening our relationships and aiding customer stickiness.
Speaker Change: During the slide 12 on capital structure, we use the net proceeds from the IPO to repay the entire $2.4 billion balance on our delayed draw term loan.
Speaker Change: retire our ICE-V CMBS loan, and pay off $1.2 billion of Revolver. This strategic use of IPO proceeds has significantly improved our leverage profile, with our leverage ratio defined as net debt to adjusted EBITDA at 4.9 times at the end of the quarter.
Speaker Change: Our total equity at the end of the quarter stood at $2.1 billion, including cash and capacity on a revolving credit facility.
Speaker Change: Subsequent to the end of the quarter, as Greg mentioned, we completed the cold point acquisition using a combination of cash on hand and a draw on our revolver. Our strong balance sheet and newly attained investment grade credit ratings positions us well to continue to execute on our large pipeline of capital deployment opportunities.
Speaker Change: Next slide turn to our outlook for 2024. We expect full year for share of 3 dollars and 16 cents to 3 dollars and 20 cents.
Speaker Change: This implies Q4 AFFO per share of $0.70 to $0.74 and total Q4 AFFO of $180 to $190 million.
Speaker Change: A little more color on the Q4 guide. We see low single-digit same-store NOI growth against last year's 9% comp. This is based on our expectation of similar market conditions to Q3 with less than typical seasonal inventory increases.
Speaker Change: Notably, we experienced a rooftop solar panel fire on third-party equipment at our large Los Angeles Big Bear facility, which most importantly was extinguished without any injuries.
Speaker Change: However, the damage from the fire unfortunately has closed about half of the facility, creating an approximate $6 million headwind to Q4.
Speaker Change: Lastly, we have added some additional modeling support in the appendix.
Speaker Change: For Q4, we have an estimated average share cap of $257 million, which represents a full quarter of post-IPO shares. On interest expense, we are estimating $60 million for the quarter, again, representing the impact of a full quarter post-IPO.
Speaker Change: So, with that, I will turn it back over to Greg to wrap up our prepared remarks.
Greg Lempkow: Thanks Rob. I'll conclude on slide 14. We delivered strong financial results in our first quarter as a public company with 5% adjusted EBITDA growth and 20% AFF help or share growth. We have significantly reduced our leverage to obtain investment grade ratings and restarted our capital deployment engine.
Speaker Change: Moving forward, we expect to continue to benefit from our leadership position in the global food supply chain with strong long-term demand trends.
Speaker Change: We are executing well and controlling the controls like productivity, energy management and admin expense.
Speaker Change: We have the largest platform, driving significant network effects. The best assets are the industry leaders in technology, automation, and data science, are the most diversified geographically, and across our more than 13,000 customers.
Speaker Change: We provide the most comprehensive set of services with our global integrated solution segment. We are leaders in lean operational excellence and believe we remain the acquirer of choice in the industry.
Speaker Change: We have the balance sheet and attractive cost of capital to take advantage of market opportunities through strategic M&A and capital deployment.
Speaker Change: In summary, we believe we're well positioned to succeed in any economic environment and our leadership team is hyper-focused on compounding growth to drive long-term shareholder value.
Speaker Change: Lastly, I want to thank our over 26,000 team members around the world for the great work they do to safely serve our customers every day. And with that, we'll now turn the call over to the operator for your questions.
Speaker Change: Thank you. We'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: We ask that you keep to one question to allow as many participants to ask a question.
Speaker Change: And your first question comes from Ronald Camden from Morgan Stanley. Please go ahead.
Ronald Camden: Great. Congrats on a strong operational and cash flow quarter. I guess my question is, you characterize demand as, you know, occupancy being stable.
Speaker Change: but still under pressure from customer inventory rationalization.
Speaker Change: as the market sort of is thinking about next year and you take a step back on the lineage platform, you talk about your ability to have pricing power in an environment where again, demand is maybe stable and customers are still rationalizing inventory. Thanks.
Speaker Change: Yeah, good morning. Thanks for your question. So I think, you know, it's no secret that overall volume soft this year, both on the retail side and even a little bit more recently on the service side.
