Lineage Q2 2025 Earnings Report

Lineage EPS Results

• Actual EPS: $0.81
• Consensus EPS: $0.75
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: N/A

Lineage Revenue Results

• Actual Revenue: $1.35 billion
• Expected Revenue: $1.33 billion
• Beat/Miss: Beat by +$16.71 million
• YoY Revenue Growth: +0.90%

Lineage Announcement Details

• Quarter: Q2 2025
• Date: 8/6/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 6, 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Q2 AFFO per share grew 8% while adjusted EBITDA fell 2%, leading to a lowered full-year AFFO guidance of $3.20–$3.40 (from $3.40–$3.60) and adjusted EBITDA guidance of $1.29–$1.34 billion.
• Negative Sentiment: Second-half outlook was reduced due to muted seasonal inventory builds, persistently high food prices, elevated interest rates and tariff uncertainties delaying expected occupancy gains.
• Positive Sentiment: The proprietary LINOS warehouse execution system delivered double-digit productivity improvements across six sites, with 10 conversions expected by year-end to accelerate broader rollout in 2026.
• Positive Sentiment: Completed a $500 million investment-grade bond and deployed $535 million of growth capital, including the Tyson Foods acquisition, ending Q2 with $1.5 billion in liquidity and 5.7× leverage.
• Positive Sentiment: Global Integrated Solutions achieved 8% year-over-year NOI growth driven by U.S. transportation and direct-to-consumer, and expects double-digit growth in the second half of 2025.

Presentation

[Operator]

Good morning, and welcome to the Lineage Logistics Second Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. It is my pleasure to turn the call over to Mr. Evan Barbosa. Sir, you may begin.

[Evan Barbosa, VP of Investor Relations at Lineage]

Thank you. Welcome to Lineage's discussion of its second quarter twenty twenty five financial results. Joining me today are Greg Lemcol, Lineage's President and Chief Executive Officer and Rob Prisci, Lineage's Chief Financial Officer. Our earnings presentation, which includes supplemental financial information, can be found on our Investor Relations website at ir.onelineage.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.

[Evan Barbosa, VP of Investor Relations at Lineage]

In addition, reference will be made to certain non GAAP financial measures. Information regarding our use of these measures and a reconciliation of non GAAP to GAAP measures can be found in the press release that was issued this morning. Unless otherwise noted, reported figures are rounded and comparisons of the 2025 are to the 2024. Now I would like to turn the call over to Greg.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Thanks, Evan, and thanks, everyone, for joining us today. I'll start by going over our agenda for this morning. First, I'll recap our second quarter performance, which was in line with our expectations. Next, we'll cover our updated second half outlook, including our occupancy and price expectations for the remainder of the year. After that, we'll cover our guidance update, which is a reduction versus our prior outlook driven by muted seasonal inventory levels.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

I will then turn it over to Rob to review segment details and provide an update on our balance sheet. Lastly, I will summarize the quarter and turn it over to your questions. Turning to our quarterly performance on Slide four, we delivered AFFO per share growth of 8%. Total revenue increased modestly by 1% and adjusted EBITDA decreased by 2%, reflecting the challenging market dynamics we're currently navigating. These dynamics are driven by persistently higher food prices, interest rates, tariff impacts and a general sense of uncertainty felt by our customers that are leading to reduced expectations around the balance of the year inventory build.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

This updated outlook has led us to reduce our annual AFFO per share guidance to 3.2 to $3.4 compared to our prior range of 3.4 to $3.6 Transition to our second quarter results. Our Global Warehousing segment was in line with our expectations as we laid out in last quarter's call. Same warehouse NOI was down 6% year over year against elevated inventory levels we experienced last year. While these market dynamics are fluid and obviously difficult to predict, we remain confident in our core business. We saw sequential improvement during the second quarter in our same store NOI, which increased from three thirty six million to $343,000,000 Notably, Q2 is normally the lowest seasonal occupancy quarter of the year.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We're also seeing storage revenue per physical occupied pallet stability as expected, as I'll discuss more in a minute. Our global integrated solutions saw 8% year over year segment NOI growth led by our U. S. Transportation and direct to consumer businesses. Across the company, we are acutely focused partnering with our customers as they navigate through these turbulent times.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We will continue to work as strategic partners to help them to improve their supply chain efficiency. Additionally, the rollout of LINO F, now at six conventional sites, continues to accelerate and perform above our expectations, showing double digit productivity improvements. We expect to have 10 conversions completed by year end, setting us up to further accelerate the broader rollout in 2026. Also during the quarter, we completed our inaugural $500,000,000 investment grade bond offering. Additionally, we executed on our M and A and development pipeline and accretively deployed $535,000,000 in growth capital, including closing our agreements with Tyson Foods in addition to three smaller acquisitions.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Before moving on to a more detailed analysis of our performance, I wanna say a few words about our company. Lineage is positioned as the industry leader with broad and deep customer relationships, the largest network, cutting edge technology, and as a world leader in warehouse automation. I'm confident that we are well positioned to grow as the food industry inventories stabilize, new capacity is absorbed, and our internal initiatives continue to gain traction. I would also like to take a moment to sincerely thank all of our team members across the world for living our values as they deliver excellent service to our customers every day. Moving to slide five.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

When we met with investors in early June and May, we reaffirmed guidance based on what we were seeing in the marketplace at that time. The blue line on this chart shows our actual and projected physical utilization, whereas the green line shows typical quarterly USDA seasonality from 2015 through 2019, the years before the pandemic caused disruption in the normal seasonal pattern. And the red line shows 2025 actual USDA seasonality. As you can see, throughout much of the first half of the year, we were slightly above the pre pandemic USDA averages, which we see as a proxy for normal seasonality and informed our prior guidance. Late in the second quarter, when inventories historically started to climb, we saw muted seasonality in occupancy.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

