Lineage Q1 2025 Earnings Report

Lineage EPS Results

• Actual EPS: $0.86
• Consensus EPS: $0.82
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: N/A

Lineage Revenue Results

• Actual Revenue: $1.29 billion
• Expected Revenue: $1.34 billion
• Beat/Miss: Missed by -$51.20 million
• YoY Revenue Growth: -2.70%

Lineage Announcement Details

• Quarter: Q1 2025
• Date: 4/30/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 8:00AM ET

Lineage (NASDAQ:LINE) is the world's largest global temperature-controlled warehouse REIT with a network of over 480 strategically located facilities totaling over 84.1 million square feet and 3.0 billion cubic feet of capacity across countries in North America, Europe, and Asia-Pacific. Coupling end-to-end supply chain solutions and technology, Lineage partners with some of the world's largest food and beverage producers, retailers, and distributors to help increase distribution efficiency, advance sustainability, minimize supply chain waste, and, most importantly, feed the world.

Lineage Q1 2025 Earnings Call Transcript

Key Takeaways

• Lineage announced landmark agreements with Tyson Foods involving a $247 million acquisition of four cold storage warehouses (49 million cubic feet) and the development of two next-generation automated facilities (80 million cubic feet) for over $1 billion in capital deployment, expected to generate more than $100 million of annual EBITDA.
• In Q1 2025, total revenue was down 3 %, adjusted EBITDA fell 7 %, same-store warehouse NOI contracted 7.9 %, but AFFO per share grew 6 %; physical occupancy remained strong at 76.5 % and same-store operating costs declined 2 %.
• Despite macroeconomic and tariff uncertainties, management maintained full-year guidance of $1.35–$1.40 billion in adjusted EBITDA and $3.40–$3.60 AFFO per share, expecting a sequential recovery and same-store growth in the second half.
• Pilots of LinOS, Lineage’s proprietary warehouse execution system, have outperformed expectations and are driving productivity gains that offset labor inflation and lower the company’s cost structure.
• With net debt of $6.7 billion, liquidity of $1.7 billion, and a 5.2× leverage ratio, Lineage’s robust balance sheet supports ongoing M&A and development activity, including the Bellingham Cold Storage acquisition and automated expansions in Europe.

Presentation

[Evan Barbosa, VP of Investor Relations at Lineage]

Thank you. Welcome to Lineage's discussion of its first quarter twenty twenty five financial results. Joining me today are Greg Lemcol, Lineage's President and Chief Executive Officer and Rob Crisci, Lineage's Chief Financial Officer. Our earnings presentation, which includes supplemental financial information, can be found on our Investor Relations website at ir.onelineeage.com. Following management's prepared remarks, we'll be happy to take your questions.

[Evan Barbosa, VP of Investor Relations at Lineage]

Turning to Slide two, before we start, I would like to remind everyone that our comments today will include forward looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our filings with the SEC. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. 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. In addition, reference will be made to certain non GAAP financial measures.

[Evan Barbosa, VP of Investor Relations at Lineage]

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. Unless otherwise noted, reported figures are rounded and comparisons of the first quarter of twenty twenty five are to the first quarter of twenty twenty four. Now I would like to turn the call over to Greg.

[Greg Lehmkuhl, President & CEO at Lineage]

Thanks, Devin, and thanks, everyone, for joining us today. Today is a very exciting day for Lineage as we announced landmark agreements with our valued customer, Tyson Foods. In total, we expect to deploy approximately $1,000,000 of capital in the coming years on the acquisition and new greenfield developments that, once stabilized, will generate over $100,000,000 in annual EBITDA. The scale of these agreements on their own by cubic feet would be the size of a top 10 global cold storage company. First, we announced a definitive agreement to acquire and take over operations of four Tyson Foods cold storage warehouses for $247,000,000 These warehouses total approximately 49,000,000 cubic feet with 160,000 pallet positions and are located in Cottsville, Pennsylvania Olathe, Kansas Rochelle, Illinois and Tolleson, Arizona.

[Greg Lehmkuhl, President & CEO at Lineage]

Second, at or prior to closing the acquisition agreement, Lineage will enter into an additional multiyear warehousing agreement to design, build and operate two next generation fully automated cold storage warehouses in major U. S. Distribution markets, which Tyson Foods will occupy as an anchor customer. They will add 80,000,000 cubic feet and 260,000 pallet positions into our portfolio. We expect to deploy over seven forty million pounds on these two greenfield developments with an expected yield of 9% to 11% when stabilized.

[Greg Lehmkuhl, President & CEO at Lineage]

Under this warehouse agreement, Tyson Foods will also begin storing product at our newly developed next generation fully automated Hazleton facility as an anchor customer. The acquisitions are expected to close in the second quarter subject to customary closing conditions. We look forward to welcoming over 1,000 existing Tyson Foods employees into the Lineage family by executing our proven integration process. We expect to break ground on the greenfield developments in the second half of this year. As the new build warehouses open, targeted for late 'twenty seven and 2028, the four existing acquired warehouses will transition into public multi client facilities.

[Greg Lehmkuhl, President & CEO at Lineage]

Our leading global facility network and world class automation expertise, combined with our proprietary data science capabilities, aligns really well with Tyson Foods' objective to enable a faster, smarter, and more integrated supply chain to meet the demands of an increasingly dynamic, evolving and growing market. These landmark agreements showcase the multiple ways we can uniquely add value for our customers, and we look forward to future opportunities to help them build resilient and more responsive supply chains. Turning to our first quarter highlights on Slide four. Our first quarter results reflect normal seasonality against the elevated inventory levels we saw in the first half of twenty twenty four as discussed in our last earnings call. Our total revenue was down 3%, adjusted EBITDA down 7%, same store warehouse NOI down 7.9%, and we delivered 6% AFFO per share growth.

[Greg Lehmkuhl, President & CEO at Lineage]

Right now, winning in the marketplace does come with trade offs. Despite the inventory reset, our same store physical occupancy remained strong at 76.5%. However, the quarter was impacted by lower revenue per throughput and occupied talent, primarily driven by new business wins at lower rates and customers resetting volume guarantees at lower levels given lower industry occupancy. However, our team continues to control cost and improve productivity in an environment where food companies are balancing the challenges of high interest rates, shifting consumer sentiment and significant macroeconomic uncertainty compounded by evolving tariff policies. In response, many customers are pausing their supply chain investments and maintaining lean inventory levels.

[Greg Lehmkuhl, President & CEO at Lineage]

They are acutely focused on increasing their sales volumes while working hard to lower their operating expenses. Accordingly, we are partnering with our customers expertise to help them optimize their supply chain and navigate through this challenging period. All in, we are maintaining our previous guidance and expect to deliver adjusted EBITDA and AFFO per share growth for the full year as well as return to same store warehouse growth in the second half. We are excited to report continued progress on our pilots at our conventional buildings, which continue to exceed our expectations. As a reminder, LinnOS is our proprietary warehouse execution system that we've already implemented in multiple automated facilities.

[Greg Lehmkuhl, President & CEO at Lineage]

The software uses patented and proprietary algorithms that are a result of many years of development. 02/2025 is about testing and proving out these gains in a variety of facility profiles in advance of a broader rollout starting next year. I'm personally really excited about Lino West. This technology is one example of the innovative and bold thinking at the core of Lineage. I'm thrilled to see what a great complement it is to our lean methodologies that we've been implementing over the last decade.