Speaker Change: And as we speak to customers, I think they're very much in.
Speaker Change: kind of wait and see mode. They know food prices while rising slower than previous years.
Speaker Change: are still high in the consumer ceiling. So while our customers are still seeing soft demand in Q4, they are certainly anticipating a rebound, but are uncertain on when that rebound will occur. So at Lineage, we're focusing on controlling the controllables, pulling the levers we have.
Speaker Change: Managing our costs, our labor, productivity, firing up our M&A engine, and I think in the third quarter we performed well and are still growing despite the soft market and believe we're extremely well-positioned.
Speaker Change: to see operating leverage when volumes do recover, especially given our recent productivity gains and technology investments.
Speaker Change: On the pricing question, as a reminder, our customers' warehousing costs usually constitute only most single digits percent of their revenue. So while our price is important, it's not nearly as important.
Speaker Change: It's having the peace of mind that they can safely store their products and we can get that to their customers safely. So, you know, we're constantly working with our customers to reach mutually beneficial pricing, storage guarantees, contractual structures, and all that said, you know, we think even in this environment, we can get inflationary level increases.
Speaker Change: from customers given that they know that we have, you know, they know our costs are going up, you know, we're going to pay our people more next year and, you know, the alternative to us doing that is someone else with a, you know, slowly rising cost cross-structure like the customers themselves or other third parties.
Speaker Change: Really helpful. Thank you.
Speaker Change: Your next question comes from Kaitlyn Burrows from Goldman Sachs. Please go ahead.
Kaitlyn Burrows: Hi, good morning everyone. Congrats on your first quarter as a public company.
Kaitlyn Burrows: I guess, maybe as we think about automation, how would you compare the margin of a fully automated facility like the one in Hazleton versus maybe one that's been converted versus a traditional location realizing that wide ranges could be possible, but just trying to get some sort of sense of how impactful automation can be?
Speaker Change: Yeah, thanks Caitlin and good morning.
Speaker Change: So, we look at each development project uniquely based on what the customer needs are.
Speaker Change: And so whether they're conventional or automated, and there's a lot of different levels of automation that we're.
Speaker Change: considering. We have network optimization teams and automation teams on all three continents that collaborate and optimize the builds and expansions that we do.
Speaker Change: Thank you.
Speaker Change: And so as far as the underwrite and the margins, we're not focused on margin, we're focused on return on capital. We have a very disciplined investment committee process where we're looking at each one of these. And I think we've published that our yields on these projects are between nine and 11%, and that's regardless of whether they're automated or conventional.
Speaker Change: Galen, you broke up there.
Speaker Change: Oh, sorry, I wasn't necessarily wondering on the development side, but that's all helpful. I was more wondering on, like, a best in class Hazleton type location versus a traditional type property you have and trying to figure out more from, like, how much labor cost savings there could be from automation and maybe margins, not the right.
Speaker Change: API, but is there some way that you could compare the productivity or margin or whatever it might be of a fully automated best-in-class location like that versus a more traditional location?
Speaker Change: Sure, so I'll just, I'll kind of restate that the, you know, automation has a lot of different flavors. Certainly in Hazleton, we're looking for substantial labor savings, more than 50%, given how much of that building is automated, but they vary a lot, even across
Speaker Change: automated buildings in Hazleton like our other development projects, we expect to hit our underwrite and hit our projected returns.
Speaker Change: Got it. Thanks.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Alexander Goldfarb with Piper Sander. Please go ahead.
Alexander Goldfarb: Hey, good morning, and yeah, congrats on.
Speaker Change: on the successful IPO.
Alexander Goldfarb: Just, you know, looking at the acquisition market, clearly, you know, you guys have been strong in that, especially synthesizing.
Speaker Change: you know, individual assets to your platform.
Speaker Change: How is that pipeline looking? And was there any slowdown during the IPO process? Presumably, it would be understandable if deal volume slowed due diligence, just given all the focus on the IPO. So just trying to get a sense of how we should think about.
Speaker Change: acquisition volumes, and if there was any sort of IPO pause that we should plan for.