This trend continued into the third quarter, and we've only recently seen a positive inflection in their inventories. This delayed occupancy improvement, combined with persistently high food prices, tariff uncertainty and elevated customer inventory carrying costs drove our decision to lower our outlook for the second half. To be clear, our occupancy projection is what changed as our assumptions around cost efficiencies, price, throughput and GIS growth remain unchanged from our previous guidance. All that said, we still expect inventories to build through the third quarter and into the fourth quarter, supporting sequential same warehouse NOI and adjusted EBITDA improvement in each quarter of the year. Turning to Slide six.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We had a number of questions about price in relation to our storage revenue per physical pallet after we announced our first quarter results. A quick reminder that our storage revenue per physical pallet consists of red storage and blast revenue. As outlined at DayReed, we expect to see stable trends for the balance of the year. This quarter, we saw nearly 5% sequential improvement in same warehouse storage revenue per physical pallet. As you can see on the chart, there's always some short term volatility in this metric, which is driven by a number of factors, including rate, volume guarantees, inventory turns, blast freezing volumes, commodity mix, exchange rates and seasonality.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Additionally, we saw a sequential increase in our minimum storage guarantees, increasing two ninety basis points from Q1 to Q2 as the new business we are winning has a higher percentage of storage guarantees than our base. While it remains a competitive environment about 90% of contracts to be renegotiated this year have been completed giving us confidence in our stable price outlook for the balance of the year. Moving to Slide seven. Based on the factors I described today, we're lowering our full year 2025 outlook. Coupled with the AFFO per share reduction I've already outlined, we're revising our full year adjusted EBITDA guidance to the range of 1,290,000,000.00 to $1,340,000,000 down from our previous range of $1,350,000,000 to 1,400,000,000.0 Given the dynamics unfolding in the industry, we want to provide more clarity regarding our near term expectations.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

And accordingly, we are initiating guidance for the next quarter. For Q3, we expect AFFO per share to be between $0.75 and $0.79 and adjusted EBITDA to be between $326,000,000 and $336,000,000 Some of the maintenance CapEx spend moved from the second quarter into the third quarter, which is reflected in our AFFO per share guidance. It's obviously been a very tough road since our IPO with customer inventories rationalizing, tariff uncertainty, higher interest rates and food prices and new competition entering our market. We believe that industry demand is bouncing along the bottom right now. Unfortunately, the uncertain macro backdrop is slowing our expectations of a broader market inflection in inventories and throughput.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Lowering guidance is both difficult and disappointing for us, but we remain focused on executing our business plan and driving shareholder value. We are also aligned with our investors as our management team has the majority of our compensation tied to long term equity incentives. In summary, we believe we've turned the quarter and our business has begun to steadily improve in the short term while we continue to invest to win in the long term. We saw sequential NOI improvements in Q2, which is normally the lowest quarter of the year. We expect this improvement to continue in the second half with same store NOI trending positively, positioning us well for growth in 2026.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

To that end, on Slide eight, allow me to outline some of the actions we're taking to position Lineage for long term success. We're focused on driving competitive differentiation across three key areas, delivering customer success, leveraging our network effects, and enhancing warehouse productivity. Starting with customer success, we're focused on addressing our customers' primary concerns, which include optimizing supply chain costs, increased efficiency, and further improving service by marrying our global integrated solutions offering with our expansive global warehouse network. We're also enhancing our responsiveness and customer service consistency. Through a new partnership with Cognizant, we are elevating our customer care model through proven best in class technologies, expanded service hours and deep customer service expertise, all while retaining the same team members as points of contact that our customers have known for years.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Next, on network effects, we're leveraging our best practices, economies of scale, investments in technology, broad service offerings and presence across 19 countries to support the increasingly global needs of our customers. We're also using our scale to drive cost savings across our platform in areas such as energy and insurance. In markets experiencing excess capacity, we're proactively consolidating facilities to drive higher occupancy and efficiency. As the industry leader, our scale and breadth position us to create value through network optimization efforts like these. Finally, regarding warehouse productivity, I truly believe we have the best operating team in the business.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Beam has always been at the core of our operating culture and has helped us deliver service excellence and consistent productivity gains over many years. We expect Lineage to build on this foundation and accelerate efficiencies while making Lineage an even better place to work. As previously mentioned, our ongoing Lineage pilots are continuing to show double digit productivity improvements. We look forward to sharing more financial details with investors by year end. Lastly, our industry leadership in automation remains unmatched as illustrated by our agreements with Tyson Foods discussed last quarter.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Simply put, we will never stop working to earn the right to grow with our valued customers. Now I'd like to turn the call over to our CFO, Rob Crisci.

[Rob Crisci, CFO at Lineage]

Thanks, Greg. Good morning, everyone. Starting on slide nine and quickly recapping our segment performance. In our Global Warehouse segment, total revenue grew slightly and total NOI declined 4% to $367,000,000 Same warehouse revenue was down 3%, while same warehouse cost of operation decreased 1%, aided by our continued labor and energy productivity initiatives. Contribution from non same warehouse NOI grew 33%, driven by acquisitions and developments that continue to ramp.

[Rob Crisci, CFO at Lineage]

We received some positive contributions from the Tyson Foods agreements, which closed in June, and we are off to a great start. Additionally, we expect $109,000,000 of incremental future NOI from previously completed and in process development projects that have yet to stabilize. We've already spent over $1,100,000,000 of the $1,200,000,000 total investment on these projects where the future NOI benefit is yet to be realized. In summary, we are well positioned to grow aided by the impact of these nearly completed developments. Shifting to slide 10 and covering our Global Integrated Solutions segment.

[Rob Crisci, CFO at Lineage]

Revenue was up 2% to $380,000,000 and NOI was up 8% to $68,000,000 Our NOI margin was up 100 basis points to 17.9%. We are seeing strong momentum in our U. S. Transportation and direct to consumer businesses. Our customers continue to appreciate Lineage's integrated solutions and unmatched global service offering.

[Rob Crisci, CFO at Lineage]

For the remainder of 2025, we expect this strong momentum to continue with double digit growth in the second half. Moving to slide 11. We ended the quarter with net debt of 7,400,000,000.0 Total liquidity stood at $1,500,000,000 including cash and available capacity on our revolving credit facility. Our leverage ratio, defined as net debt to LTM adjusted EBITDA, was 5.7. We will remain highly disciplined on future capital deployment.

[Rob Crisci, CFO at Lineage]

In June, we successfully completed our inaugural $500,000,000 investment grade bond offering, which carried a 5.25% coupon on a five year term. Our new bond has been well received by investors and has traded tighter since the offering. I'd like to thank Michelle Domas, our world class treasury team, and our banking partners for the great execution on our inaugural deal. Investor grade status was a key driver of our decision to go public, and we are excited to have access to these markets moving forward. With that, I'll turn it back over to Greg to wrap up before opening it up to your questions.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

In summary, on slide 12, our Q2 results were in line with our expectations. We're lowering our guidance due to our revised outlook regarding the seasonal inventory build. Pricing remains stable. And importantly, we saw sequential revenue, NOI and EBITDA improvement, which we expect to continue going forward. We are the global cold chain leader in providing the critical infrastructure for the food industry, an industry with positive long term growth.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We're achieving meaningful progress in our internal initiatives such as our LINOS technology. We are positioned to deliver strong operating leverage when the industry improves. And finally, our management team has never been more committed to delivering results and to driving long term shareholder value. With that, let's open it up for questions. Operator?