[Greg Lehmkuhl, President & CEO at Lineage]

These methodologies and our productivity initiatives are expected to offset labor inflation and lower our cost structure. We are realizing some of those benefits now as our same warehouse cost of operations declined 2% in the quarter despite an inflationary environment. We expect Midwest will supercharge those efforts in the future and create meaningful cost advantages versus our competition. Finally, we continue to execute on our robust pipeline of development and M and A opportunities, including the Tyson Foods agreements, which I've already talked about, the acquisition of three warehouse campuses from Bellingham Cold Storage for $121,000,000 adding to our existing portfolio in the PAC Northwest. We have $67,000,000 in development spend in the quarter, including completing a semi automated expansion at our Vyleid Denmark facility ahead of schedule and breaking ground on our automated expansion project at our Bergen Opsen facility in The Netherlands, which once completed, will be the largest cold store in Europe.

[Greg Lehmkuhl, President & CEO at Lineage]

Finally, I'd like to give a shout out to our finance and accounting team for enhancing our quarterly close process, resulting in us speaking to you today a week earlier than our last 10 Q in the fall. Their hard work echoes across the organization, and I would like to sincerely thank all of our global team members for their contributions during the first quarter. Now I'd like to turn the call over to our CFO, Bhavan Prishee.

[Rob Crisci, CFO at Lineage]

Thanks, Greg. Good morning, everyone. Starting on Slide five and looking at our financial results for the first quarter. Our total revenue was $1,290,000,000 down 3%. Our adjusted EBITDA decreased 7% to $3.00 $4,000,000 with adjusted EBITDA margin down 110 basis points to 23.5%.

[Rob Crisci, CFO at Lineage]

Our AFFO for the quarter was up 48% to $219,000,000 and AFFO per share was $0.86 a 6% increase versus prior year aided by lower than expected tax expense and the timing of our annual maintenance CapEx spend. Next slide. Shifting to our global warehousing segment. We have the four year view on this slide that does a good job of pointing to the multiyear trends we talked about in February. Inventory levels were elevated the last couple of years, helping drive 22% same warehouse NOI growth in the first quarter two years ago.

[Rob Crisci, CFO at Lineage]

The excess inventory appears to have stabilized, but we are now seeing more typical seasonality as revenue declined sequentially from the fourth quarter, representative of a more normal pattern. Average revenue per pallet has been challenged for the reasons Greg mentioned. We have been controlling costs well through sustainable labor productivity improvements even before realizing future benefits around our LINOS technology. Turning to the outlook for the remainder of the year. We continue to expect normal seasonality with the second half outpacing the first half.

[Rob Crisci, CFO at Lineage]

However, since our February call, the macroeconomic uncertainty driven largely by The U. S. Tariff announcement has created some hesitancy among our customer base in the short term. Notably, about 50% of our U. S.

[Rob Crisci, CFO at Lineage]

Throughput volume is directly tied to importexports. Some of our customers are in a wait and see mode, making it difficult to predict near term activity. We expect year over year declines in Q2 similar to Q1 as comps remain challenging in Q2, which by the way is typically the lowest quarter of the year from a seasonal perspective. We anticipate growth to return in the second half driven by normal seasonal increases and easier comps. However, given the macro uncertainty, it's difficult to predict the level at which we will grow in the second half.

[Rob Crisci, CFO at Lineage]

Past supply chain disruptions sometimes boost customer inventory levels, but it's too early to tell with confidence what's going to happen. We will have more visibility and will be better able to quantify growth as tariff policies stabilize, we look forward to updating you next quarter. Turning to slide seven and covering our Global Integrated Solutions segment. Segment revenue was down 3% to $348,000,000 NOI was down 3% to $57,000,000 with NOI margin flat at 16.4%. As expected, we saw new business that we won in the second half of twenty twenty four starting to come online in the first quarter.

[Rob Crisci, CFO at Lineage]

We see strength in this segment as our transportation and other value added services are increasingly sought after by our customers. For 2025, we expect strong momentum to continue with sequential growth throughout the year. Easier comps later in the year should help drive strong double digit growth in the second half. Turning to slide eight. We ended the quarter with net debt of 6,700,000,000 Total liquidity at the end of the quarter stood at $1,700,000,000 including cash and revolving credit facility capacity.

[Rob Crisci, CFO at Lineage]

Our leverage ratio, defined as net debt to adjusted EBITDA, was 5.2 at the end of the quarter. Our strong balance sheet, available cash and debt capacity continues to offer us flexibility to take advantage of attractive capital deployment opportunities moving forward. Our landmark agreements with Tyson Foods are a great example and we look forward to continuing to take advantage of our attractive pipeline of accretive opportunities. Turning to slide nine, we are maintaining our 2025 guidance with our adjusted EBITDA range in millions of $13.50 dollars to $1,400 and AFFO per share of $3.4 to $3.6 Our guidance includes contributions from our recently announced acquisition of approximately $25,000,000 of adjusted EBITDA and $05 of AFFO per share for the balance of the year. However, we believe it's appropriate to maintain previous guidance to account for the near term uncertainty we are seeing in the core business as our customers remain tentative given evolving tariff policy.

[Rob Crisci, CFO at Lineage]

We continue to be well positioned for growth in the second half of the year. As a compounder, it's nice to have some strategic capital deployment to help fill the gap created by some of this near term uncertainty. Importantly, the Tyson Foods agreement helped increase our base and position us well for incremental growth in 2026 and beyond, both from the acquisitions and down the road from the greenfield development. Lastly, we've included some additional modeling support on this page. Most assumptions remain unchanged with the exception of higher interest due to the new capital deployment and lower tax expense related to some of our international operations.

[Rob Crisci, CFO at Lineage]

With that, I'll turn it back over to Greg to wrap up before turning it over to your questions.

[Greg Lehmkuhl, President & CEO at Lineage]

Thanks, Rob. I'll conclude on slide 10. Our achievements this quarter demonstrate our strength and ability to create value through strong customer relationships. The landmark agreements with Tyson Foods, representing approximately $1,000,000,000 in total capital deployment, will significantly enhance our platform and add to our global leadership position. Our acquisition of three warehouse campuses for Bellingham Cold Storage has strengthened our presence in a key market, while our Violet and Bergen Op Zoom expansions showcased customer led growth across our global markets.

[Greg Lehmkuhl, President & CEO at Lineage]

Lineage's competitive advantages continue to differentiate us in the market. We remain committed to growing these advantages through our technology first approach exemplified by our progress on Lineage's. Looking ahead, we see significant opportunities for growth with a robust pipeline of strategic acquisitions and greenfield development opportunities. As I reflect on the challenges in our environment today, I'm heartened that at its core, Lineage is a business that is built to weather the storm. We have the largest platform driving significant network effects, the best assets, our industry leaders in technology, automation and data science, and are the most diversified geographically and across our more than 13,000 customers.