Speaker Change: Good morning, Alex. Thanks. Yeah, absolutely. We was we intentionally slowed a full year before and through the IPO. So we could focus on executing that successfully. But, but, I mean, listen, we, we believe we're clearly the acquirer of choice in our industry because.
Alexander Goldfarb: because we're a people and culture centric company that people love to join. We've also been winning for a long time and people love to join a winning team. The $223 million Coldpoint deal is just another great example of a nice size transaction where we were able to work directly with the sellers and the management team.
Speaker Change: one.
Speaker Change: to make a deal that everybody felt great about, and we avoided a broader sale process. So we are truly excited to fire back up our acquisition engine. We have a huge pipeline of M&A opportunities globally. We evaluate all these opportunities in all markets against our investment criteria and literally meet every single week with our investment committee, which includes Rob and me, Jeff, our COO, Brian McGowan, our Chief Network Optimization Officer, who we
Speaker Change: finally referred to as our canoe.
Speaker Change: The lineage of an A-team, and Adam and Kevin, our chairmen, are actively involved in every one of those calls.
Speaker Change: you know, as an executive team, we're highly incented on AFFO for share growth.
Speaker Change: and our focus on the deals that have the best risk-adjusted return and will be most accretive to shareholders. So while we have literally billions in our M&A pipeline, we are going to remain patient and disciplined and pursue only the deals that deliver the highest risk-adjusted return.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Michael Carroll with RBC. Please go ahead.
Michael Carroll: Yeah, I want to circle back to what Rob said in the prepared remarks regarding the fire, I believe, at Big Bear. I guess, when did this fire happen and did the repairs already take place? And basically, should we expect the weakness in 4Q? Is any of that going to flow into 1Q25 or is it just going to be contained in the fourth quarter and we won't have any of those issues going into 2025?
Speaker Change: So I'll start and then turn it over to you. So I'll just start by saying, you know...
Speaker Change: Safety is our number one priority, the safety of our team members, partners, communities in which we work and live. It is our company's first corporate value.
Speaker Change: And to that end there were no injuries to our team members nor first responders as a result of the
Speaker Change: Of the fire, you know, in L. A. and big bear, which many of you have toured the investigation is still ongoing. The fire appears to have started in the solar arrays on the roof that the solar rays are leased and operated by a 3rd party. And we've, you know, we probably requested inspections of all of our sales sales solar arrays.
Speaker Change: across our network and they're continuing to monitor that and don't see any reason that this
Speaker Change: would reoccur as far as the financial impact of alternative interruption.
Speaker Change: quite small color. Yeah, so the day the fire was in, it was in mid-August. Yeah, so we're obviously working hard to get everything back online.
Michael Carroll: We removed from the same store pool, we mentioned the headwind. So I think we'll be able to update you in February on the progress we've made. But there is certainly a lot of work that still needs to be done to get the facility back to where it was. I think as you're all aware, cuz many, many people toward it. So it's a great, very big facility. And so it's very important to us and we're excited to get it back online.
Speaker Change: Okay, great. Thank you. Is there insurance proceeds that we can expect from this?
Speaker Change: Yes, I think, you know, over time, yes, we are insured and so and so that would come in over time.
Michael Carroll: Yeah, we expect to recover our losses.
Michael Carroll: Okay, great. Thanks.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Mike Mueller with J.P. Morgan. Please go ahead.
Mike Mueller: Yeah, hi. How indicative of market pricing would you say the Coldpoint acquisition is and on that transaction, how much higher do you think you can drive EBITDA, say, over the next couple of years?
Speaker Change: Yeah, so I think it was a deal that we sourced. We had a great relationship there, so we're excited to add that company to the portfolio. I think we mentioned on the call, if you do the math, about a 14 times multiple. Like anything we buy, we do expect to improve that over time. We're excited to welcome the team to the lineage family, and we'll get to work right away on how we can make each other better. I think over time, we certainly will drive improvement like in all of our acquisitions, but the good news is we bought in here at a nice multiple, and so all that improvement will accrue to us moving forward.
Michael Carroll: and our shareholders.
Speaker Change: Okay, thank you.
Speaker Change: Your next question comes from Joshua
Speaker Change: Yeah, hey guys, thanks for the time.