[Operator]

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. Our first question comes from the line of Mr. Alexander Goldfarb with Piper Sandler. Sir, your line is open.

[Alexander Goldfarb, MD & Senior Research Analyst at Piper Sandler Companies]

Hey, good morning out there. I guess for my one question, Greg, at NAREIT, you guys reiterated the guidance from earlier this year. Clearly, you had a chance at that point to revise down. And just want to understand, everything was tracking well until basically June 1. And then after that, things fell off.

[Alexander Goldfarb, MD & Senior Research Analyst at Piper Sandler Companies]

It just seems a little tough, again, especially given that you guys had an opportunity to revise then. Just curious what you're thinking and how things were trending then versus what materially happened subsequent to NAREIT that caused you guys to reduce the outlook?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Morning, Alex, and honestly, question. And you're right. What changed is our occupancy guidance. We had been trending in line with typical seasonality. And I think everyone remembers we described and we described typical seasonality as the normal seasonal pattern of you know, we were referencing 2015 to 2019 before all the disruptions of COVID when the normal seasonal pattern happened for, you know, generations really before that disruption.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

And that, you know, you start in q one, you you drop to a to a bottom in q two, and then you build up to through q three and q four. And so at NAREIT, we were trending actually in line with typical seasonality, actually a little bit better than normal seasonality and and how the USDA indicated the market was performing. So we were above the line as indicated on our on our on our slide five. In June, when we we typically see utilization in flat after bottoming in May. And this year, we just started to see the typical seasonal uplift of utilization in late July, which is obviously later than usual, and that pickup has been a little bit more gradual than it typically is.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

So we do still anticipate a seasonal uplift in the second half, and and we do see that happening now in the last couple weeks. But because of the delay and because of the muted seasonal pattern that we're seeing today versus what we were seeing when we talked to NAREIT and because of the ongoing uncertainty around tariffs and elevated inventory carrying costs, we're just lowering our expectations on the magnitude of the uplift. Importantly, as you saw, we did see sequential improvement in our same store NOI Q1 to Q2, and we expect to improve in each quarter of the year.

[Operator]

Our next question comes from the line of Ki Bin Kim from Truist. Sir, please go ahead.

[Ki Bin Kim, MD - US REIT Equity Research at Truist]

Thanks. Good morning. Maybe we can just start off with higher level. What's the best argument you think you've heard from your clients in terms of why occupancy is too low or throughput volume is too low today, versus what, I guess, the industry players and yourself included might think what is normal going forward? So so what are the best arguments for that?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yeah. I think, you know, as I mentioned on the prepared remarks, you know, we we believe the industry is bouncing along the bottom right now. I mean, food producers on their earnings calls and in all of our meetings continue to cite just high food pricing and value seeking behavior from customers. You know, our view right now is that inventories have been under serious pressure for a couple of years now and that servicing consumers without stock outs, which nobody will will handle, would be very difficult at even lower levels. And so we definitely feel we're bouncing off the bottom.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

There are some data positive data points out there, like the beef herd counts, are obviously still below the 2021 levels that appears to stabilize based on the 2025 USDA data. And Surcana's data showed that restaurant industry gained the whole industry gained momentum after a slow start to the year. Also, you know, our customers are pushing very, very hard for to increase volumes through incentives and their sales efforts. And if those incentives are successful or we get any interest rate relief, either one of those things could act as a stimulus for increasing inventories moving forward. Do you think GLP-one drugs are having a significant impact on volumes or occupancy?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We don't, and our customers don't. I mean, certainly, if you look at our commodity mix of heavy in proteins, seafood, food and veg, those are areas where people are eating more of, not less of. And we think long term, if the drugs work, and hopefully they do, and dramatically impact diabetes deaths, that people will live longer and people will eat more in the long term.

[Operator]

Our next question comes from the line of Mr. Michael Griffin from Evercore.

[Michael Griffin, Director at Evercore]

Great. Thanks. Appreciate the comments earlier on the line OS pilot. I don't know you said you'd kind of quantify the benefits of that later in the year. But maybe can you give us any anecdotal examples of initiatives you're undertaking and maybe some of the benefits you've seen from the implementation of these pilot six or 10 facilities, however many it's been?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yes. It's been we have six, implemented so far. We'll do 10 by the end of the year. And, you know, all I can say is this is our initiative is exciting. It's on track.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

It's exceeding expectations. And we're seeing double digit total labor productivity improvements across the six line sites. So to remind everyone, you know, LINOS is our proprietary warehouse execution system. This started many years ago from a vision and a belief from Siddharth and Tatay, our CIO, and Elliot Wolf, our chief data scientists, and their teams that we can reimagine the way warehouses run and that technology and data science are the enablers. And so LinOS, through our own proprietary algorithms, optimizes literally every resource and movement that happens in the warehouse, much like air traffic control, if you will, from from how trucks are loaded and unloaded to where product is put away to directing each task in the building with the result of optimizing performance for customers and dramatically increasing our warehouse efficiency.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

And so we have the evidence now that this vision is coming to life and can fundamentally change our competitive position over time given its impact on customers' cost and even our employee experience. And and, you know, most great things take time, and LinOS is no different. And this year is about proving out the functionality and getting it rolled out to different types of facilities before a much broader and accelerated rollout, next year and the and the year after. And so, you know, we're increase increasingly excited about how this can just fundamentally transform our operations because we see the benefit now across the six sites, not only in direct labor, which was the primary focus, but also in indirect labor, employee benefits, energy, safety, employee turnover, the employee experience, training expense. We even think it's gonna materially lower both our CapEx and our facility maintenance expense over time as we're more efficient in the use of our facilities and our material handling equipment.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

And so, you know, over time, we think it will materially lower our cost structure, help us compete and and improve what we already have as an ex excellent, service for our customers. So so we're highly encouraged, and and we believe WinOS is gonna be everything we thought it would be, and we we can't wait to share a lot more detail around kind of financials and and how these algorithms work, around the NAREIT conference later this year.

[Michael Griffin, Director at Evercore]

Great. Thank you.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Of course.

