Q2 2025 Americold Realty Trust Inc Earnings Call
Greetings and welcome to the merold. Realy trust second quarter 2025 earnings conference call.
At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad,
As a reminder this conference is being recorded. It is now my pleasure to introduce your host Rich Leland, vice president of investor relations and Treasurer. Thank you sir. You may begin. Good morning. Thank you for joining us today for a miracle realy. Trust second quarter 2025 earnings conference call.
In addition to the press release distributed this morning, we have filed a supplemental financial package with additional details on our financial results, which is available in the investor relations section on our website at www.americold.com.
This morning's conference call is hosted by Marv hold's chief executive officer. George Chappelle president Rob Chambers and Chief Financial Officer Jay Wells.
Management will make some prepared comments after which, we'll open up the call to your questions.
Before we begin, let me remind you that Management's remarks. Today may contain forward-looking statements, forward-looking statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those anticipated.
Or future events.
During this call we will also discuss certain non-gaap Financial measures including noi constant currency, net debt to proforma core ibaa and afo.
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.
Please note that all Warehouse Financial results are in constant currency unless otherwise noted
Now, I will turn the call over to George.
Thank you Rich and thank you all for joining our second quarter 2025 earnings conference call.
This morning, I will provide an update on our 4 key priorities.
Our financial results for the quarter and current market conditions.
Rob will then discuss our customer service initiatives and development activity.
And finally, J will review our Capital position on liquidity and discuss our outlook for the balance of the year.
Turning to our four key priorities in financial results for the quarter.
We sent you 2 would look a lot like q1 and that's exactly how it unfolded.
Starting with customer service during the quarter of maracle was recognized as a top 3pl in Cold Storage Provider by food Logistics magazine.
This award honors cold storage companies that are revolutionizing the global cold storage food supply chain.
And reliably delivering Innovative and high-quality Solutions throughout the world.
We are honored to be recognized and I want to thank our incredible team for their continued dedication, to providing our customers with best-in-class service.
As anticipated. Same store, economic occupancy, declined slightly in the second quarter versus the first quarter of the year.
Q2 is typically the lowest seasonal quarter of the year for us.
Although it is difficult to Define typical in the current environment.
While we are pleased with the new business wins from our sales pipeline occupancy, gains have been slow to materialize. Given the ongoing demand, headwinds
We recently had 2 new retail winds in Europe that are good examples of our strategy to expand our retail and qsr business across the globe and builds on our leadership position.
The profile of the retail and qsr businesses, puts it near the top of our portfolio, in terms of cash flow generation.
Additionally, our rent and storage revenue from fixed. Commit contracts came in at 60% for the quarter.
reflecting the quality of our mission critical assets, and the value, we deliver to the customers who occupy them
turning to labor the Investments, we have made over the past few years, in training engagement and retention initiatives, continue to pay dividends
during the quarter, our perm to 10th hours ratio was 75.25
Giving us the ability to flex labor with demand while benefiting from the enhanced productivity that comes from having a dedicated and well-trained permanent Workforce.
You can see this reflected in the continued growth in our same store Warehouse Services margins.
which improved by 90 basis points year-over-year to 13.3% for the quarter.
This continues to be a bright spot for the company.
And we remain confident in our ability to deliver service margins in excess of 12% for the full year.
Turning to pricing in the second quarter, our same store, rent and storage revenue for economic occupied pallet increased approximately 1% versus the prior year.
in the same store Services Revenue per throughput pallet
Increased by 4%.
While we expect to see continued pricing pressure across our us business, the team has done an excellent job of strategically defending our market share.
In maintaining our price architecture while ensuring that we receive fair value for the critical and diverse Services. We provide
We Believe service and operational excellence will become an even more important differentiator.
For a miracle in the future. As customers seek to turn inventory faster and an effort to realize working capital efficiencies
As I mentioned, in the last quarter, Americold is a trusted and experienced operator that delivers value to customers.
Far beyond price propeller position.
On the development front, we have several key projects that were completed in the second quarter, including Kansas City, our Flagship development with cpkc, creating an efficient new way to move temperature control products across North America.
Our Allentown expansion, which was driven by strong customer demand in the region.
and our Flagship development in Dubai in partnership with DP worlds,
Rob will discuss these further in just a moment, but these facilities are great examples of our ability to leverage our scale, expertise and unique, strategic Partnerships to drive Innovative New Market Solutions.
Turning to our financial results for the quarter, Q2 afo per share was 36 Cents.
Our performance in the first half of the year has largely been on track.
And the team continues to execute well.
However, the combined impacts of interest rates, tariffs inflation government benefit, reductions and excess capacity continue to pressure occupancy rates across the industry.
Based on our conversations with customers. We expect these headwinds will likely continue into the second half of the year as they remain hesitant to build inventory in an uncertain demand environment.
With inventory levels low across the supply chain. We are also seeing customers taking the opportunity to leverage available capacity in their own infrastructure rather than utilizing third-party storage providers.