[Greg Lehmkuhl, President & CEO at Lineage]

We provide the most comprehensive set of services with our globally integrated solutions segment. We are leaders in lean operational excellence, and we believe we remain the acquirer of choice in the industry, demonstrated again by today's announced landmark agreements with Tyson Foods. We have the balance sheet and attractive cost of capital to take advantage of market opportunities through strategic m and a and capital deployment. Because of these structural and distinct advantages as the industry leader, I'm confident that we are well positioned to win and to deliver long term compounding growth to create shareholder value. 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 single day.

[Greg Lehmkuhl, President & CEO at Lineage]

And with that, I'll open it up to questions. Operator?

[Operator]

Thank you. We will now begin the question and answer session. The interest of time and to ensure we address as many And your first question comes from the line of Caitlin Burrows of Goldman Sachs. Please go ahead.

[Caitlin Burrows, Vice President at Goldman Sachs]

Good morning everyone. Vivi, you mentioned in the prepared remarks that 50% of throughput is directly tied to the import export business. So is the other 50% consumption or can you go through that? And I think we've just been surprised on how volatile the food business can be. So can you give some more color on how that food imports exports business is able to be so volatile and similar for, consumption?

[Caitlin Burrows, Vice President at Goldman Sachs]

Like, how does economic uncertainty impact, customer inventory and throughput? I guess that's a lot, but, it all ties together well.

[Rob Crisci, CFO at Lineage]

Sure. Hey, Caitlin. Good morning. Just, just to clarify, so it's

[Rob Crisci, CFO at Lineage]

15%, one five, directly tied

[Caitlin Burrows, Vice President at Goldman Sachs]

to Okay. I heard 50, so thank you.

[Rob Crisci, CFO at Lineage]

Yeah. Yeah. No no worries. And now I'll turn it over to Greg.

[Greg Lehmkuhl, President & CEO at Lineage]

Yeah.

[Greg Lehmkuhl, President & CEO at Lineage]

I I think that, well, the tariffs have created significant uncertainty in the short term. You know, the the consumption really hasn't changed. So the and it really hasn't impacted overall occupancy too much at this point. There's certainly, again, short term uncertainty given the tariffs that our our customers are are not making major supply chain decisions in large part because of the tariffs, but it I don't think it's driving substantial volatility so far yet.

[Caitlin Burrows, Vice President at Goldman Sachs]

Got it. And then maybe just if you could, realize 15 is a different scale than 50. But on that, import export business, is it just that certain food center being consumed less today than they would have been previously, or how does that actually end up, like, happening and impacting you?

[Greg Lehmkuhl, President & CEO at Lineage]

Yeah. So so I've met with 20 customers literally just in the last few weeks, and and I think the biggest single impact is customers are delaying major decisions, and it's just creating hesitancy. Our customers are just waiting for more clarity before they make major decisions like where to expand operations, where to build plants, where to source long term transportation, whether that be domestically to ports or internationally in the forwarding space, or where to where to shift position and build inventories. The the kind of rapid changing of tariff policies has caused some, call it, short term disruption. For example, our customers have rerouted inventory that that's been in flight on the way to to to destinations like China, for example.

[Greg Lehmkuhl, President & CEO at Lineage]

Alaskan seafood, which generally comes to the packed Northwest after being processed in China that was headed to China for processing, has either come back to The US for processing or been rerouted to other Southeast Asian countries like India or or Vietnam for for processing. In the protein space, we've seen certain, proteins. We've seen the export levels come down. But importantly, when you talk about volatility, even though some export levels have come down in specific proteins, the the production and manufacturing levels have actually remained very steady. The end consumption has remained steady, and just a little bit more of that of that production is being, is being routed to The US versus, versus, you know, overseas.

[Greg Lehmkuhl, President & CEO at Lineage]

I think, you know, out of 20 customers, literally only one beef producer in Australia that I met with a couple weeks ago was was not worried about The US tariffs because he said The US has such a beef shortage because the herd is so small right now. He basically said no matter what our price is to export to The US, Americans are gonna eat cheeseburgers, and he wasn't worried. But but everybody else had said tariff was at the top of their list.

[Caitlin Burrows, Vice President at Goldman Sachs]

Thank you.

[Operator]

You have a question from Brendan Lynch at Barclays. Your line is open.

[Brendan Lynch, Director at Barclays Capital]

Great. Thanks for taking my question. On the assets that you're acquiring from Tyson, can you talk about where they are in the

[Brendan Lynch, Director at Barclays Capital]

supply

[Brendan Lynch, Director at Barclays Capital]

chain?

[Greg Lehmkuhl, President & CEO at Lineage]

And what their level of commitment to you is over the long term for those specific assets? Yes. I'll just say it's a long term agreement, a multiyear agreement. We can't disclose specific attributes of the actual agreements themselves.

[Greg Lehmkuhl, President & CEO at Lineage]

The assets that we're acquiring are a mix between production and distribution.

[Brendan Lynch, Director at Barclays Capital]

Good. Thank you.

[Greg Lehmkuhl, President & CEO at Lineage]

More on the more slanted towards the distribution side, though.

[Brendan Lynch, Director at Barclays Capital]

Great. Thanks.

[Operator]

Your next question is from the line of Sameer Kanao from Bank of America. Please go ahead.

[Samir Khanal, Director at Bank of America]

Good morning, everybody. Greg, I guess just maybe talk around occupancy, right? I mean occupancy was down as we would have thought maybe a little bit even more. But how to think about the cadence of occupancy as we go through the year? I know you talked about recovery in the second half.

[Samir Khanal, Director at Bank of America]

So any color on that would be helpful.

[Greg Lehmkuhl, President & CEO at Lineage]

Yes, certainly. So we talked at length last quarter about how you know, there was a multiyear inventory stopping that that concluded in the third quarter of last year. And since then, we reported last quarter that we've seen more normal seasonality. And that that holds true through this quarter. We are seeing normal seasonality despite the tariff uncertainty.

[Greg Lehmkuhl, President & CEO at Lineage]

And what that means is we were elevated in the first half of last year, and the first half comp this year is very challenging. But we would expect to see normal seasonality in the second half, which would give us elevated levels from last year or versus right now.

[Samir Khanal, Director at Bank of America]

Guess as a follow-up to that, I mean, what gives you the confidence of that sort of return back to seasonality? I know the comps get easier in the second half, but you kind of highlighted the delays in decision making by customers. And I guess what are you seeing in changes to that customer behavior to kind of give you that confidence given the uncertainty? Thanks.

[Greg Lehmkuhl, President & CEO at Lineage]

Yeah. Great question. So our data science team studied the last, almost ten years of our data for what we call core inventory holdings. These are customers where we never we we neither won new business nor nor nor any business and and built that up from the SKU level in the actual facilities. And from that, we derive what we consider normal seasonality across our global network.

[Greg Lehmkuhl, President & CEO at Lineage]

And that historical pattern of normal seasonality, kind of how inventories change month to month, resumed in the third quarter of last year, and that stayed consistent with that historical trend through the first quarter of this year. And so of course, things could change. We're not trying to predict the future. We're just saying that, so far, our data shows that both seasonality and the inventory destocking concluded in the third quarter of last year. Thank you.

[Operator]

You have a question from Michael Carroll at RBC. Your line is open.

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

Yes, thanks. Greg, can you provide some more color on your storage and service rental rates? Know both looks like they are down a decent amount year over year and sequentially.

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

I guess what's driving this weakness? Is

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

Lineage cutting rates to win market share? Or is there a mix shift? I guess what's going on with those numbers?