[Operator]

Our next question comes from the line of Brandon Lynch from Barclays. Please go ahead.

[Brendan Lynch, Director at Barclays Capital]

Great. Thanks for taking my question. Greg, you mentioned this a bit in your prepared remarks, but can you discuss the pricing strategy in the second quarter for rent and storage relative to the first quarter? Looks like you recaptured the trend line on that Slide six, which was a little bit of a surprise given it sounded like you were giving some price concessions in the first quarter to get volume. So maybe just what has changed and what we should expect going forward?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yes. The short answer is nothing has changed. And let me explain why. So we communicated over the last quarter's results, again, at NAREIT, that we thought pricing levels would be stable for the balance of the year. In our prepared remarks today, we discussed that there's always some short term volatility in this metric, and you'll see that on slide six, which is driven by a number of factors.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

I'll repeat them. Rate or price is certainly a piece of that, but also volume guarantees, inventory turns, blast freezing volumes, commodity mix, geographic mix, exchange rate, and seasonality can all impact the way this this metric fluctuates quarter to quarter. And so, you know, yes, the pricing was up for red storage and blast, 5% sequentially. But much like we weren't concerned that it went down a little bit last quarter, we're not over celebrating this quarter of the sequential 5% because it's all price. This quarter was benefited by European FX and elevated volume guarantees, which, while they were reset in the first quarter given the resetting inventory levels, the second quarter is normally and is this year likely to be the lowest occupancy quarter of the year.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

So you're collecting a little bit more volume guarantees, which elevates your rent, storage, and blast per occupied pallet. And so, again, long story short, nothing has changed. We got our two to 3% price. We see the pricing environment is competitive but stable, and we wouldn't you know, we're not concerned about this element for the balance of the year, and it's consistent with our prior guide.

[Brendan Lynch, Director at Barclays Capital]

Okay. Very good. Thank you.

[Operator]

Thank you. Our next question comes from the line of Ronald Kamdem from Morgan Stanley. Your line is open.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Hey, thanks so much. Just a quick two parter. Just can you talk a little bit more about sort of throughput? Was down same store 3.2 this quarter, which decelerated from the last quarter number. Just help us think about sort of what's happening on that front?

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Is product just being stuck somewhere in the supply chain? That's number one. And then the second comment is just updated thoughts on supply in the industry. Thanks.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

You got it. So, you know, we talked about this concept of core holdings in the last quarter, and we we define that as volumes from customers that have not meaningfully meaningfully changed their business with us over the last four years. So, you know, we didn't win business. We didn't lose business. They're consistent, and that represents over $70.70 percent of our of our global warehouse holdings.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

So as we talked about, core holdings have been under pressure since the beginning of the in inventory unwind coming out of COVID starting in '23. And as a reminder and as we explained on the last call, the total outbound pallets on an annual basis have remained remarkably flat over the last few years. In this quarter, as you mentioned, we did see throughput pallets down 3% in our same store warehouse portfolio year over year. But we would expect that given the the the, you know, elevated inventory levels we saw last year. And if you look sequentially, the throughput was up about 1%.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

And so, you know, our view is the core holdings remain under pressure due to the items that I've already mentioned, higher food prices, elevated inventory carrying costs, higher interest rates, and just the uncertainty around tariffs. On the supply side, you know, I think we we all know that that it's not a super transparent industry like some other, REIT REIT sectors, And it's not, you know, widely tracked by third party brokers and things are published that talk about, supply and demand in our space. So we've we've been working, collaboratively with CBRE to to create a database of of new announcements, this year. And what that database and data shows is that we peaked that the new openings peaked in '23, and we've seen elevated levels in the two years since then. The latest information we have, now shows that over the last two years, three to 4% capacity came online each year, and we now expect 2025 to be at a at a similar level.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

However, announcements for '26 deliveries are showing a substantial decrease, in in new volume coming online versus the past few years. Our data right now shows, about 1% new supply being being delivered in '26. And, of course, you know, that could change as new announcements are made, but we certainly anticipate a drop, going forward. And so, you know, just one more data point. As you guys probably already all know, we observed a similar pattern of construction in the broader industrial warehousing sector where where there was roughly a three year period of elevated new supply post COVID, and that has now returned to historical levels.

[Operator]

Our next question comes from the line of Michael Goldsmith from UBS.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Good morning. Thanks a for taking my question. Can you walk through the assumptions that underpin the third quarter and fourth quarter guidance? And what gives you confidence in the material step up in trends expected in the fourth quarter? Thanks.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Why don't I start?

[Rob Crisci, CFO at Lineage]

Yeah. Go ahead.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

So just to to talk about the the the biggest assumption that gives us confidence is, you know, continued progress on internal initiatives, on productivity savings, on on energy savings, on all the things that we're doing across our company to drive efficiency and new business. And the occupancy that we the reason we changed our guidance is the occupancy expectation being more muted than we were previously guiding to.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

But we are already seeing that we bounced off the bottom in occupancy, and we are climbing into the season that we would expect to climb into, although it'd just be a couple months later than we anticipated. Our price assumptions, our productivity assumptions are almost everything else stayed the same. Tariffs have a little impact, but, that's really what changed, Rob.

[Rob Crisci, CFO at Lineage]

Yeah. That's right. Yeah. And so we try to give you a little bit more data here. So we gave you slide five, which is our occupancy guide for the rest of the year, which which mirrors everything that Greg said.

[Rob Crisci, CFO at Lineage]

And, you know, I think there's confidence in the fourth quarter versus the third quarter, which is very similar pattern to what we saw last year. We talked about starting to see normal seasonality in the second half of last year, and that's embedded in our guide here. So, you know, I think we feel really good about it, and, you know, we lowered for all the reasons Greg said. But, again, it's just occupancy, and it's our industry, and it's it's evolving. And and we feel really good that we are now sequentially improving, and, you know, and and and that's a great place to be.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Thank you.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

And if it it yeah. If it jumps as as much as, you know, it has been in prior years, then there's, you know, then we'll we'll we'll we'll be seen as conservative, I guess. But try to take a a preview given what we're seeing.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Thanks again.

[Operator]

Our next question comes from the line of Sameer Panal from Bank of America. Please go ahead.

[Samir Khanal, Director - US REITs at Bank of America]

Yes. Thank you. Good morning, everybody. I guess, Greg, help us understand how to think about the rebound or the inflection in occupancy. I mean, clearly, there's very little visibility from our side here, right?