As a result of these continued headwinds, we are taking a more conservative view of the market for the second half of the year, removing the traditional seasonal inventory builds that we had been forecasting. We now expect occupancy levels to remain pressured for the balance of the year.
Despite these topline challenges, the team continues to execute well on our strategic priorities.
And we remain focused on controlling, what we can control, including lowering costs.
Improving efficiencies and capturing new business.
We are also actively pursuing alternative growth opportunities.
Such as expanding our retail, and qsr business, as I mentioned earlier, and focusing on investments in underserved geographies around the world in need of infrastructure.
Additionally because of the offering component of our business, we have more leverage than a traditional Reit. And this quarter is a great example, of our ability to manage the variable pieces of our business in a balanced approach to deliver asfo results in line with expectations.
Disability to manage the business. Tightly will be increasingly important in the second half of this year.
As we further adjust our cost structure to reflect the current demand levels.
Jay will discuss these changes in more detail in a moment.
But first, I will turn the call over to Rob so he can discuss our development projects and customer initiatives in Greater detail.
Thank you, George and good morning, everyone.
our commercial teams continue to execute well, and during the second quarter, same store, rent and storage revenue for economic occupied, pallet increased year-over-year by about 1%,
And Warehouse Services Revenue per throughput, pallet increased by 4%.
Although we continue to see some irrational, pricing moves by competitors, we have the tools and visibility to thread. The needle balancing price and occupancy. Effectively while strategically defending our market share is appropriate.
Our rent and store revenue from fixed. Commitments came in at 60% for the quarter, maintaining the record that we set in the first quarter of the year,
As a reminder, we believe 60% is the appropriate long-term level for this metric, given the composition of our customer base.
Our top 100 customers represent approximately 70% of our total Warehouse revenue, and the vast majority of these customers prefer having committed space.
Balancing this with a more transactional nature of some of our smaller accounts, let us to set the 60% area as our vote.
While there could be some slight variability around this level, we believe the benefits to both us and the customers are queer.
Meeting and market demand is a top priority for our customers and having guaranteed space gives them the opportunity to reduce their per pallet cost.
As they turn more inventory, it allows them to realize cost savings.
Get the benefit of having the vast majority of our contracts. Commercialized with multi-year agreements and do not reset volume guarantees or rates on an annual basis.
As a reminder, fixed commitments were approximately 40% of our Revenue. When we started this journey and our progress over the past 4 years and transitioning our customer base to fixed. Commitments is a clear indication of the win-win benefits of the structure.
And of our team leading, the industry in commercial excellence.
within our Global Warehouse segment, we had no material changes to the composition of our top 25 customers who account for approximately 50% of our Global Warehouse revenue and our churn rate remains below 4%,
while the market remains competitive, we continue to win new business and have successfully converted on over 80% of the previously, announced 200 million probability weighted sales pipeline,
The occupancy ramp for these new customers is taking longer than expected in the current environment and the revenue benefits are somewhat muted by declines in the base business.
But our overall, sales pipeline remains healthy and our winds continue to surpass where we were last year.
As George mentioned we recently had 2 significant wins in the Europe region that highlight our growing leadership position in the operationally Intensive and services heavy retail segment of the market.
The first win is with one of the largest supermarket chains in Portugal to utilize our 34,000 pallet position facility in Lisbon.
We will now be providing them with frozen storage space and case-picking services under a multi-year fixed commitment agreement.
Like most of our retail business, we expect the inventory to turn roughly 25 times per year. Making this an attractive cash flow business.
The second win is with 1 of the largest Supermarket operators, in the Netherlands, to utilize our 38,000 pallet position facility and barniville.
They have ambitious growth plans over the next 5 years, and will be utilizing our storage and case baking Services under a multi-year agreement. With similar inventory, turn expectations,
Both the Lisbon and barniville Facilities will be operating at well, over 90% occupancy as these customers ramp in the coming quarters.
The international team has done an excellent job of leveraging, both the Americold operating system, and our retail expertise in the US and Asia PAC.
To expand our market share in Europe with these 2. New customer wins.
Now, I'd like to give you an overview of our development activities, as we have 3, attractive projects, that went live during the second quarter.
First is our Allentown. Pennsylvania expansion, which was completed in Q2.
This facility came in below budget at 79 million compared to an initial estimate of 85 million.
And as 37,000, pallet positions and nearly 15 million cubic feet to our Network.
Allentown is an ideal location to receive imports from the Philadelphia and New Jersey ports, and is the largest Transportation Hub in the Northeast.
After the expansion, this campus will have over a 100,000 pallet positions. The service is key distribution Market.
This is an example of our low risk. Customer-driven approach to expansion projects.
As our original facility in Allentown was approaching 100% occupancy, the project was initiated due to demand from existing customers.
I'm happy to report that we have moved. The stabilization date for the building up by 2 quarters.
Due to the high demand, we experience for the space immediately upon opening.
The management team at Allentown is 1 of the best in the business.
And I'm excited to watch them service our customers with this increased capacity.
Second is our Green Field facility developed in collaboration with CPKC in Kansas City, Missouri, which also launched at the end of Q2.