[Greg Lehmkuhl, President & CEO at Lineage]

Yes. Great question. So let me just kind of provide quite a bit of color on what we're seeing in the industry right now in response to your question. There's a lot there's a few things going on at the same time here. First of all, inventory occupancies declined to the destocking I I just reviewed.

[Greg Lehmkuhl, President & CEO at Lineage]

Again, normal seasonality has resumed, but we'll have tough comps in the first half of this year. In the first quarter of this year so so the the inventory levels of core holdings are down. And so in the first quarter of this year, our customers have reset volume guarantees at a lower level to match their inventory needs. And then, certainly, you know, over the last couple of years, some new capacity has come online in in select markets. And so in this challenging environment, we've been focused on keeping our physical inventory high.

[Greg Lehmkuhl, President & CEO at Lineage]

And I I mentioned on the last earnings call that we we are willing to trade volume for price strategically when it makes sense for the long term health of the business. And our our sales team has actually done a great job managing the situation by winning a lot of new business, which has largely offset the core holdings decline that we that we just talked about. And I think that's illustrated by, in a declining environment, our physical inventory is only down only down 1%. And as you as you suggest, you know, part of the trade off to win some of that new business has been to work strategically with the customers on on price. Now now all that said, while there is pressure and uncertainty in the short term, and the marketplace definitely remains competitive, we believe that we've returned to, again, normal inventory holdings and and seasonal patterns even without some kind of inventory rebound, which we're not counting or guiding to.

[Greg Lehmkuhl, President & CEO at Lineage]

And the year over year pricing headwinds that you're seeing in our numbers, will wane as the year progresses as customers have largely reset their volume guarantees now. That happens majority in the first quarter, and inventory levels have stabilized. And so, you know, when we when we look forward, as Rob talked about in his prepared remarks, we see a a similar environment in the second quarter to the first quarter and a return to same store growth in the second half. And we're not we're not providing, you know, an exact, same store growth figure for the second half only because of the macro uncertainty. There's a there's a number of things in the short term that could impact us by a few points in either direction.

[Greg Lehmkuhl, President & CEO at Lineage]

But we are we're confident in the midterm that we're gonna be fine just because the the scale and diversification of our network.

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

Okay. So with the minimum resets stores numbers coming down impacting that rent number, does that is that all kind of already in the numbers in 1Q? I believe you kind of highlighted that. So we should think about that kind of at a good level today, not any incremental weakness and could build back up over time, maybe in line with inflation?

[Rob Crisci, CFO at Lineage]

Yeah. I think in

[Rob Crisci, CFO at Lineage]

the general assumption, yeah, I think

[Rob Crisci, CFO at Lineage]

that's very fair. I mean, I think that makes sense, Mike. You know, we were just you know, there's uncertainty, right, around all the stuff we talked about, and so we just wanna be super careful because we're you know, we learn more every day. And, you know, we we think we'll have a really a really good year and a and a really nice second half, and, you know, we're just we're challenged to quantify for all the reasons we talked about.

[Greg Lehmkuhl, President & CEO at Lineage]

Yeah.

[Greg Lehmkuhl, President & CEO at Lineage]

But I think I think in large part, that kind of price or volume guarantee reset has happened in the first quarter. That will cascade through the year, but then, you know, we would expect to get, you know, normal price increases and not have, guarantees drop a bunch again next year because we're at very lean inventory levels throughout the industry and the destocking is concluded.

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

Okay, great. Thank you.

[Operator]

Your

[Operator]

next question comes from the line of Michael Mueller of JPMorgan. Please go ahead.

[Michael Mueller, Analyst at JP Morgan]

Yes, hi. I guess first, can you talk about some examples of where you're seeing customer pauses? Are you seeing it more with producers or is it more from retailers? Just some color

[Michael Mueller, Analyst at JP Morgan]

on that would be great.

[Greg Lehmkuhl, President & CEO at Lineage]

I would say it's more for producers than retailers as the consumption in The U. S. Isn't changing. And it's more about kinda outside of Tyson making structural changes, contracting with forwarders for just for certain international lanes for a year and locking down price when there's so much volatility because they know, the producers on the export side or import side don't know exactly, you know, where they'll be sourcing certain products or will they will they be shipping certain products. What we know is that food flows like water around the world, and people are gonna eat everywhere.

[Greg Lehmkuhl, President & CEO at Lineage]

And kind of no matter what happens, we think we'll be we'll be well positioned to do.

[Michael Mueller, Analyst at JP Morgan]

Got it. Okay. And then, I guess, question, how do acquisition and development required returns change when you're dealing with kind of somewhat of an anchor customer or tenant as opposed to just, you know, normal normal course one off activity?

[Greg Lehmkuhl, President & CEO at Lineage]

I would say these are all the deals that we announced today are in line with our historical expectations.

[Greg Lehmkuhl, President & CEO at Lineage]

And and we, you know, we we love the customer. We, we think we're gonna be able to help a ton with our technology and automation. We think we can really partner with them and and streamline their supply chain even more, and and the deals are accretive to us in

[Greg Lehmkuhl, President & CEO at Lineage]

line with past deals. Yeah.

[Rob Crisci, CFO at Lineage]

You know, I mean, Tyson is very much a win win for for both parties. And we we work really closely over many, many months on this on this, on these agreements. And, you know, we we very much want our customer to do well, and we think we'll do well. And it's a it's a wonderful thing.

[Michael Mueller, Analyst at JP Morgan]

Got it.

[Michael Mueller, Analyst at JP Morgan]

Okay. Thanks.

[Operator]

Your next question is from the line of Craig Mailman from Citi. Please go ahead.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Hey, good morning guys. Just wanted to follow-up on kind of the changing assumptions here. I mean, it hadn't been for the Tysons deal, you essentially would have lowered guidance here by $05 I mean, what's the biggest pressure point as you guys reevaluated kind of the risk of tariffs? Is it you know, further erosion in occupancy, rate, margins, kind of what's the what worried you the most from a visibility perspective?

[Greg Lehmkuhl, President & CEO at Lineage]

I think it's just the the unknown and the uncertainty of the tariffs. I mean, again, we're we're all over the world. We can support consumption, you know, in all the major markets which in which we operate, but our customers are telling us they're not sure what they're gonna do. They don't know where they're gonna build inventories. They don't know, you know, how they're gonna direct trade flows, and that could have a short term disruption, even though we're very confident we'll support their their needs in the in the medium and long term.

[Greg Lehmkuhl, President & CEO at Lineage]

So given that uncertainty, given 19 of the 20 clients I I met with said, we don't know what's gonna happen with our supply chain. I we think it's prudent to to reinforce our overall guidance with the with the acquisition, you know, new new cash flows, but but not try to get specific when none of our customers know exactly what's gonna happen in the network.

[Rob Crisci, CFO at Lineage]

You know, and as as I said in the prepared remarks, there's also an upside opportunity here too, right, which is also difficult to predict. But, normally, more inventory tends to to get to the system anytime you have disruption. We see that many times over history.

[Greg Lehmkuhl, President & CEO at Lineage]

Brexit, COVID.