Joshua: And so a big part of your pitch at IPO is the technology advantage you guys have built out and are continuing to build out. I guess, how should we think about those benefits, the benefits of your tech platform rollout on the business? And I guess I'm most interested in just maybe how it will impact EBITDA margin.
Speaker Change: And then, is there anything that's rolling out in the next, say, 12 months that we should be aware of that might kind of benefit you guys in any way?
Speaker Change: So, the biggest thing that we talked about most on our roadshow was LIN-OS, and as a reminder, LIN-OS is our proprietary warehouse execution system that we've developed and implemented already in multiple automated facilities.
Speaker Change: the software.
Michael Carroll: uses our proprietary algorithms to optimize effectively all the movements and activity within the warehouse.
Michael Carroll: The goal of the software is to tack our largest controllable cost, which is labor. We spend about $1.4 billion.
Michael Carroll: globally in labor. Our current efforts are focused on rolling out LinOS in our conventional buildings, which we just began piloting in the last few weeks. In the first site we launched,
Michael Carroll: We saw clear opportunities for things like task interweaving and eliminating the ways software is intended to eliminate. So we remain super excited about LinOS and our technology investments.
Speaker Change: The early results are certainly promising and we look forward to providing sport color next year as we roll out pilots. Yeah, so yeah, I think, you know, as we mentioned, it's really attacking, you know, labor efficiency and getting more efficient and, you know, helping to our people out the system.
Michael Carroll: spend as much time in the freezers and remove, you know, the number of trips or forklifts that are empty and a lot of really good stuff. We've got a billion for labor expense and that's really what we're attacking there. If you look moving out, you know, as Greg mentioned, we're just rolling it out so I don't, you know, wouldn't expect benefits of 25. I think 26 and beyond certainly we would and that's what we're working towards.
Speaker Change: Your next question comes from Samir Khanna of Evercore ISI. Please go ahead.
Samir Khanna: Hey, good morning, everyone. I guess Greg or Rob, I know you talk about occupancy still under pressure.
Samir Khanna: and the muted seasonal pickup in 4Q. I guess, how does that translate into mid-single-digit NOI growth for next year, which I know you've talked about in the past, I think in the roadshow. Thanks.
Samir Khanna: Yeah, so we are working on controlling the controllables, as Greg mentioned, and so we're hyper-focused on labor efficiency and controlling energy costs and all the things that we talk about, and that will drive really good leverage when the market does improve. So, certainly this year, we gave the guidance number low single digit for Q4. That's against a 9% calm.
Samir Khanna: Throughout this year, we've had double digit comps, right? So we did 2.4% in Q3 against 11% comp. And so that, you know, if you look at that over two years, you're sort of in that mid-single digit flywheel that we talk about. And moving forward to next year, again, we
Samir Khanna: will benefit from easier comps.
Samir Khanna: All the work that we've done and then we'll, we'll certainly update in February on on what we expect we will do for next year. We go through a very comprehensive budget process process here. That has already started. We're working next week meeting with all of our people.
Samir Khanna: It's a great process and so we're gonna go through that and then we'll be able to update the street in February, but we're certainly doing all we can to make sure we stay on that flywheel and we are very, very confident that we will deliver that flywheel moving forward.
Samir Khanna: Thank you.
Speaker Change: Your next question comes from Amy Probat from UBS. Please go ahead.
Amy Probat: I think.
Amy Probat: unique position where you are the acquirer of choice, but if you were going to look at deals that are just on the market, how would you be, what's the competitive landscape look like? Are there a lot of bidders for these products and what sort of pricing would you expect?
Speaker Change: Yeah, sure. I can start on that. So there's competition. I mean, these are these are attractive assets. We're in a great market. We're in the food and market, which grows over a long period of time. These are, though, very operationally intensive assets. So you've got to be a really, really good operator in order to succeed in our industry. And so that definitely gives us an advantage.
Amy Probat: We have a much-improved cost of capital, which was the whole point for doing the IPO. We got to investment grade, and so we're in a great position. We did this deal 14 times.