This facility was originally anticipated to be $127 million. It was also completed under budget at $100 million.
As a reminder, this facility is North America's only single-line rail service for moving refrigerated shipments between the U.S., Canada, and Mexico.
Customers of our new facility will be able to clear customs and Kansas City bypassing the significant congestion and wait times that often occur at the border resulting in faster. Delivery times lower costs and a much more environmentally friendly alternative.
To traditional over the road Solutions.
Gold storage food. Supply chain, that a miracle is uniquely suited to handle
We are already seeing high demand for this space from our customers, which gives us confidence in our ability to deliver stabilization. At the end of q1 2026, which is 3 to 6 months faster than a typical development project.
Finally, our 35 million state-of-the-art Flagship build with DP world and the port of Jebel Ali in Dubai, also launched during the second quarter.
This facility is 40,000 pallet positions and connects to DP world's best-in-class Port Logistics Solutions.
This development was completed through our RSA joint venture.
And is another great example of a Miracle's ability to partner with multiple Market, leaders to identify New Opportunities through our combined expertise.
Additionally, we have several other expansion and development projects in process. All of which are on time on budget.
Domestically, we have our 150 million dollar 50,000 pallet position automated expansion in Dallas, Fort Worth, Texas.
An internationally, we have our 30 million dollar 13,000, pallet position expansion in. Sydney Australia, our 34 million dollar 16,000 pallet position expansion in Christ Church, in New Zealand and finally our 79 million 22,000, pallet position development and Port St. John Canada in partnership with DP world and CPK.
I see.
In May, I was honored to deliver the keynote speech at the Port St. John Port days events
where we also hosted a groundbreaking ceremony for our new facility.
DP World and CPKC have made substantial infrastructure investments in Port St. John, which is Canada's largest Atlantic port by volume.
The market is poised for significant growth and our new world-class facility will support temperature control, food, flows from Canada and the rest of the world.
Our building is located on the grounds of the port facility.
Connecting us to the DP. World infrastructure and cpkc rail line.
To create a unique end-to-end logistic solution.
For customers, this means a more efficient way to move temperature-sensitive food through the port, with reduced transit times and lower costs, by shifting freight from trucks to rail.
Longer term. We see this location as an important Link. In the supply chain ecosystem, we are creating with cpkc to provide customers with an Innovative and unique cold chain solution, connecting Canada, the United States and Mexico.
The reception at the Port could not have been more welcoming and enthusiastic, and we are excited to further deepen our relationship with this location and our strategic partners.
Our Lancaster facility is ramping up aligned with our expectations proving the effectiveness of our automated retail technology.
In order to prioritize the stabilization of the Lancaster sight, we have modified the stabilization day for the planeville facility to Q2 2026.
This also ensures. We are fully stabilized for the ramp up of the retail season next year.
Overall our development pipeline remains healthy at approximately 1 billion dollars and high quality. Low risk opportunities aligned with our strategy to focus on our customer dedicated new builds customer-driven expansions and unique, cold Chain Solutions that are supported by our strategic Partnerships.
Outside of the expansion underway and Dallas, which is driven by strong demand from our existing customers. Most of our projects, we currently are have underway. Our focus on our international business,
we continue to pursue attractive opportunities to support our customers in several of these underserved foreign markets, particularly in Asia Pacific, where occupancy rates are high and there's generally been less speculative development activity,
We also remain focused on opportunities at the plant adjacent and Retail nodes of the cold chain, where we can leverage our deep customer relationships, and operational expertise. And a segment of the market, that is Out Of Reach for many other Cold Storage providers with that, I'll turn the call over to Jay.
Thank you, Rob, and good morning. As George and Robert mentioned, the teams continue to execute well despite what has otherwise been a choppy overall market environment during the second quarter. We continue to make progress on our key operational priorities and win new business while managing the business tightly.
As a result of these efforts afo per share for the quarter came in at 36 Cents and our first half performance has been largely in line with expectations.
Our outlook for the second half of the year. We now expect same store, economic occupancy levels for the year to decrease by approximately 250 to 450 basis points, and same store, throughput to decrease by 1 to 4%.
Sequentially. We anticipate the fruit foot will lift slightly from Q2 to Q3, which will build occupancy levels modestly in Q4.
As a result of these continued Market, headwinds, we are reducing our affluence to 1.39 to 1.45 cents per share.
We continue to manage the business with an emphasis on afo and because of the operating components of our business, we have more leverage. The pull that are traditional reach.
Specifically, we are taking additional actions to reduce core sgna. And right size are cost structure and line of the current demand environment while still ensuring we continue to provide the superb, customer experience that we are known for in the industry.
additionally, we are lowering our range for maintenance Capital expenditures in line with the slow down and throughput, as many of the preventive maintenance activities are based on utilization
Despite the current economic volatility, which has impacted Cold Storage occupancy levels, we remain firmly focused on driving shareholder value.