[Samir Khanal, Director - US REITs at Bank of America]

So is it the macro? Is it the health of the consumer? What should we be paying attention to as we think about the timing of the inflection? And then at this point, I think folks are trying to understand, you know, what that trajectory of growth even looks like into the twenty sixth. So, you know, help us understand kinda what you track, and, that would be helpful. Thanks.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Sure. I mean, the number one thing we track is our conversations with customers and our own occupancy. And if you think about our second half guide, we did see, you know, us come off the bottom, and we've had, you know, a few weeks of of of or a couple of weeks of increase, which which trends, you know, like it did last year, where we saw substantial occupancy increases going in the late third quarter into the fourth quarter. And so that that underpins our guide.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

As far as, you know, when the industry will, start to rebound, I think, you know, again, our our customers' inventories are, we feel, about as low as they can be while still servicing the consumer. Everybody's looking to stimulate new demand. And interest rates and tariff deals getting finalized, both act as could act as stimuli for increased inventories.

[Samir Khanal, Director - US REITs at Bank of America]

Okay. Thank you.

[Operator]

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

[Todd Thomas, MD & Senior Equity Research Analyst at KeyBanc Capital Markets]

Hi, thanks. I guess two questions. One, just a follow-up. Are you able to provide for July any detail around occupancy or some of the specific drivers around warehouse storage the services segment? And any specific updates regarding July specifically?

[Todd Thomas, MD & Senior Equity Research Analyst at KeyBanc Capital Markets]

It sounds like there was a little bit of a pickup here late later in in the month. Second question though is is around the dynamic between the softness that you experienced in the warehouse business relative to GIS, which grew 8% in the quarter. Can you talk about some of the growth drivers for GIS in the period and what's behind the sharp acceleration in the second half of the year?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Sure.

[Rob Crisci, CFO at Lineage]

Yeah. If I go down, so, you know, we're we're just closing out July. But, you know, in terms of, occupancy levels, you know, we're back now above April, May. Right? So it's it's back to that. Again, as you see in our chart, you start to move up.

[Rob Crisci, CFO at Lineage]

We just started moving up, you know, several weeks later. Right? And then you just have less months with more things in the in the in the warehouse, and that's what led to the guidance cut. But we are seeing what we expected, which is which is good to see.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yeah. And and then we're just taking a more muted view on the on the slope of the trend down out to the year given that it happened late, and and we're trying to be, prudent with our guidance. On the GIS side, I gotta say I've never been more proud of our of our GIS team around the world. They're doing a fabulous job.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We have better players on the field. It remains, you guys know, on the trucking side of the business, on all the services we provide in our GIS group, are very complementary to our warehousing business and very critical to our customers' total supply chain optimization. But this team's doing a fun phenomenal job. The sales team's doing a great job selling new business, and and I think we're just doing a better job than ever talking to our customers about their end to end cold chain. And and when we and, you know, some of them a few years ago didn't even know that we have these services, and now we're the services have developed, the team strengthened, the technology strengthened, and the coupling of the warehouse with the with the GIS services has gotten stronger.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

And so, you know, I would expect this to this trend to continue for the foreseeable future as they're just gaining momentum.

[Todd Thomas, MD & Senior Equity Research Analyst at KeyBanc Capital Markets]

Alright. Thank you.

[Operator]

Our next question comes from the line of Craig Mailman from Citi. Please go ahead.

[Craig Mailman, Director & Equity Research Analyst at Citigroup]

Hey, good morning guys. Just want to circle back on inventories and kind of how you guys are viewing them going forward. I mean, I just heard your comment that a pretty common refrain over here in the last couple of quarters from you and your peer that it doesn't feel like inventories can get any lower for your tenants. And yet, we're still seeing kind of occupancy from a nominal perspective stay pretty muted. The low end consumer is under pressure.

[Craig Mailman, Director & Equity Research Analyst at Citigroup]

There's shrinkflation. So even though, people are spending the same amount, you're getting less for what you're spending. You're seeing fast food companies like McDonald's see tepid sales because the value proposition isn't there. I guess, is it wishful thinking at this point to think that the trend to seasonality should be confused with an inflection in nominal inventory levels? Mean, can't we have both where you get that seasonality, but you're just off a base that's not gonna materially improve given the outlook and given the financial situation of a lot of people in the country?

[Craig Mailman, Director & Equity Research Analyst at Citigroup]

I mean, I'm just trying to kinda circle the square here because we're it it just feels like the USDA data has been year over year negative for over two years, and yet, you know, when we hear from you and your peer, it's just hadn't say things are gonna get better, that it doesn't happen. Right? And the post COVID world is just different. I don't know if it's technology improvements on the tenant side. I don't know if it's the straight inflation, GLP ones, whatever it is, but it just doesn't feel like the needle is moving back on inventory levels despite that consistent comment that it just doesn't feel like inventories could shrink anymore and still service the end user.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

So fair point, certainly. And our guide does not assume any inflection in the underlying environment or that kind of general consumption inventory levels get better for the balance of this year. There's no doubt the consumer is still under pressure because of high food prices, high interest rates, uncertainty, and that's putting pressure on overall food sales. We you know, the seasonality we talked about, saw last year even in this tough environment, and we're, guiding to even a more muted seasonality than than we saw last year. And so we think we're being conservative.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We're not depending on an inflection for all the reasons that you pointed out. But we think long term, you know, leading up to the to 02/2020, call it '22, you know, fresh and frozen food consumer preference, it's shifting that direction. You know, consumers want to eat healthy. We we you know, the majority of our food fits in that category. And we think that the trend the long term trend and the the data that or the, you know, people like AFI and other other organizations feel that there'll be growth in the long term.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We are bouncing off the bottom right now, and we're not trying to predict or or dictate when we think that's gonna change. But that that said, all of our you know, we we saw sequential improvement in our results in the in first and second quarter. We expect to see that in third and fourth despite the challenging environment. The technology we're putting in place, we think, is a game changer for our business. Our GS segment is doing very well.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We're doing a great job controlling costs in in every aspect of our business around the world. And we think, you know, our network, our technology, our customer relationships, our GIS, service offering puts us in a great position to win in the long term. And we do still feel, despite the fact we don't know when, that volumes at the consumer of fresh and frozen will start to grow again at some point.

[Rob Crisci, CFO at Lineage]

Yeah. That's right. Everything you said, which I think are fair points, is currently reflected in our numbers. So that's what's been happening. We are seeing things getting better slowly.