[Rob Crisci, CFO at Lineage]

Yeah. So Brexit, COVID, etcetera. So I just think, you know, again, it's it's just hard to predict. As Greg mentioned, I mean, we're gonna be within a range, but it could go a few points one way or the other.

[Rob Crisci, CFO at Lineage]

And so we really wanna see more, and and we'll update everyone, you know, as we see things here, you know, into the next quarter, the second half of the year. Yeah. I mean, there there's been supply chain disruptions in the past, like like port strikes, like COVID, like Brexit, but there's really this is unprecedented. I mean, no one knows what's gonna happen with global trade flow. And I think we just feel, you know, thankful that we're not in consumer electronics or auto parts that can be, handicapped in the medium and long term from these changes.

[Rob Crisci, CFO at Lineage]

And we're in food, people are going to eat, and we're all over the world and diversified. So we think we're super well positioned versus most companies in the long term. But in the short term, there could be a little volatility.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Okay. And then just on the volume kind of resets here with customers and sort of the lower price points. I mean, how much of that is happening with renewal agreements versus pricing pressure trying to poach clients from competitors to bring in kinda new deals?

[Greg Lehmkuhl, President & CEO at Lineage]

I I would say on the volume guarantees, it's it's, you know, what's happening with the volume guarantees is we're actually our sales team is doing a great job of getting new volume guarantees. We have we have record new business despite the soft environment, and the the new business has more than 42% volume guarantees. However, the the existing customers, the kind of core holdings that we had volume guarantees with going into the first quarter, they've lowered those guarantees, and that puts pressure on our revenue per occupied and throughput pallet. And so, you know, while we love collecting revenue from from from customers, you know, we don't we actually don't think customers paying significantly more you know, paying for significantly more space than they're using is beneficial in the long run. And and we like the a relatively, low gap between physical and economic for that reason.

[Greg Lehmkuhl, President & CEO at Lineage]

We think too big a gap is kind of a ticking time bomb, frankly. So we think we've worked through that, and it will be more stable going forward.

[Operator]

And your next question comes from the line of Alexander Goldfarb of Piper Sandler. Your line is open.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Hey, good morning out there. Two questions. First, if we look at the non same store pool, that seems to be where you guys are experiencing a much bigger occupancy drop. So just want to get a little bit more color. That's my first question.

[Greg Lehmkuhl, President & CEO at Lineage]

Yeah. I mean, that's really related to the Kanowic fire from last year. Yeah, it's basically that's the big part of it in the first quarter.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

So 42 properties where that occupancy drop was just 15% drop was all driven by one property?

[Rob Crisci, CFO at Lineage]

Yeah. It's and there's also Big Bear. So there's a couple couple where we had, you know, incidents, right, with the fires. That's the biggest driver. I mean, that Kennewick was one of our largest facilities, and that's a relatively small on same store.

[Greg Lehmkuhl, President & CEO at Lineage]

It was totally full.

[Rob Crisci, CFO at Lineage]

Yes. Was totally full. Yes. So I think that's the big driver, Alex.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Okay.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

And then the second question is, we've been for the past few quarters, we've been talking about this normalization of inventory levels. And obviously, guys have a lot of experience in the business, but it does seem that each quarter, it seems to be the next quarter. So just curious, as you look at the normalization of inventory levels and the stable consumption that you guys see

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

in

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

the food business, is there something different about this cycle versus your fifteen plus years in business that seems to be taking longer for inventories to normalize? Because I mean COVID was a few years ago presumably the destocking occurred a few years ago and the tenant should have been back especially pre April 2. So just sort of curious why it seems to just be taking a little bit longer than what we initially spoke about. I think it was back on the on your initial earnings call.

[Rob Crisci, CFO at Lineage]

Yes. Yes. So I'll start turning over to Greg.

[Rob Crisci, CFO at Lineage]

But we actually from

[Rob Crisci, CFO at Lineage]

an occupancy level, we're pretty much right what we expected for the first quarter. I mean, we saw normal seasonality. As we talked about, we saw the the core holdings, know, stabilize, you know, after the second quarter of last year.

[Rob Crisci, CFO at Lineage]

So actually, I mean, yeah. From the occupancy standpoint, we

[Rob Crisci, CFO at Lineage]

are directly in line. Like, you know, rate was a tiny bit worse as as Greg talked about, and that really was the driver. We we were actually pretty close to our internal models on q one, so consistent with with what we had told people. And I'll turn it over to Greg for No.

[Greg Lehmkuhl, President & CEO at Lineage]

I I would just reiterate what you said.

[Greg Lehmkuhl, President & CEO at Lineage]

We we we said very clearly last quarter. We thought normal normal occupancy and seasonal patterns resumed in the third quarter. That remains true today and is reflected in our numbers. And as Rob said, the occupancy was right where we frankly hoped it would be in the first quarter.

[Operator]

Thank you. Your next question is from the line of Blaine Heck of Wells Fargo. Please go ahead.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

All right. Great. Thanks. Just a few with respect to the agreement with Tyson. Can you talk about the age and condition of the four properties that you acquired?

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Whether they might need any redevelopment or repositioning as Tyson moves from those properties into Hazel Ton and eventually the two new developments? And then also what the yield is on the assets that are being acquired, if you could share that?

[Greg Lehmkuhl, President & CEO at Lineage]

Let's start with the last one.

[Rob Crisci, CFO at Lineage]

Yes. So I think we talked about 9% to 11% on the development. You know, in terms of the the EBITDA contributions on these acquisitions, we're low double digit EBITDA multiple, on the on the acquisitions we announced this quarter. Yeah.

[Rob Crisci, CFO at Lineage]

There we did do, of course, complete due diligence, and Tyson was totally open book on the condition of the assets. They're generally in very good condition, and any CapEx that we would need to put in is certainly figured into the overall deal and returns.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Okay. Great. That's helpful. And then second question, can you talk about how we should think about the sources of funding past the cash that you guys hold on the balance sheet for the total spend on the acquisition and development agreement? And maybe how you think about additional capacity or dry powder for investments kind of incorporating this deal, the Bellingham acquisition with the additional spends on development underway and and potentially any debt pay downs that you might be considering?

[Rob Crisci, CFO at Lineage]

Yeah. Sure. So I think this is all in line with our our normal operating cadence where we, you know, we we spend money using our revolver. We still have a ton of capacity. You know, we're a solid investment grade company.

[Rob Crisci, CFO at Lineage]

We have the opportunity to do public bonds here moving forward, which is something we'll certainly look at. And then as we grow the business and we generate more EBITDA, we get more capacity, we generate more cash, and, you know, you you get the fly ball that we talked about. So we still have capacity now. You know, we're we're gonna be very thoughtful in this market. Again, you know, we're we're always gonna be patient, and we'll manage this investment grade balance sheet and continue to grow the business.

[Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities]

Great. Thanks, guys.

[Operator]

Your next question is from the line of Nick Dillman of Baird. Please go ahead.

[Nick Thillman, Senior Research Analyst at Robert W. Baird & Co]

Hey, good morning guys. Maybe wanted to touch some on the variable costs within the business and the labor in particular. I guess what are you guys seeing on the labor front when it comes to wages or is wage pressures kind of have abated at this point? And then what are you guys kind of doing on the staffing levels with volume expected to be a little bit lower on the import export? I guess, are you adjusting to this type of environment?