Based on a variety of different metrics. A miracle, is currently trading far below its asset value. Whether you look at capitalization rates replacement costs or on a cost per pallet basis, we have over 10 billion dollars of critical pulse storage, infrastructure deployed around the world.
when combined with a robust American operating system and our dedicated and experienced team of Associates,
Serving customers in an industry that is complex and operationally challenging. We believe that we are uniquely prepared to maximize growth when industry volumes improve.
Turning to our balance sheet, our 400 million public Bond. Offering closed early in the second quarter. And the proceeds of that offering were used to repay a portion of our outstanding revolver, borrowings anticipated. We also executed the first of 2 12-month extension options available under our 375 million Term Loan facility,
Total net data of the standing at the end of the quarter was $3.9 billion, with total liquidity of approximately $937 million, consisting of cash on hand and revolver availability.
That's that to perform. A core EBITDA was approximately 6.3 times.
You currently have a number of the development projects underway and as they come online and stabilize, we expect the noi generated from these facilities will allow us to deleverage throughout 2026, as we remain committed to managing the business to an investment grade profile.
We also continue to rationalize our portfolio.
And sell off underperforming, our non-strategic assets.
They're in the second quarter, we successfully completed 3, plant exits of idled facilities, for total cash, proceeds of 20 million.
As a reminder, most of the facilities we are exiting. This year are least and the majority of the customers inventory can be relocated to nearby owned facilities resulting in an accretive transaction for the company.
We plan to exit 6 more facilities, including our Pleasantville. Georgia location, which was announced in early July.
Additionally as mentioned during our last call, we exited our minority ownership interest and the super freeo joint venture in Brazil resulting in approximately 28 million dollars of cash proceeds.
We have a disciplined internal approach to Capital allocation and use the same discipline to ensure that we are receiving an attractive return on our investments.
We believe the actions. We have taken to rationalize portfolio so far this year will allow us to strategically redeploy capital and to higher return projects and ultimately Drive future growth and shareholder value.
Now, I would like to turn the call back to George for some closing, remarks.
Thank you. Jay while the external environment remains challenging from both. The demand and Supply perspective, we have the operating experience to manage our variable costs while still meeting customer expectations.
We believe our previous investments in technology, our labor force. In industry-leading commercialization position us to whether this unique environment, where multiple headwinds are simultaneously. Converging.
Which has proven itself through our unique, customer Solutions, Dynamic, offerings discipline, Capital deployment, and versatility through multiple operating environments.
I want to thank our 13,000 associates who work tirelessly all over the world each day to make our vision a reality.
Your dedication engagement and enthusiasm are what, make a miracle. The cold storage provider of choice around the world.
With that, I'll turn the call back to the operator for questions, operator.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2. If you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
We ask that analysts limit themselves to 1 question and a follow-up so that others have an opportunity to do so as well. 1 moment, please while we pull for questions,
our first question comes from Samir canal with Bank of America. Please proceed with your question.
Yeah, good morning everyone. Um, I, I guess George. Uh, you talked about the ability to hold pricing.
But um you know give us an idea of how competitive this environment is right now. You know you you kind of use the word challenging a few times here.
Um, you talked about pricing pressure but just any color would be helpful. Thanks.
Yeah, good morning, Samir. Um, I would say the storage market remains very, very competitive when it comes to pricing, and we're even still seeing some moves into a rational, to be honest. So we can consider it to be under a significant amount of pressure. We expect it to remain under pressure for the balance of the year and, quite frankly, until occupancy growth returns.
Uh, customers, see the value in our strong operational execution, and and customer service. And that's reflecting in our low insurance, still under 4%. As we mentioned on the call,
Um, the value add Services. We provide are a big differentiator when it comes to pricing, it makes us, it makes the business, very sticky. It makes it uh, easier to get fair value for our services and it makes it much more difficult to move the business. So so that's a strong, um, uh, you know, an asset in our portfolio in terms of Defending price. Um, but it will remain under pressure for the second half of the year. And we are seeing it, uh, intensify in some cases, uh, as we move through the second half and occupancy, uh, remains challenged
I, I think to me, the only, the only thing I would add is is that, you know, at at a miracle, I mean, we have developed the, the tools and we, we have the visibility to understand on a, on a buy service basis. Um, customer by customer, you know, what are our margins, our profitability. And we, we're using those tools. We're using that visibility that we've created, uh, to make sure that we do do the right thing to balance price and occupancy. Uh, so that so that we're doing the best thing for the business on a go forward basis.
I think in in our guidance revision, you see, we have taken the storage pricing down. We haven't taken the handling pricing uh, down and and that's a very reflective of the value, add Services, we provide the stickiness that uh they put in the business and the and the fact that customers realize, for many of the value add Services Pro, we provide they get incremental value that others can't provide. So that's a strong point. And maybe the last point on pricing is we're talking about a very us-centric uh environment other geographies uh where we have um 90 plus percent occupancy, less speculative developments, uh, investment opportunities. You know, we're fortunate we have a global business and it provides us uh, opportunities around the world. When 1 of the world may be going through some economic um, pressures, uh, other zero, uh, aren't. And we're fortunate to have business in those geographies that we can continue to invest in.
thank, thank you for that and I, I guess my second question is, is on, um, fixed commits, you know, the 60%,
I think it's, um, you've been, you know, you've been taking that number up, I think it held sort of similar in that. 60% range from last quarter.