Amy Probat: this quarter, every deal is different, right? So there's going to be sometimes multiples are lower than that, sometimes higher. It's really an exciting place to be sitting here in America, but having this wonderful global business. So we look at things in Australia and New Zealand where we have a great management team. We look at things in Europe where we've got great leadership. And we can really find the best risk-adjusted returns. And again, as Greg mentioned, we're hyper-focused on the AFFO for shares. So we take into account tax.
Amy Probat: and interest costs and everything else, but we can sit here and just find the best risk-adjusted returns.
Amy Probat: for our capital globally and that's a really powerful position to be in and for myself as someone who's still new to the company after a couple years really excited to be here looking at our deployment opportunities moving forward. It's a great time.
Speaker Change: Any details that you can provide on pricing, understanding that there's a wide range.
Speaker Change: Yeah, I, yeah, I mean, individual deals, I think over time, like, like we mentioned, you saw, we did this multiple and and things are, you know, could be a little higher, a little lower, but we're always going to do financial accretive acquisitions that will benefit our overshare.
Speaker Change: Okay, thanks.
Speaker Change: Your next question comes from Greg McKinney with Scotia. Please go ahead.
Greg Mckinney: Hey, good morning. Rob, I just wanted to touch on the mid-single-digit same-store target again. So, Lineage appears to be operating well in a somewhat challenging environment, but from our view, the key driver of future same-store and OI growth is a recovery in consumer demand.
Speaker Change: Are you seeing anything from your customers, or more broadly economically, that's give you confidence in an improving market?
Speaker Change: Yeah, I mean, I think Greg touched on a couple of those points, you know, we'd be yeah, you want to.
Greg Lempkow: Yeah, I mean, certainly, you know, there's no doubt over the last couple of years, there was just in case inventory built up, especially and with higher interest rates, customers have been focusing on optimizing their supply chain. And in many cases, that's led to inventory rationalization.
Greg Lempkow: most predominantly this year. But given our scale and global reach, we're right in the middle of those conversations with our customers. We're working with the C-level and their executive leadership teams to help them streamline their supply chains and best position their inventory around the world. So we've always taken a long term approach with customers and believe that will lead to them growing their business with us.
Speaker Change: Over time, you know, I think what we're hearing directly from customers is
Greg Lempkow: You know, they are seeing, and you are seeing, discounting at the retail and food service level to get products flowing faster again. And I think, you know, historically we're at very low inventory levels right now, and we would expect restocking to happen at some point.
Speaker Change: And when it does, like we talked about, we're in an excellent position given our productivity and tech investments to take advantage of that and see great operating leverage.
Speaker Change: Great, thank you.
Speaker Change: Your next question comes from Blaine Heck with Wells Fargo. Please go ahead.
Blaine Heck: Thanks. Good morning. Given that it's the morning after the election, I wanted to ask, you know, whether there are any Trump policies that you guys find particularly encouraging or concerning with respect to the business and in particular, what impact increased tariffs might have on your business?
Speaker Change: business, given your exposure to port locations, and maybe you can also remind us how much of your portfolio is in or adjacent to port markets.
Speaker Change: I'll just say Greg had prepared many election-related jokes. Can we cut them so we'll just go right to the answer to the question?
Speaker Change: So, listen, we've been around for more than more than 15 years and perform well across various administrations across various, you know.
Speaker Change: policies and through a myriad of economic cycles, so we're confident in our plan moving forward. Specifically, if you want to talk about tariffs, for example, food is a global business and
Speaker Change: Around the world, the fact is people need and regardless of what happens with policy or tariffs, you know, we feel extremely well positioned to support the global food supply. That's what we're built for. For example, I was meeting with an executive of one of our.
Speaker Change: customers not very long ago and he was talking about how this could impact
Speaker Change: the seafood business. And he said, listen, if we see, for example, higher tariffs on China, we can simply shift and buy from Vietnam or Malaysia or Thailand or somewhere else in the world. And in all cases, with presence in 250 ports around the world, there's a really good chance that we're going to be able to support that product flow regardless of where that's at.
Speaker Change: Great. Thanks, guys.
Speaker Change: Bye.
Speaker Change: Your next question comes from Omotayo Okusane from Deutsche Bank. Please go ahead.