[Rob Crisci, CFO at Lineage]

Yeah. So I'll I'll start. You know, yes. Labor productivity is still a great story for us we talked about. You know, I think we we showed our same store warehouse warehousing cost down in the quarter, and that's driving you know, helping us, and and it's all about labor productivity and lean and the things we've been doing forever.

[Rob Crisci, CFO at Lineage]

And then we'll I'm sure we'll talk about LinnOS and the opportunity there. But, yeah, no. It's a good story. I think, you know, we're we, you know, we continue to have, you know, a lot of positives here that are helping us.

[Greg Lehmkuhl, President & CEO at Lineage]

Yeah.

[Greg Lehmkuhl, President & CEO at Lineage]

I would say, certainly, the the labor front is is stable, and and we're seeing, you know, wage increases of about three and a half percent a year, which is in line with with with history.

[Nick Thillman, Senior Research Analyst at Robert W. Baird & Co]

That's helpful. And then maybe just following on an earlier question. Of the 25,000,000 of EBITDA, are you able to break that down between Tyson and the Bellingham acquisition?

[Rob Crisci, CFO at Lineage]

No. No. I don't wanna get into the details on that. But but as we know, the the actions together, like I said, we're low double digit EBITDA as you kinda back into it.

[Nick Thillman, Senior Research Analyst at Robert W. Baird & Co]

Great. Thanks.

[Operator]

Your next question is from the line of Matteo Akusanya from Deutsche Bank. Please go ahead.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Yes. Good morning, everyone. I was hoping you could dive a little deeper into guidance. So again, it's unchanged. You're gaining $05 from all the acquisition activity.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Could you just talk a little bit about all the other moving parts, whether it is, like, a you know, with now expecting slightly worse by, you know, x amount in operation, but, you know, we're picking up this amount from better cost? Just to kinda get a a general sense of how guidance still kinda ends up being flat, but understanding some of the moving parts a little bit better.

[Rob Crisci, CFO at Lineage]

Yeah. For sure. So it's really about all the the uncertainty that that we talked about earlier. You know? So there there are a lot of moving parts.

[Rob Crisci, CFO at Lineage]

We have a lot of levers to pull. We feel very confident in these guidance ranges that we gave you on adjusted EBITDA, AFFO per share. There's a lot of different ways to get there, you know, and we'll continue to execute throughout the year to make sure we deliver these results or better. But there's just a lot of moving pieces. Right?

[Rob Crisci, CFO at Lineage]

I mean, it's it's tough to quantify everything because you can't predict the future. But we feel really good about these ranges, and we're aided by the acquisitions, and we'll execute well the rest of the year.

[Greg Lehmkuhl, President & CEO at Lineage]

And we're certainly building in substantial productivity improvements continuing through the year, actually accelerating through the year. And I think the price pressure that we saw in the first quarter will continue throughout the year, and that's all baked into our assumptions. Okay.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

That's helpful. And then if I could ask a quick second question, could you talk about the business in terms of how domestic is performing relative to your international operations? Is one generally feeling better than the other? Is there more risk in one or the other? Just kind of curious how that's shaping up.

[Greg Lehmkuhl, President & CEO at Lineage]

Yes. I think the price pressure that we saw with the volume guarantees resetting was kind of a U. S. Phenomenon. And our both our Asia Pacific business and our European business is actually performing very well and, I believe, has accelerating performance.

[Greg Lehmkuhl, President & CEO at Lineage]

And while GIS our GIS segment was down year over year, we're still guiding to 5% to 10% EBITDA growth of that segment, and we feel good about that.

[Operator]

Your next question is from the line of Ronald Kamden of Morgan Stanley.

[Ronald Kamden, Managing Director, Head of US REITs and CRE Research at Morgan Stanley]

Hey, great. Just two quick ones. So starting with sort of same store NOI, I know the previous guidance obviously of 2% to 5% constant currency. The presentation says 2Q should be sort of down as much as 1Q, if I'm understanding that correctly. So just trying to think about the cadence of what's baked into the second half of the year.

[Ronald Kamden, Managing Director, Head of US REITs and CRE Research at Morgan Stanley]

Obviously, you'll not put an exact number on it, but how are you guys thinking about that down and and recovering the second half of the year?

[Rob Crisci, CFO at Lineage]

Yeah. So I think, you know, as we said, we're we're confident in growth in the second half of the year for all the things we talked about, the easier comps, the seasonality. I think that, you know, we we're not sure how much it's going to grow, and that's why we're being careful on giving ranges, and that's where we'll continue to, you know, give you more information as as we see it. But but that's really the you know, as Greg mentioned, that's kind of Yeah.

[Rob Crisci, CFO at Lineage]

Those those are the those are the key points.

[Ronald Kamden, Managing Director, Head of US REITs and CRE Research at Morgan Stanley]

Great. And then my second question is just, just a little bit more color on what you're hearing, from tenants and sort of their level of inventory, sort of post tariffs and so forth? And are there any sort of sectors, whether it's food, seafood, protein? Is there any one or other that's better or worse position than any other sort of post tariff announcement? Yes.

[Greg Lehmkuhl, President & CEO at Lineage]

I would say there's wait and see on whether to change any inventory positioning or level of holdings. Our seafood business, we talked about that a lot last year. That's stabilized, and I think we're kind of at a normal consumption level in seafood. And so we're seeing that we're seeing those inventories down from the peak of COVID, but there's no longer downward pressure in that segment of our business.

[Ronald Kamden, Managing Director, Head of US REITs and CRE Research at Morgan Stanley]

Thanks so much.

[Operator]

Your next question is from the line of Steve Sakwa of Evercore ISI. Your line is open.

[Steve Sakwa, Senior Managing Director at Evercore ISI]

Yes, thanks. Good morning. I don't know if you guys saw there was a major article about the Chinese that had canceled the major, I guess, pork order from U. S, obviously, given the tariff situation. And I'm just curious how that sort of transaction ripples back through the system here in The U.

[Steve Sakwa, Senior Managing Director at Evercore ISI]

S. And could things like that in some cases put upward pressure on occupancy or how do you sort of think about that in light of the comments, Greg, you sort of made about customer uncertainty with kind of the importexport business?

[Greg Lehmkuhl, President & CEO at Lineage]

Yes. It's a really great question. So absolutely, that could happen. I mean, we're all the uncertainty that we have and the reason we're not giving a same store exact number for the second half is isn't all downside. There's a lot of things that could happen here that could buoy our our occupancy and results, and that's one of them.

[Greg Lehmkuhl, President & CEO at Lineage]

I mean, China is a is a very large trading partner with The US in the food space. We we've spoken with our team, a number of commodity experts. And and I think importantly, though, you know, while China's a a large partner, they've been using nontariff trade barriers for for a number of years. So this really isn't a new, issue. While it's, you know, pronounced, then it could have a a bigger impact than past issues.

[Greg Lehmkuhl, President & CEO at Lineage]

It's not a new thing for our customers to deal with. I mean, for example, China was not renewing export licenses for a number of US protein locations, that compete with their domestic producers all of last year, and our customers have been have been dealing with that. And so customers and producers are already working to redirect their exports to different countries, and that's exactly what they'll do if the tariffs remain if China's Protectionist policies continue or the tariffs get larger. So, I mean, like we said, food food flows like water around the world. If it's not, exported to China, it'll be exported somewhere else, or it'll be because it you know, it'll be pointed to the domestic market here in The US.