Can you provide color on on, kind of how these contracts Works? Um, do customers have the ability to restructure these contracts and given given the challenges here, thanks.
Go. We said, we would, uh, we think that's an appropriate level for the business, but I'll just remind everybody last quarter. We also said, it's not going to remain pegged at 60%, uh, quarter and a quarter out, there could be some fluctuation particularly, uh, when we talk about the, uh, the first question you asked, so I'll turn it over Rob to talk about the, uh, the structure and the, uh, the Outlook. Yeah, yeah, we're very pleased that that, we, we maintain the percentage at at 60%. Um, these contracts generally are structured as, as multi-year Arrangements. Uh, they are, uh, fixed monthly fees that include, um, a commitment on pallet positions that generally is pegged at the, the peak amount of space that a customer is going to need for the year. That's the the key value for our customers. Is that it it holds the space available uh, for them during the the the seasonal, the traditional seasonal Peaks, when they they need the space, the most
Uh, there are, there are generally multi-year agreements. Anywhere between column 3 to 7, year agreements, if you're going into existing infrastructure, they're much longer term agreements if you're going into, uh, dedicated infrastructure that we built on behalf of a customer and they don't include annual volume uh resets. Uh that the opportunity to reset the agreement is um when those contracts expire uh and we've had a lot of of success as as you've seen over the last
Last couple years, even in the challenging environment of maintaining, those, those fixed commitment levels and and increasing them over the last couple years, uh, now that we're at that 60% range. I went through in my prepared remarks, why we feel like that's the, the right, uh, goal. And as George said, there could be some variability quarter to quarter, but we continue to lead with that, um, because it is a win-win, uh, from a selling standpoint for both us and for our customers.
Our next question comes from Steve Saka with evercore, isi, please proceed with your questions.
Uh, yeah, thanks. Good morning. Um, I guess we're not really surprised George by, you know, your commentary around cautiousness, uh, around the business and the Outlook, but I guess when I look at kind of the first half results and revenue down, you know, 1.4% on a constant currency basis. You know, to get to the low end of the revenue of minus 4. You'd obviously have to have a, a pretty large drop in the back, half of the year. And, you know, my my thought was that, you know, you would had a I guess an easier comps coming in and even if you didn't get the full seasonal build you know it just would be hard to see things falling off that much on the revenue side. So can you maybe just help us walk through? You know what's really pressuring the revenue growth um in the back half of the year
Yeah, I think uh Steve there's a few things. Um um suppressing Revenue growth in the in the first uh in the back half of the year, uh, first would be the discussion. We just had around price.
Um, we we talked about pricing pressure, we talked about irrational, uh, moves, we see in the marketplace and you see, we've taken our pricing, uh, guide down. So that would be number 1, but, but number 2, we're facing a a very unique situation when it comes to demand. There's probably 5 or 6 headwinds. Right now when you think of demand whether it's interest rates, uh, tariffs
Inflation. Potential snap Cuts glp1. Drugs excess capacity. I mean any 2 of these we could overcome and grow.
The combination of 5 or 6 makes it very, very difficult. Not only to grow, but to to forecast, uh, things like occupancy and price. So, um, the the lower end of the range is a, is a very, uh, we, you know, do we think we're going to get there? No. But uh, regarding to the middle of the range but price is under pressure and demand is under pressure. So we're trying to be as conservative as we can. And you're right. We, we thought we'd see a seasonal lift in the second half of the year and and we didn't see any so that that also factors into, you know, how we put the guidance together. Um, so that's, you know, that's the Outlook. Yeah. And and Steve I mean if you look at your sequentially first, half of the Year second half of the Year revenue is growing um sequentially. But what we
We have done and reason why it's down versus prior year. We have removed any seasonality except for certain harvests that that are are guaranteed from our forecasts. That sequentially. First have to second half re revenue is increasing
Those substantial savings. And then how do you think about New Capital commitments and kind of return hurdles on New Deals going forward?
Yeah, I'll just make a few comments.
We don't see it, uh, an issue in return hurdles. I mean, um, you know, when we deploy Capital, we have to, uh, have a, a return that's reasonable for the risk. We take and we think the uh, 10 to 12% is, is that range is a conceivable we would do 1 under 10. It would require special circumstances that we would communicate but uh in the main we are still going to develop to the 10 to 12%. Uh
Hurdle rate and, um, why don't you? Yeah. I mean, we as as I outlined Steve. I mean, first of all, um, we're we're very focused on new developments being in the 3 C priorities that that we've outlined which which we feel are, you know, the lowest risk. Uh, so of development types of projects. So when we're talking about customer dedicated projects, we're talking about expansions and major markets, where we already know and and have aggregated demand that that exceeds current capacity or these strategic Partnerships that are about building an ecosystem that you know, drives tremendous value for our customers. So you know future uh projects are are really focused around those low risk uh uh deals that we think will generate the traditional, you know, 10 to 12% return on invested. Capital margins that we put out there uh for for
A while. Now we're very pleased with the progress of our existing developments to have to have 3 launch. This quarter all on time and under budget um is is a testament to the team that we built here and our development capabilities. Uh, we were able to bring those in under budget for a variety of reasons. A lot of enhanced procurement processes that we've talked about over the last 2 years, that we've implemented through through some of our operational improvements and and project, Orion, we also went out and we were able to secure incentives, uh, with with, with some of the local, uh, governments that, uh, in the municipalities where we were building. So very favorable there. Uh, moving up the stabilization date and, and, and a facility like Allentown is, is really a big win for us. So we're very pleased with the development and and we see that as a continued growth lever going forward and then and Steve, I'll just add uh, what I mentioned earlier, which is a global company, we have markets right now.