Omotayo Okusane: Yes, good morning. I also wanted to add my congratulations on your first reporting quarter.
Omotayo Okusane: Question around expenses. Again, you guys did an amazing job on controlling the controllables, as you mentioned earlier on in the call, and I guess
Speaker Change: When I kind of think about 4Q and some of the industry headwinds you're still kind of mentioning, is how much more kind of operating leverage do you have in that regard to really kind of select?
Speaker Change: You know, labor up and down as you kind of see, you know, kind of changes in demand going forward.
Speaker Change: Yeah, so I think it was a long term as we talked about there's a lot of room for improvement, right? We talked about little ads and a lot of things that we're rolling out. So I think there's there's it
Speaker Change: Will be continued great operating leverage just specifically to Q4. We do, as you saw last year, if you look back, I mean, seasonally. Admin and maintenance CapEx are relatively high in the 4th quarter. That's really just a seasonal trend. A lot of that has to do with a lot of the sort of year end expenses.
Speaker Change: And so, that's built into our guide. If you look at AFFO for share, we gave hopefully some helpful modeling numbers where you have to enter in the share count, which is now a whole quarter post-IPO.
Speaker Change: Counter each other, you know, and the other thing I'll say on the quarters, right? Is, you know, historically, we've always run this company as a private company as a full year basis company. We, we, we have this great budgeting process.
Speaker Change: we worked across the budget. Everyone's kind of focused annually. So we're still building our muscle around quarterly forecasting. So I think over time, like we won't have a lot of our maintenance staff back sitting in the fourth quarter. We'll be able to split it out over the year. But that's just, you know, a few puts and takes on the Q4 guide. But we definitely feel that there's a lot of room to get change of drive, labor efficiency, admin, right? From an admin perspective, this company has been built.
Speaker Change: to grow and double again and again and again, right? And so we have a lot of costs. We're going to work to leverage that cost moving forward. And so hopefully we can have just not just great operating leverage in terms of sort of warehousing, but also looking at the admin line as well.
Speaker Change: That's helpful. Thank you.
Speaker Change: Your next question comes from Daniel Guglielmo from Capital One Securities. Please go ahead.
Daniel Guglielmo: Hello everyone. Thank you for taking my question. We think that the lean operations are a big piece of the story. So how many warehouses do you all have certified now? And then as you continue to roll this out, are there specific learnings or improvements you've made to the program that you'd be willing to share?
Speaker Change: Yeah, we have 40-plus buildings that are certified lean and many more that are being launched as we speak. That's not 10% of our portfolio, but it's much more than that in NOI, but as far as facility count, it's about 1%.
Speaker Change: And yes, we're learning with each LEAN implementation, with each LEAN certification, and all those best practices are posted on our LEAN SharePoint and shared across the network, even if buildings are not only LEAN-exclusive.
Speaker Change: clean process. As you know, LEAN is all about supporting the operator that does the hard work every day and making your job easier to serve our customers and eliminating waste in every process.
Speaker Change: It's a it's
Speaker Change: continuous improvement. It's always improving.
Speaker Change: It never ends and we're, you know, that spirit of always getting better is within our operations, warehousing, it's across our global integrated solution segment and across our admin function.
Speaker Change: It's really a philosophy for which we run the company and we think there's, you know, a whole lot of room to grow or to go to continue to optimize in all areas across the organization.
Speaker Change: Great, thank you.
Speaker Change: Peace.
Speaker Change: down year-on-year in 3Q, and I guess maybe part of that could be power-related and savings that you could pass through and the customer can achieve some goal on that. But just overall, taking a step back, like what leverage do customers have in pricing discussions today? Do larger customers have more advantage there? And then maybe geographically speaking, you guys touched on spec construction. We know like markets like Texas and like Jacksonville are a little bit more hampered by that, but maybe touching a little bit on some of the soft spots you're seeing there.
Speaker Change: So you get the very beginning of the question cut off you just repeat the first sentence. Sorry about that we couldn't hear you.