[Rob Crisci, CFO at Lineage]

We're doing everything we can on our end to control what we can control. And so I think, you know, any change to any of the things that you said is upside opportunity, and we're not expecting any of that to happen this year in our guide. But we do think over the long term, there is quite a bit of of upside opportunity. But, you know, we're gonna we're gonna wait to see it happen.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yeah. And and we think we'll leave this year with good momentum. We think the two sequential each quarter and good momentum going into next year. Obviously, we're not guiding next year right now, but we feel good about all the internal initiatives we're doing. Our new business with customers the way we're you know, our partnerships with customers are only strengthening, and we think that will benefit us long term.

[Craig Mailman, Director & Equity Research Analyst at Citigroup]

Great. Thank you.

[Operator]

Our next question comes from the line of Mike Carroll from RBC. Please go ahead.

[Michael Carroll, Managing Director at RBC Capital Markets]

Thanks. Greg, can you provide some color on where cold storage companies are currently trading or at least being valued in the private market? I mean, has private market valuations changed as much as we've seen in the public markets? I guess what's the right valuation metric that these assets are trade at? I mean should we be thinking about EV to EBITDA ranges?

[Michael Carroll, Managing Director at RBC Capital Markets]

And I know it's each asset is different or each company is different, but what's the typical EV to EBITDA range that cold storage companies are trading in the private market today? At least if when's trade start, where do they typically trade at?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

I mean, it's obviously an evolving metric, but right now, they're probably trading higher than than Higher.

[Rob Crisci, CFO at Lineage]

Yeah.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Currents For sure. In multiples. Yeah.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

I think You know, we're trading at, what, 55 to 60% of NAV. We think it's, you know, obviously, undervalued. That's our our view.

[Rob Crisci, CFO at Lineage]

I know the private markets take a longer term view. Right? And so, you know, the quality of the assets, but just the long term growth of this industry, it you know, yes. I there's definitely a disconnect now. As you know, we've deployed a bunch of capital.

[Rob Crisci, CFO at Lineage]

I think we're in a good place. We've got a lot still to come as as we mentioned in the prepared remarks in terms of NOI that's still still still, developing, in terms of Tyson and the acquisition. So we've deployed a lot of capital at attractive multiples. Now that that's gonna flow through our results. We're gonna we're gonna do our best here to to improve sequentially, and then we'll continue to monitor the markets.

[Rob Crisci, CFO at Lineage]

But there's certainly, at this point in time, you know, the the sort of true long term value of our industry is not we don't we don't feel shown in our in the public valuations. And private, you know, a a different story.

[Michael Carroll, Managing Director at RBC Capital Markets]

Like, what's the typical EV to EBITDA range that assets trade at in the private market? I guess compared to your valuation, guess where does that typically go?

[Rob Crisci, CFO at Lineage]

You know, it really depends on region. It's just so many dynamics, but there are things trading double digit EBITDA up to fifteen, twenty times EBITDA that we see, in smaller transactions in Europe and other places. It's a pretty big disconnect at this point. Yeah. Wide range, I would say.

[Operator]

Thank you. Our next question comes from the line of Vikram Malhotra from Mizuho. Your line is open.

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

Thanks for taking the questions. I have two clarifications. I guess just first one, I'm still struggling to get a sense of, like, how conservative you truly are in the back half given kind of we're still seeing elevated inventory levels. Do you mind just, you know, from that chart you provided, like, what is your your actual occupancy build, just a number sequentially into into the second half, whether physical or economic, if you can give, and compare that to, you know, how how is how does that compare to, say, like, pre COVID historical trend? Just, like, how how conservative you are?

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

Like, what and give us the exact, like, occupancy numb occupancy from that chart. And then just second clarification is g n G and A. Your G and A did come in I guess, it was a big benefit in two q versus we anticipated, and the second half assumes a big pickup. So cash, g and a, like, what is driving that in the second half? Thanks.

[Rob Crisci, CFO at Lineage]

Yeah. So, you know, slide five, I mean, that's exactly to answer your question. That's what slide five is here for. So 2015 to 2019 is your pre COVID USDA seasonality. That's the green line.

[Rob Crisci, CFO at Lineage]

What we are embedding at the midpoint of our guide here, which is you can look at the chart, it's basically, you know, call it 75% plus or minus in q three, '78, and q four. So that is muted seasonality compared to history. We think it's prudent. Like, we're not, you know, we're not trying to be overly conservative or overly aggressive. This is what we see right now.

[Rob Crisci, CFO at Lineage]

Our team's gonna work hard to beat these numbers. You know? And in terms of g and a, you know, again, we're we're managing the company, you know, prudently, and and we're we have we think where there's, you know, room to to, you know, grow the business quite a bit at this level of g and a. Right? We expect to grow the business over a long term.

[Rob Crisci, CFO at Lineage]

We think we'll get great leverage in the short term. We're You certainly going to look everywhere and to make sure we're investing the right amount in the right areas, that's something that never changes. It's something we'll continue to work on.

[Operator]

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

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

Great, thanks. Good morning. Just following up on guidance, can you give us a little bit more color on what's driving the AFFO decline expected in the third quarter versus Q2 despite the increased occupancy, same store and EBITDA? Is that all driven by CapEx seasonality? Or is there anything else going on there? And then with respect to the fourth quarter, it's a pretty wide range between $0.78 and $0.94 So can you just share your thoughts on what key drivers would result in AFFO coming in towards the upper or lower end of that range?

[Rob Crisci, CFO at Lineage]

Yeah. Q3 is just timing of CapEx. We some of the CapEx we expect in Q2 push into Q3. I think we're still working to get better at being even every quarter. We used to have an annual budget process.

[Rob Crisci, CFO at Lineage]

The team's doing a great job, but we're just there there's still some seasonality in maintenance CapEx, which over time, we'll work to remove.

[Rob Crisci, CFO at Lineage]

But we we definitely have higher maintenance CapEx in q three and q four, and and we gave you the full year high numbers. I mean, in terms yeah. In terms of the range, I mean, you know, I think, there's know, it really depends on occupancy. That's the biggest driver. As Greg mentioned, price is stable.

[Rob Crisci, CFO at Lineage]

Our cost controls are in place. You know, our team will work hard if occupancy is lower to take out cost to make sure we can still produce as as high of of EBITDA, if whatever we possibly can. But we just thought it was prudent because, again, you're in an industry here that's inflecting from a seasonality standpoint, and it's just, you know, a week or two change, you know, can drive, you know, very different results. And so we wanted to give you again, we're trying to be as transparent as we can and show you here's what we see, you know, here's what we're assuming, and, you know, and then obviously people can can make their own determinations from there.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

But that that that that's our goal of this this call.