Uh, in our portfolio, we have, uh, a significant amount of assets at 90% plus occupancy, and in a market that doesn't have a lot of speculative development that we can build today. And so, there's still opportunities, uh, out there to build with customers, uh, obviously with our partners, uh, and expansions in markets, uh, that, uh, we know have the demand, uh, and lack of supply, uh, that makes it attractive to invest in. So, there's no.
Shortage of opportunities. And I think the pipeline remains intact, quite frankly, it's just that many of them are not going to be in the US. That's all.
Our next question comes from Greg, mc&s with Scotia Bank, please proceed with your question.
Good morning.
Just wanted to touch back on the, the lack of of seasonal uplift. Are you are you able to provide some greater context around your occupancy expectations in both Q3 and Q4 and help us understand how far below prior expectations occupancy sits today?
well, I think um, what we
Said was, we don't expect any seasonality in the second half and, and quite frankly, if you, you know, I mentioned on the call, Q2 looked a lot like, q1. I think that the second half is going to look a lot like the first half. Um, you know, Q3 I think um um might be a little overstated when you think of um, that's that's our highest quarter for power costs and we think power costs might be a little higher than we forecasted. However, uh we think the fourth quarter is a couple pennies too low. So in the main we we would view the first half and the second half very analogous on almost every metric and uh Jay, I don't know if you want to and and really the the change in our in our forecast, or obviously we had talked on the last call that we were expecting, uh, 2005 sequential bills and occupancy on seasonality and based on how we saw, you know, July
I am fold where we saw no seasonal left, we basically eliminated that 200 Pips of punctual Improvement in occupancy from our forecast,
Okay, thank you. And then you know, you you, you spoke about the factors, impacting demand, you know, whether it's interest rates, tariffs inflation. What have you
Independent of those items or is this going to be kind of completely macroeconomic driven? Uh, and so we really just need to see some improvement from that standpoint before the business starts to um, you know, improve again.
Well, I, you know, I mentioned 5 or 6, uh, individual headwinds, uh, that are that are affecting negatively affecting demand, and the fact that we could overcome a 1 or 2 of them, but uh, the combination of 5 to 6 is, is is very, very challenging. Uh, you know, uh, some components I mentioned to transitory. So if you think of interest rates tariffs inflation, those are things that should improve over time. Uh, we don't know when, uh, the they're going to improve we've. We've tried to forecast the Improvement in those, uh, macroeconomic uh, parameters and we haven't been very successful. So as Jay mentioned, we've just removed the seasonality for the remainder of the year. Uh, but those are transitory in nature, they will improve over time and when they improve over time, uh, consumer demand will improve over time, and that's when we believe we'll start to see the occupancy gains.
Uh, the others are a little more longer term. But um, I would say the others, uh, are um uh, more surmountable, I mean, excess inventory will work its way through the system over time.
You know, it, Etc. So, um, it it takes, uh, some of those 5 metrics to improve, uh, at least the macroeconomic ones, the transitory ones I mentioned. And, and then I think consumers, uh, Health improves, and then I think demand improves uh, when that happens. I I can't predict. Uh, as I said, we've tried to predict that and we've been unsuccessful a few times.
The uh the last thing I'll say though is that we're not standing still. I mean we're we're actively pursuing uh the alternative growth opportunities Rob and I both mentioned in retail and qsr. We have a very unique Market position there to sell these services and we're making a lot of progress. I mentioned that's amongst the highest cash flow, um, portfolio, uh, in our business and and we're excited to grow it. Uh, and also uh, mention again, you know, this is a very us-centric problem. We have opportunities around the world that are very, very attractive to invest in and, and will turn our capital's deployment. Probably in that direction, uh, other than the Partnerships we support, but, um, the point is, uh, our portfolio is large enough, but we still have, uh, very attractive opportunities even in times like this.
Our next question comes from Todd Thomas with keybanc capital markets. Please proceed with your question.
Yeah, hi thanks. Good morning. Um, George. You know, I I think you, you said in your prepared, comments, that certain customers are integrating or taking control of their cold chain needs, as opposed to utilizing, third-party warehouses. Um, can you elaborate on that? Comment, um, a little bit did that impact? The 4% churn churn rate that you saw? And is there any way to sort of quantify that impact on on demand? And and what segments are you seeing that most prevalent in? Um, just curious, if you could talk about that a little bit as well.