Speaker Change: Yeah so the first part was just on kind of rent per occupied pallet was down year-on-year maybe the leverage like customers have in pricing discussions today do larger customers have a little bit more advantage there a little bit of commentary there and then on the geographic mix.
Speaker Change: I think customers do have a little bit more leverage than they had over the last couple of years.
Speaker Change: Our customers are going through a very tough time right now in the soft market and we're partnering with them to create solutions that make sense to them and prices.
Speaker Change: is one component of that. And I think you've seen, you saw some of that play out in the results this year. You know, as Rob talked about, you know, there's been growing excitement in the cold storage category over the last several years. This is
Speaker Change: This is logical, given the institutionalization of our industry, and in part because of the lineage story.
Speaker Change: and critical infrastructure of the global food supply chain, just like data centers, cell towers.
Speaker Change: and public storage have become in their markets over the last 20 years. So, not surprisingly.
Speaker Change: This is strong capital into our space and created some new competition and even some speculative developers similar to what's happening.
Speaker Change: in these other exciting new categories. I mean, that said, we have clear advantages over any new market entrance. I mean, as we spoke about the prepared remarks, we have a large network with over 480 warehouses globally and the network benefits that come with scale.
Speaker Change: including the largest network of port locations and distribution centers. We have a newly formed investment grade balance sheet.
Speaker Change: and superior access to capital. We have a track record for creatively deploying capital and growing the company through M&A and development, which just further increases our scale advantages and network effects.
Speaker Change: You know, we have longstanding relationships with over 13,000 customers, interfacing, like I mentioned, with their CEOs and leadership teams.
Speaker Change: which is a barrier that's very, very hard to replicate for new competition. We have our farm-to-farm service offerings with our integrated solutions group, so we can truly look at our customers' end-to-end supply chain and help them optimize this and make
Speaker Change: make price not the only thing, if you will.
Speaker Change: We have world-class safety, M&A, development, operations, sales, engineering, lean, commercial finance teams around the world with decades of experience. So we feel, you know, really well positioned to continue to partner with our customers and grow. And again, they understand that when we have labor increases and other cost increases.
Speaker Change: that it's fair to give us inflationary-ish level by increases on the program.
Speaker Change: Greg, that's helpful. So just following up on just geographically, any markets where you're seeing a little bit more strength when it comes to kind of market conditions, or is it more of broad softness?
Speaker Change: Yeah, there's absolutely we have a we have a lot of markets that are that are performing very well We have a bunch of regions. We have 22 regions
Speaker Change: in the U.S. We have a bunch of regions that are performing very well. Pacific Northwest, Australia, led by Brooke Miller. Our president there is doing outstanding. Our Canadian team has rocketed. Can't say enough about them. So yeah, we have a bunch of pockets around the world that are performing very well.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Vince Tigone with Green Street. Please go ahead.
Vince Tigone: Hi, good morning. I wanted to follow up on an earlier comment that you're facing pressure from new supply in certain markets. Could you share what those markets are and also just discuss, you know, high-level industry-wide
Vince Tigone: Supply trends in the cold storage sector, and if you're able to kind of frame that in terms of. Percentage of stock, I think that would be helpful and just your general views about. Supply pressure is going forward. Are you seeing a slowdown or acceleration?
Vince Tigone: and development starts today from your competitors, any commentary on the supply side of things would be very helpful.
Speaker Change: Yes, certainly as I answered in the last question, you know, there has been a
Vince Tigone: Influx of capital into our industry, you know, frankly, we think there's going to be some follow up from that and people that maybe thought it was easier than it is and.
Vince Tigone: and don't understand the scale of advantages that the larger players have.
Speaker Change: Um, we do think that that, uh, you know, they're, they're the cost to build that they experienced over the last couple of years is kind of at all time highs and they have, you know, investment hurdles to.
Speaker Change: to overcompensate.
Speaker Change: That said, we do think speculative development and new development will subside over the next couple of years.
Speaker Change: and as the industry continues its long-term growth trend.
Vince Tigone: that capacity will be absorbed.
Vince Tigone: So we feel, you know, we feel great about that, about how we kind of line up against these. As far as specific markets, it's been, you know, it's been pretty widespread. I'd say one market that was, that was maybe oversupply would be kind of Florida in general. We've seen some softness there due to competition.