[Greg Lehmkuhl, President & CEO at Lineage]

But yes, there is upside as you point out.

[Steve Sakwa, Senior Managing Director at Evercore ISI]

Okay. Thanks. And then maybe just sorry, did you want to say something else?

[Greg Lehmkuhl, President & CEO at Lineage]

No, I'm good. Proceed.

[Steve Sakwa, Senior Managing Director at Evercore ISI]

Okay. Just second question, just I guess as you think about capital deployment and like this Tysons deal, does the economic uncertainty maybe create more opportunities for you guys as customers look to kind of shed costs and streamline their business? How are you thinking about those deals and maybe the return hurdles in light of kind of where your stock has traded since the IPO and uncertainty in the bond market? Are you raising your investment hurdles? And do you think this can create more opportunity?

[Greg Lehmkuhl, President & CEO at Lineage]

So we we think it could. We're always looking at risk adjusted return, and our our cost of capital is a is a key component of of that calculation that we that we talk about every week in our our capital deployment call. But but, certainly, if if tariffs impact the global supply chain, customers will shift their either production or distribution channels. And we are in those rooms with those executive staffs helping them decide and and execute on any major supply chain changes. And so, you know, Tyson is one that that was obviously born well before these tariff, these tariff policy changes.

[Greg Lehmkuhl, President & CEO at Lineage]

But, as things change, we tend to we tend to get even more valuable with our customers.

[Operator]

Great. Thank you. Your next question is from the line of Ki Bin Kim from Chewest. Please go ahead.

[Ki Bin Kim, Managing Director at Truist Securities]

Thank you. Good morning. Going back to that Tysons deal, can you ultimately what was the value proposition for Tysons? Was it just cost savings or LYN OS or just more, sustainable operations? Just curious overall.

[Ki Bin Kim, Managing Director at Truist Securities]

Thank you.

[Greg Lehmkuhl, President & CEO at Lineage]

Yeah. All the above. I mean, lower cost, best technology, best automation, serving their, you know, dynamic customers better, positioning their inventory in the optimal locations. These guys are really smart about how they plan their future supply chain, and we were able to work with them for, you know, a full year on what that future supply chain should look like. We also provide them with a lot of flexibility given that they're they're they're an anchor customer in these buildings, and can flex inventory if needed to a certain extent, and that kind of future proofs their supply chain.

[Greg Lehmkuhl, President & CEO at Lineage]

LinOS was certainly a piece of this and, you know, we'll be running in these automated buildings, and we will convert to LinOS in the buildings that we're that we're purchasing from them. And I'll just give a quick LinOS update while we're while we're on the topic. You know, our our pilots continue to go extremely well. We're double digit productivity improvements in these buildings. And and as we mentioned, this is a year of just proving it out, and then we'll roll it out more broadly over the next couple of years.

[Greg Lehmkuhl, President & CEO at Lineage]

But we're increasingly excited about how this technology can transform our operations, and, you know, we're seeing very real benefit not only in direct labor, but also in indirect labor, in benefits, in energy, in safety, even in employee turnover and training expense. We even think this will lower our maintenance expense and CapEx as we'll be you know, we'll use our facilities more efficiently. And over time, you know, we think this will meaningfully lower our cost structure and create an even deeper vote between us and our competition and improve the already outstanding service, we provide to our customers. So we're encouraged, and this technology, was a component of the deal with Tyson.

[Ki Bin Kim, Managing Director at Truist Securities]

Great. Thank you. And on the trade, uncertainties, one

[Ki Bin Kim, Managing Director at Truist Securities]

of the

[Ki Bin Kim, Managing Director at Truist Securities]

things the administration has talked about is not just tariffs, but, perhaps improving the balance of trade through exports, especially like agricultural exports. I'm not sure if you and the food producers have had much dialogue with the administration, but any kind of insights you can share what this potential could be and how real does it feel like? Or will it be, like, all soybeans and not touch the cold storage warehouse? Thank you.

[Greg Lehmkuhl, President & CEO at Lineage]

Yeah. I I think it could impact us. But to try to predict how and why and where and which commodities, yes, we you again, I've met with 20 customers in the last just several weeks, and and there's so much uncertainty. Think it would be unwise for me to try to predict what's gonna happen at this at this time, but more next quarter.

[Ki Bin Kim, Managing Director at Truist Securities]

Okay. Thank you.

[Operator]

Your next question is from the line of Michael Goldsmith of UBS. Please go ahead.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Good morning. Thanks a lot for taking my question. How much room do you think your current tenants have within their current commitments to utilize before they would need to take on more space?

[Greg Lehmkuhl, President & CEO at Lineage]

It varies by customer, by region, by commodity.

[Rob Crisci, CFO at Lineage]

Yeah. I think I think, you know, where we are from an occupancy standpoint, there's a ton of room, you know, that we have to to sell to customers, and that's actually a really nice opportunity moving forward. Right? With with all the things that we've done from a productivity standpoint, you know, getting our costs at a really good level here, you know, having the space to sell, having a market that is going to to bounce back at some point gives us a ton of opportunity to drive really strong operating leverage moving forward.

[Greg Lehmkuhl, President & CEO at Lineage]

Yeah. And I think because the volume guarantees were just reset here in the first quarter, customers are they have an appropriate amount of of space reserves for for what they see in their business. You know, if there's any inventory inflection, if there's any increase in consumer sentiment that leads to to an uptick in sales and and volumes, that's all upside for us, and incremental margins are extremely strong. And so, you know, we're kind of at a bottom in in inventories right now, and any any stimulus to to to rebuild or or reposition just help us.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Got it. And then just to follow-up on supply. How much supply delivered over the last year is yet to be absorbed? And then also how much supply is set to be delivered in 2025 that is unleased within the industry?

[Greg Lehmkuhl, President & CEO at Lineage]

Yes. Yes. Great question. So certainly, there's been new supply into the market over the last several years. That new capacity peaked in 2023 with about 4% in The US, effective incremental, incremental power positions.

[Greg Lehmkuhl, President & CEO at Lineage]

That came down by about 50% in '24 and, again, similarly this year, So about 2%, you know, new positions added in The US in '24 and '25. And that new supply is expected to be cut in half again based on what's been announced so far and what we know is happening, in 2026. So in 2026, the new PAL positions added in The US will kind of be back to historical pre COVID levels. But I I think it's important to mention that that capacity that's been added over the last several years has been has been built at the highest cost to build ever, And, you know, the cost of capital has obviously increased. So it's it's hard for these smaller players to succeed at anything below kind of market prices.

[Greg Lehmkuhl, President & CEO at Lineage]

And we expect some of these businesses to under underperform and some to fail, and we're definitely seeing evidence of that in the marketplace. And and we expect those those dislocations to create opportunities for us to either grow organically or through acquisition. And I think, you know, compared to these new entrants, we have such distinct competitive advantages. We have scale that creates network effects. We have world class and leading automation.