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

Okay. Thanks.

[Operator]

Our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

[Caitlin Burrows, Vice President at Goldman Sachs]

Hi, good morning. Maybe just back to the private market valuation discussion. I know you guys have only been public for a year. But I guess how do you think about the option of being private versus public? And do you think it or under one what circumstances?

[Caitlin Burrows, Vice President at Goldman Sachs]

Or do you think it would be better for shareholders to take the company private?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Certainly. It's been a it's been a I mentioned in the prepared remarks, I think we went we went public at a very interesting time as the industry was resetting. You know, that said, I think, getting our our investment grade rating, having access to the to the to the capital markets, We're better than we're still better in the in the public space despite, you know, tough quarters like this.

[Rob Crisci, CFO at Lineage]

So Yeah.

[Rob Crisci, CFO at Lineage]

I think that's right. You know, it's getting the cost of capital, having the ability to issue equity moving forward for for accretive opportunities. We're gonna, you know, we're continuing to do that. Like, we're we're gonna look hard at, you know, how do we compound and grow this company and having that flexibility to be an investment grade company, is is huge. So I think that, you know, I I I think the future is very bright even though, obviously, the first year has been has been tough.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yeah. I mean, we we if you look at our guidance, we see sequential improvement. We think, you know, our our mission is to help the stock rebound through our performance as fast as it's as it's come down, and and we think we can do that. We think we're very well positioned. And even at, you know, even at the current, you know, deflated stock level, we're still seeing accretive deals in the marketplace where we can generate alpha through those deals. So there's still a ton of opportunities even at these levels.

[Caitlin Burrows, Vice President at Goldman Sachs]

It. Thanks.

[Operator]

Thank you. Our next question comes from the line of Omotayo Okusanya from Deutsche Bank. Please go ahead.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Yes. Good morning. We've talked a lot about just customer trends and the USDA data. Just kind of curious, the occupancy decline and everything you're seeing in regards to a more tempered outlook, is this all U. S.-centric?

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Or are you also seeing similar trends in your international business as well?

[Rob Crisci, CFO at Lineage]

Yeah. Yeah. We're we're really I mean, we wanna show you a say data because it's something people look at. It's just, you know, it represents the trend. But the point is that it's not necessarily our entire portfolio that track nor US for that matter. I mean, it's about as we put on the slide, about 40% of our portfolio is reflecting USDA trends. But, you know, there is seasonality throughout the world.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yeah. I I think we're seeing, you know, inventories hold up better in in other regions, both in Europe and and Australia, which is our our largest market in in Asia Pacific. So the The US is driving the, you know, the year over year occupancy decline.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Got you. Thank you.

[Operator]

Thank you. Our next question comes from the line of Greg from Scotia Capital. Please go ahead.

[Greg Mcginniss, Director at Scotiobank]

Hey, good morning. I'm curious on this occupancy and whether the lower seasonal occupancy you're experiencing is ratable across all categories or if there's specific categories that are under more pressure? And if you could comment on the more import export focus category specifically as well, that would be appreciated.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

So it pretty broad based, I would say, the pressure we're seeing. I'll comment a little bit about tariffs. We're certainly seeing you know, chicken sell well and and the beef herd as well. Those are two categories that are that are, you know, mixed. Seafood, the the the inventories have stabilized, but the and sales are at a at a pretty low historic level.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

You know? And and a lot of these are, of course, on the import export side are are a result of of, of tariff policies. Our our customers are constantly redirecting product around the world and and kind of managing through, with their buys on on the tariff policies. You know, one of the things that that we were hoping to see as a result of tariff negotiations is, you know, is to open up new markets for US exports as, you know, The US is the most the most efficient producer of food in the world. I mean, for example, agriculture and and particularly, proteins is one of America's last great exports.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

You know, The US is extremely competitive in the protein space on the world stage, and many of these markets have been either partially closed or closed to US protein imports in recent in in until recent trade deals are are are finalized and and and, you know, we're closed historically. So, you know, as an example, The UK and Australia just opened up their markets to you have beef beef imports if these deals get closed that are that are likely going to be in in the near term here. And while that won't stimulate, you know, a lot of new exports in the short term because our beef are so low in the midterm, you know, long term certainly could. And, you know, we're looking for more deals like this to help stimulate, production in The US.

[Rob Crisci, CFO at Lineage]

Yeah. So to quantify, we do go through and and really try to quantify our our tariff impact in all of our review calls. We've got about a $10,000,000, our estimate, NOI headwind in the second half. That's embedded in the guidance and the occupancy chart that you could see. So, you know, we do have some locations that have more inventory because of tariffs, but but then again enough that have lower to lead to a a headwind overall. So we just want to give that number to give everyone a sense of sort of what we've been, seeing.

[Greg Mcginniss, Director at Scotiobank]

Okay. Thank you. Are you are you not worried about the the use of, like, growth hormone in our beef that's gonna limit exports?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

I think the protein space will adapt to that and and figure it out correctly.

[Greg Mcginniss, Director at Scotiobank]

Thank you.

[Operator]

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

[Michael Mueller, Analyst at JP Morgan]

Yeah. Hi. Can you talk about the strategy to manage interest expense going forward after the caps and swaps burn off at year end?

[Rob Crisci, CFO at Lineage]

Yeah. For sure. So we did the bond deal. We we we did a new swap here, just recently. So we are actively managing it.

[Rob Crisci, CFO at Lineage]

There is about a $10,000,000 per quarter headwind in q in in 2026 versus 2025 because of the expiring swaps. So we and we we we benefited a lot from them. We're glad we did them. They're expiring, and we are working hard to mitigate that through a number of of of different areas, the bond deal, you know, taking advantage of investment grade markets. We have the opportunity to do potentially financing in different currencies, we'll continue to do all we can to make sure we have the lowest cost of capital.

[Michael Mueller, Analyst at JP Morgan]

Real quick, as a follow-up, was the new swap you mentioned, was that just on the recent quarter? And how significant is it?

[Rob Crisci, CFO at Lineage]

$750,000,000 And I think it's about 3.2%.

[Michael Mueller, Analyst at JP Morgan]

Thanks.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Thanks.

[Operator]

Our next question comes from the line of Nick Thielman from Baird. Please go ahead.