Yeah, I'd say it's it's another factor. I I'd classify it as a, a relatively minor Factor. But but many of our large customers, uh, operate a significant Cold Storage platform within their own company, uh, and its normal course of business to ensure that their own assets are full before they move product out to a to a 3pl. So that's not new with a little bit different is their maximizing, uh, cold storage space within their, uh operation. Which would they may not normally use for storing, um, the product? They're using it for. So, there's a little bit, they're big, they're big more aggressive. Because quite frankly, their, their balance sheet is a little stretched at the moment. And their p&l is a little stretched at the moment, so it's slightly more aggressive behavior. I, I mentioned it, within the cont
Checks of what we're seeing in the US market. Uh, I'm not saying it's a significant, uh, driver or Adder, uh, to, uh, to the, uh, issues we Face On Demand. And I would expect it to turn around very, very quickly, uh, when demand returns because the space that most manufacturers would use right now, to store storage is not normally used for that and and once demand returns, I'm confident, it'll come back, but think of it, as more of an indicator as to, um, how the environment, uh, is reacting right now, and and less, as an impact, on our business.
Okay, got it. So it sounds like as their inventory levels. Uh, normalize they'll, they'll increase, you know, capacity in their warehouses first. And then look back towards third-party, uh, warehouses, and and operators.
Environment more than a significant impact on our financials.
Understood. And then I wanted to also ask about the non-core dispositions, the the planned exits. Um,
what's the buyer profile of these assets? And is it your sense that they'll continue to operate as cold storage facilities?
Yah Mo. Most of these are the least assets. The buyers, the owner, essentially, um we're we're returning leases. We have sold a couple assets. But Jay I think you have the details. Yeah, no. I mean George got it, right? The bulk or just Lisa that were exiting and were able to move the inventory, um to to an own facility nearby. Um, there's 3 sales that I talked about all very small sites. You can tell um, you know, roughly 20 million of proceeds. For the 3 sites, 1 was uh related to to actually our our transportation, um business um over in Europe and the other were just 2, small properties, um, that we actually idle a while ago. Um, and we found, you know, not, I would say non- cold storage type, um, and individuals to buy them.
Our next question comes from Craig Melman with City. Please proceed with your question.
Hey guys. Um, Jay can you just tell us what was that 5.7 million in other income?
I have a million and other income, boy. I don't normally get questions on other income on this call. But, um, you know what you saw there was, uh, you know, it was the benefit of some of the sale transactions. It was some hedging transactions that we benefited from. Um, I would say that was the bulk of the two items in other income.
Right. And that slowed through to afo.
Yes, because the hedging transactions are are, are offset higher up. So it it's on different lines of the p&l but that's down to when you get to 2 afo.
Um, and then just the second question. Um,
George. I you know I I don't want to beat a dead horse here on on the macro and demand I guess. But and I know it's a little bit early to start thinking about 2026 but you know, when you look at the environment, um, and we're all trying to figure out sort of the growth algorithm for next year outside of the developments that you guys underway and potential Acquisitions from a from a core perspective. I mean are are there any near-term Catalyst that you guys are seeing to shift the the mindset of tenants?
To where we would see a, a reacion inventory, restocking, or should we just kind of think for next year Baseline. Um, occupancy is
bounces around these levels because the man doesn't approve and then just include the benefit of maybe Capital deployment. Uh, as we think about kind of trying to forecast
Well, um, I think that's the the big question. We're all asking ourselves. Uh, Craig, what's it take to, to Spur demand? I I mentioned we now have uh, multiple um headwinds to demand. It's not a a single Factor by any means uh and and it's a very difficult to handicap. The effect of 1 uh, demand driver on a percentage basis versus another versus another. So what we know is the cumulative effect is, is hard to come by. So um what would happen is some of those drivers would have to improve uh again we can overcome 1 or 2 of them that I think we can grow through 1 or 2 of them. We can't grow through 4 or 5 of them.
So something uh, would have to change. Uh, what I can tell you customers are trying very hard to create demand, they're spending money behind promotions, they're spending money behind incentive plans and rebates. Uh, it's not lack of trying uh, on the on behalf of customers, they're just having very, very um difficult uh times in finding the right price points to drive volume where where they're comfortable in retail as a company.
Able.
Um, so the gaps are still very wide. Um, so I I would say 1 uh, not for a lack of trying on our customers have but 2, um, with all the pressures on demand, we need to see some of them improve before we can reliably say that occupancy will improve with it.
And then this is where, you know, I think, um, for us as a, as a as a business to have a, a big operating component. This is where we have the opportunity to use uh, all the levers and and the tools in our tool tool belt to focus on earnings per share growth. Even even in an environment where
We're focused on adding um incremental value added Services into the business. We're we're focused on improving business mix by by generating uh new business wins and the the retail and qsr business that are higher cash flowing. So our customers aren't standing still and we certainly aren't standing still we're pulling every lever that we have to continue to drive this business forward, even in a challenged environment.