[Greg Lehmkuhl, President & CEO at Lineage]

We have proprietary technology even before, the Lin OS launch. We have 13,000 customer relationships, and we have global farm to fork service offerings. And so we have a we have a really deep moat. I mean, you know, for example, I'd argue that if you think about this new capacity or new companies that have entered our space, you know, I think we're the only one capable of successfully signing and execute executing a deal, like, to the scale of the Tyson Foods agreements.

[Operator]

Thank you very much. Your next question is from the line of Todd Thomas of KeyBanc Capital Markets. Your line is open.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Hi, thanks. Good morning. First question, I just wanted to follow-up on the minimum volume guarantees, which decreased 200 basis points sequentially to the 42% level. That decrease occurred before the tariff announcements and I realize there's uncertainty around how inventory levels will trend in the near term, with the uncertainty around trade flows and inventory. But in terms of those changes, I just wanted to clarify if that was predominantly a first quarter reset of sorts or whether you do expect that process to be ongoing throughout the year and whether or not the fixed commits, the percent of fixed commits might fall further perhaps below 40%?

[Greg Lehmkuhl, President & CEO at Lineage]

It is largely a first quarter phenomenon. The majority of them get reset in the first quarter. And and, again, they're at lower levels. It's but but while the existing customer volume guarantees came down a little bit, the new business we're selling has more than 42% average volume guarantees. And so we would expect and I don't think tariffs would have an impact on this.

[Greg Lehmkuhl, President & CEO at Lineage]

If anything, to to Steve to Steve's point earlier, you know, if if there is any stockpiling of inventory or things are having to be held or rediverted or diverted back to The US that are on the water, you know, that could lead to people be needing even more space and potentially come kinda out of cycle and ask for increase in volume guarantees. So we'll see what happens. Again, a lot of uncertainty, but to directly to answer your question, it is a majority first quarter phenomenon.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Okay. And then, separate question on the Tysons transaction. With regard to the existing facilities that will be transitioned to to public warehouses, will those warehouses experience a decrease in occupancy in '27 or '28 during that that transition? How how will that hand off happen? And, you know, I'm just curious whether or not we should expect, you know, those how those, you know, operations should should sort of trend during that transition period if they need to sort of fill up and if they'll they'll be, you know, sort of operating in a way like lease up or or development assets during that period.

[Rob Crisci, CFO at Lineage]

Yeah. I mean, you know, we can't get to this all the details of the agreement, but, you know, we we've built there's a very smooth transition. Yep. Like anything else, because of public warehouse, there could certainly be a bit of a j curve as you're as you're filling up the new warehouse in a couple of years. But there's a there's a there's a structured transaction around this that Yeah.

[Rob Crisci, CFO at Lineage]

That we that we certainly yeah.

[Greg Lehmkuhl, President & CEO at Lineage]

The the answer is yes. There'll be an occupancy decline when they depart, and we will build it back up into a public facility. But all of that was certainly built and contemplated as we entered the agreements with Tyson Foods.

[Operator]

And your next question comes from the line of Vikram Malhotra from Mizuho. Please go ahead.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Good morning. Thanks for taking the question. So just going back to the guide, I get it's very difficult to pinpoint where same store warehouse or even the Global Solutions NOI growth is gonna go. But, just trying to understand, you know, high level to keep the guide intact, you must have baked something in. Or said another way, like, if tariffs were to go away tomorrow, would you still be hitting your original guide?

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Or is there some other offset? Like, to maintain the guide, what are the other components that you're cutting, assuming kind of the same store comes in well below your original expectation?

[Rob Crisci, CFO at Lineage]

Yeah. You know, it's real hard to predict what would happen if tariffs got you know, it went away tomorrow. Yeah. I think if you just if you just do the simple math, right, and you and you look at our guide and you look at the 25,000,000,000 that we're that we're planning to get, you're losing 25,000,000 somewhere else. Right?

[Rob Crisci, CFO at Lineage]

So that gets you, you know, more to the low end of our initial same store guide if you're gonna go back to, you know, to that. But, there's a ton of volatility. There's upside, downside. You know, we we're we're very confident in the levers that we can pull on cost and and everything else. And so, you know, we're we're we're committed here to deliver these ranges, you know, barring any sort of other economic thing that, you know, that were to happen, and and our job here will be to do even better than that.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Got it. And then, I guess, just, you know, talk a lot about opportunities on the external growth side. Obviously, Tyson's a, you know, solid deal. Wondering just, given kind of how the stocks performed and obviously the embedded value, what about considering a a big buyback or or even just other ways to kind of highlight value?

[Rob Crisci, CFO at Lineage]

Yeah. I know. I think the the board and the management team will always do whatever that we think is the best interest of the shareholders. And so we'll always evaluate all things that we could potentially do to drive shareholder value over the long term. I mean, we're really focused here, as you know, on compounding growth and driving long term shareholder value.

[Rob Crisci, CFO at Lineage]

I think that's that's what we do.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Okay. And then just wondering if I can clarify, like, how much how much of this, you know, the I guess, challenge same store, you've got a, you know, big global portfolio, the scale, etcetera. Are you able to share any, like, industry stats to kind of show how maybe the Lineage portfolio is outperforming even in this environment? Like, you know, what's happened to economic occupancy changes across your peers or just the overall growth? Any stats you can share that would highlight Lineage still outperforming fundamentally?

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Thanks.

[Rob Crisci, CFO at Lineage]

Publicly you know, our industry Very fragmented industry.

[Greg Lehmkuhl, President & CEO at Lineage]

Very fragmented. It's it's not transparent even in The US, much less in the in the international markets. I think we're getting that from the intel of our 250 salespeople around the world that are acutely aware of the capacity or occupancy of our of their competitors in their markets. I I personally visited with teams across 10 markets around the world, actually, more like 12 this year, and met with our teams.

[Greg Lehmkuhl, President & CEO at Lineage]

And they are very in tune with what's going on in the market and what customers are going where and what the capacity is at our at our competitors' buildings. And based on that, you know, based on that intel, we think we're performing very well from a physical.

[Operator]

Ladies and gentlemen, due to the constraints of time, we do need to conclude our Q and A session for today. And I would like to turn the call back over to Evan Barbosa for closing remarks.

[Evan Barbosa, VP of Investor Relations at Lineage]

On behalf of the entire team, thank you for joining us today and for your interest in Lineage. We look forward to speaking with you again on our next quarterly call. Thanks, everybody.

[Operator]

This concludes today's conference call. Thank you for joining us. You may now disconnect.

Participants

Executives

• Evan Barbosa, VP of Investor Relations
• Greg Lehmkuhl, President & CEO
• Rob Crisci, CFO

Analysts

• Caitlin Burrows, Vice President at Goldman Sachs
• Brendan Lynch, Director at Barclays Capital
• Samir Khanal, Director at Bank of America
• Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets
• Michael Mueller, Analyst at JP Morgan
• Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.
• Alexander Goldfarb, Managing Director at Piper Sandler Companies
• Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities
• Nick Thillman, Senior Research Analyst at Robert W. Baird & Co
• Omotayo Okusanya, Managing Director at Deutsche Bank
• Ronald Kamden, Managing Director, Head of US REITs and CRE Research at Morgan Stanley
• Steve Sakwa, Senior Managing Director at Evercore ISI
• Ki Bin Kim, Managing Director at Truist Securities
• Michael Goldsmith, US REITs Analyst at UBS Securities LLC
• Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets
• Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.