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

Hey, good morning. Greg, maybe just wanted to get your comments on what you're seeing from some of the smaller operators in the space today, what you're seeing they're doing from, like, a pricing standpoint? Are you seeing them starting to be under more pressure than you? Do you see them exiting the market? I guess, a little commentary because it it is you and a larger player that have a decent amount of market share, but curious on kind of the more fragmented part of the industry.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yeah. I mean, there's obviously a number of new competitors. You know, we there is there had been some discounting going on, you know, and some are more aggressive than others. Most are are very rational on price, I'd say. And there's a few that are discounting in areas where where, you know, where where supply is greater than demand.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

I mean, I think, as I mentioned, you know, we see the the waning of new supply coming online and and demand increasing for any reasons that we already talked about will probably be the primary driver of that absorption over time. But also, both us and another company are consolidating buildings, which are, you know, taking some capacity out of out of the market. Also, there there's a lot of old inventory in The US and geographies around the world that's that's becoming obsolete quickly and will come offline in in the coming years, which will help help offset some of the new supply that's come online in the last couple of years.

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

Helpful. Thank you.

[Operator]

Our next question comes from the line of Vince Tibone from Green Street. Please go ahead.

[Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC]

Hi. Good morning. Could you discuss the current rollout plan for LYN OS over the next several years? And also, like, what percentage of your facilities are you targeting for LYN OS? Or is it all of them? And then what is just like a realistic you know, implementation timeline to get, you know, all these potential efficiencies flowing through the portfolio?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yeah.

[Rob Crisci, CFO at Lineage]

Well well, I yeah. I mean, if I if I hit a bit of a facility, it's pretty fast. I mean, as Greg mentioned, we, you know, during the pilots, we we quickly see, you know, gains within weeks. Yeah.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We see gains generally the first week, which is amazing for a new technology and I think in any aspect of any business. But, as as far as the implementation, we'll share more, later in the year on our we are working based on how excited we are about it. We are literally working every day on how we can further accelerate our our implementation. You know, we'll we'll have 10 done this year, and we look to dramatically increase that number in the coming years. It'll probably take us, you know, two or three years to get the majority of our network, converted.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

And, again, we're working really, really hard to accelerate that given how excited we are

[Rob Crisci, CFO at Lineage]

The majority of our conventional facilities eventually will be on on LIN OS.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Absolutely. And and and new acquisitions will go immediately on to LIN OS, including the the Tyson ones we just we just bought. So, you know, this will provide more accretion for future M and A. It'll make our new builds more productive and transform our existing conventional facilities.

[Rob Crisci, CFO at Lineage]

We're very excited and we'll I know we've been talking about it for the past year, but we'll start to have benefit in our numbers in '26 and it'll accelerate from there. And as Greg mentioned, around NAREIT, we we plan to give a bunch of detail around this.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Yeah. We'll probably do a special session around NAREIT to provide a lot more detail and color on what we're seeing.

[Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC]

Great. That's really helpful. Thank you. Maybe just quick follow-up. Is there any incremental capital we should be thinking about with this broader rollout or it's really more of a workflow system?

[Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC]

The tech investment has already been made. If you can just talk a little bit about, you know, is there a CapEx associated with this?

[Rob Crisci, CFO at Lineage]

Yeah. I mean, majority the tech investment has been made. There's, you know, some some operating costs when you're, you know, when you're going and having people on-site and and training people, but it's it's not material. The No.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

You should not expect a CapEx bubble from Lidwest implementation.

[Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC]

Great. Thank you.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Thanks, Ed.

[Rob Crisci, CFO at Lineage]

Thank you.

[Operator]

Our last question comes from the line of Daniel Guliello from Capital One Securities. Please go ahead.

[Dan Guglielmo, Equity Research Analyst - Consumer at Capital One Financial]

Hi, everyone. Thank you for taking my question. The labor expense line accelerated this quarter versus being flattish last quarter. Is there anything to call out there? Are there certain regions or countries where it's been harder to keep employees or where labor rates are rising faster than expected?

[Greg Lehmkuhl, Director, President & CEO at Lineage]

So our wage increases are implemented for the majority of our markets on April 1. That's probably what you're seeing. That said, our guidance and what we're seeing is continued productivity improvement even outside of of of WinOS. You know, we have a ton of levers we're we're pulling and and a a myriad of productivity initiatives that impact that labor line outside of just lead in WinOS that we always talk about to increase labor productivity. Things like daily labor planning, is being implemented, throughout The US to start with.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

We we're implementing a next generation labor management system that that both of these things are just designed to to match the the labor dynamically to the facility activity. And so we're seeing good productivity trends, you know, even before the LYN OS implementation, and and those act as a perfect foundation for the LYNLS rollout, as we accelerate next year.

[Rob Crisci, CFO at Lineage]

And same warehouse labor was down year over year. Same warehouse cost of operations was down year over year.

[Dan Guglielmo, Equity Research Analyst - Consumer at Capital One Financial]

Okay. Thank you.

[Greg Lehmkuhl, Director, President & CEO at Lineage]

Of course.

[Operator]

Thank you. That concludes our question and answer session. I will now turn the call over to Mr. Evan Maboza for closing remarks.

[Evan Barbosa, VP of Investor Relations at Lineage]

On behalf of the entire Lineage 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 earnings call.

[Operator]

This concludes today's conference call. You may now disconnect.

Participants

Executives

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

Analysts

• Alexander Goldfarb, MD & Senior Research Analyst at Piper Sandler Companies
• Ki Bin Kim, MD - US REIT Equity Research at Truist
• Michael Griffin, Director at Evercore
• Brendan Lynch, Director at Barclays Capital
• Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley
• Michael Goldsmith, US REITs Analyst at UBS Group
• Samir Khanal, Director - US REITs at Bank of America
• Todd Thomas, MD & Senior Equity Research Analyst at KeyBanc Capital Markets
• Craig Mailman, Director & Equity Research Analyst at Citigroup
• Michael Carroll, Managing Director at RBC Capital Markets
• Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.
• Blaine Heck, Executive Director & Senior Equity Research Analyst at Wells Fargo Securities
• Caitlin Burrows, Vice President at Goldman Sachs
• Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank
• Greg Mcginniss, Director at Scotiobank
• Michael Mueller, Analyst at JP Morgan
• Nick Thillman, Senior Research Analyst at Robert W. Baird & Co
• Vince Tibone, Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC
• Dan Guglielmo, Equity Research Analyst - Consumer at Capital One Financial