And I, I think the last part of the question was Capital, allocation? I'm wasn't sure, uh, the context of it, uh, correct. But what I will say is we have, um, opportunities to deploy capital and, and we will, uh, in areas of the world whether or not faced with the challenges, we've been talking about our Asia PAC business, for instance, is doing exceedingly. Well, it's 90 plus percent occupied, it is very retail and qsr base. So Investments down there, make a lot of sense.
Uh, and just making the point that, um, uh, with a global company, we still have very attractive areas to invest in. We have 2 very strong partners,
Uh, in cpkc and DP worlds were growing also. So a lot of those are non-. Demand driven opportunities to invest in and and we intend to take full advantage of those as well.
Yep. And and Craig follow up on other income. Um as I said Partners from gain on sale part was some other income 2.4 million was from the super Frio. Um disposition that was adjusted out of the afo and the other was just uh you know, different types of hedging unwinds that, that just offset a line items higher up. So that's more specific numbers for you.
Our next question comes from Blaine. Heck with Wells, Fargo, please proceed with your question.
Uh, great, thank you, good morning. Um, just to follow up on tops. Earlier question, do you have any sense of how much additional capacity your customers have within their own in infrastructure? Uh, just this store inventory is this a situation in which, you know, they're running at pretty full capacity and any incremental inventory. Build is going to come to you or do you think they have significant additional underutilized space to kind of absorb uh before that spills over to the third third parties?
No, I don't. And and again we I made that comment uh for context purposes in terms of where we are. But uh our largest uh um manufacturing customers have their own Cold Storage networks that they, you know, in their business it would be normal course of business. To keep those 100% full at all times at all times. Right? Why would you ever uh under good times or bad pay for space when you have free space that you won't? So this isn't a new
Thing, and there's not a lot of capacity left. It's, it's just an example of, um, how difficult the times are to grow. Uh, demand and volume and, uh, 1, uh, anecdotal comment around, uh, the level of that, uh, that pressure, and how some large manufacturers are taking, uh, even more aggressive tax using space. They wouldn't normally use for this type of thing, uh, to uh, uh, to do that. Uh, so, again very unusual circumstances when, when demand comes back, I I that I think that, um, all that inventory moves back out because they'll need that space to perform operations, um, in their, in their normal business, to ramp up demand or ramp up production. So it's not a, it's not a big deal, it's not a headwind. We're potentially concerned about but I I put it in the script and and talked about it only to provide context around. Uh, what is going on with demand? Um, and um, the pressures that uh, that are out there.
Okay. Got it. That's helpful. Uh and George we've been dealing with terrorists through several months at this point. Can you talk about any specific direct or indirect impacts to the business that you would attribute to the tariffs in place and maybe any concerns about specific products or trading partners looking forward?
With respect to tariffs but it's it's all noise and it's all turmoil and it all impacts demand at the end of the day and that's why we have it on the list.
Our next question comes from Huynh Kim with truist Securities. Please proceed with your question.
Um, going back to your second half, Odyssey guidance, um, that you're calling for basically flat.
You know, I'm just curious about that because you know part of what drives that seasonality is the holiday season, right? The Thanksgiving Christmas season. Um, so and we're already at lower occupancy level so I'm just curious why there wouldn't be some type of seasonal uplift um, or do you think there might be more customer churn? Are you do you, are you, were you lose some business in the second half. I'm just trying to
Reconcile, those statements. Thank you.
Yeah. Uh,
I understand, you've been, uh, second half of the year. By the way, occupancy is up because of the agricultural harvest, uh, that will occur as Jay mentioned earlier. But if you remove those, uh, annual events, uh, occupancy is flat. We have removed, uh, seasonality around the holidays, and we've done it because we didn't see any seasonality around the summer.
Um, so I, you know, with maybe it's a an overly conservative approach. We are not anticipating losing any business. We think our churn will remain well below 4%. Um, we don't see any customer, uh, losses, uh, in the second half of the year. So it's it's not driven by any of that. It's, uh, it's driven by. We haven't seen any seasonality through the summer and uh, we ask ourselves the question. Uh, should we plan, should we forecast? Uh, seasonality in the second half of the year and and we came to the conclusion that uh, perhaps a conservative approach, but uh, prudent in our opinion, is to not. Not look at it, it's that simple.
Okay, um, and just 1 more question on your development. So I'm looking at page, 20, acres of supplemental. You have a lot of projects here, um, that are coming online various stages. Um, I just want to make sure that we don't, that's all us. We don't double count the growth from this, um, platform next year and just given that you don't really show how much noi you're already capturing in the Run rate. Um, I was wondering if you could provide some color on what the incremental uh noi growth could look like um here on out.
Yeah, um, no. I mean, you can look at it. These are all in our non same store pools so you can see that, um, you know, generating minimal noi currently. Um, if you look at our guide, it does dip a little bit as we go into Q3 because with with Kansas City coming online with Allentown coming online, you have the startup costs associated with with starting. Um, so, you know, overall, um, if you look at the stabilization date, you apply you apply the return and you offset by by the small amount of that. You see in non same sort. That's how I would model it.
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