Speaker Change: That's really helpful. Maybe just one quick follow up. How do you view like net lease, cold storage, spec product as competitive, you know, where someone's trying to lease to a single user? Or is it really more of the operating multi-tenant model that, you know, is more competitive with your exact portfolio?
Speaker Change: I would say more on the multi-tenant but both certainly I mean it's just you know if
Speaker Change: If a spec builder is going to build for a producer, we would rather be the people to operate that and build for them. Many of the spec buildings don't have an operator yet or a tenant.
Speaker Change: And those become, you know, I would say risky investments, and we will evaluate for, you know, acquiring those as they come. Yeah, we do net lease deals as well, and that's, you know, that's part of our capital deployment as well. Yeah, so, you know, every market's different. It's really about how much capacity and how much demand.
Speaker Change: So you kind of add it all up and.
Speaker Change: What's great in our position being the leader, we have the most information, we have the most data, we have capabilities that are unmatched and really give us a lot of confidence in which markets that we want to expand, which markets we don't want to expand, competitive pressures, and so we're in a great position.
Speaker Change: Great. Thank you for the time.
Speaker Change: Thank you.
Speaker Change: And your last question comes from Todd Thomas with KeyBank Capital Markets. Please go ahead.
Todd Thomas: Hi, thanks. Good morning. Um, Greg, I just wanted to follow up on.
Todd Thomas: the customer rationalization that you discussed a little bit that's contributing to the weaker.
Speaker Change: Demand environment are there other underlying trends impacting that rationalization?
Speaker Change: that your customers are experiencing, or is it solely related to some weaker consumer and end-user demand?
Speaker Change: And along those lines, should we assume that the challenging environment continues to impact?
Speaker Change: the global integrated solution segment of the portfolio, or can GIS stabilize without a recovery in demand? What's the interplay look like there as we think about 25?
Speaker Change: life.
Speaker Change: I'll start briefly. So what's great about our market is long term demand trends are very good. There's people are always eating, that's growing, the more markets are developing, the more markets want access to what we do, which is be able to get the best food to people all throughout the world. So that's a great place to be. So the demand trend is up and to the right. And so it's a matter of getting back to sort of what's normal. I think in terms of the GIS segment, that is largely transportation, right? You know, I'm sure people follow transportation companies.
Speaker Change: Very consistent with what everyone else is seeing, right? There's more cyclicality there. Importantly, as we've mentioned in the prepared remarks,
Speaker Change: We, you know, the reason why this is so important for us is the farm to fork and driving more business into our into our warehouses. And so moving forward. Yes, there will be a rebound there. That's gonna be a little more cyclical, but it's always going to be benefiting our warehousing business, which should allow the warehousing business to grow faster over time.
Speaker Change: Okay, that's helpful. If I could just sneak one last one in around the model, you know, appreciate some of the color around the fourth quarter. You know, you mentioned the higher CapEx budget.
Speaker Change: You know, seasonally in the 4th quarter. Are you able to share a 4Q maintenance CapEx range that's embedded within the 4th quarter guide? And also, can you talk about GNA?
Speaker Change: Yeah, so, you know, as we mentioned, we really focus on AFFO per share, so that's the main part of our guide moving forward. There are a lot of levers that can be pulled within a quarter, right? As we always talk about, the market gets better, then happens a little bit higher, maybe you spend more, the market softens. As you saw last quarter, there's, you know, there's certainly things we can do to make sure we deliver the results. So, we really want to focus people on AFFO per share. And, you know, when we put out guidance, we certainly feel that those are good numbers to use.
Speaker Change: Okay is there but is there a specific maintenance CapEx range that's embedded in the in the fourth quarter guide the 70 to 74?
Speaker Change: Okay. All right. Thank you.
Speaker Change: Thank you.
Speaker Change: There are no more questions. I will now turn the conference back over to Evan Barboza for closing remarks.
Evan Barboza: On behalf of the entire Lineage team, thank you for joining us today and for your interest in Lineage. We look forward to speaking to you again on our next quarterly earnings call. Thanks.