Lineage, Inc. Q1 FY2025 Earnings Call

Good day, and welcome to the Lineage First Quarter 2025 Earnings Conference Call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Evan Barbosa, VP of Investor Relations, to begin the conference. Evan, over to you.

Thank you. Welcome to Lineage's discussion of its first quarter 2025 financial results. Joining me today are Greg Lehmkuhl, 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. Following management's prepared remarks, we'll be happy to take your questions. Turning to Slide 2. 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. 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 2025 are to the first quarter of 2024. Now I would like to turn the call over to Greg.

Thanks, Evan, 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 billion of capital in the coming years on the acquisition and new greenfield development that, once stabilized, will generate over $100 million 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 million. These warehouses total approximately 49 million cubic feet with 160,000 pallet positions and are located in Pottsville, Pennsylvania; Olathe, Kansas; Rochelle, Illinois; and Tolleson, Arizona. 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 million cubic feet and 260,000 pallet positions into our portfolio. We expect to deploy over $740 million on these two greenfield developments, with an expected yield of 9% to 11% when stabilized. 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 and executing our proven integration process. We expect to break ground on the greenfield development in the second half of this year. As the new build warehouses open, targeted for late '27 and 2028, the four existing acquired warehouses will transition into public multi-client facilities. 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 strategically 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 4. Our first quarter results reflect normal seasonality against the elevated inventory levels we saw in the first half of 2024, 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. 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 pallet, 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 costs 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. They are acutely focused on increasing their sales volumes while working hard to lower their operating expenses. Accordingly, we are partnering with our customers to leverage our global scale and 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 LinOS pilots at our conventional buildings, which continue to exceed our expectations. As a reminder, LinOS is our proprietary warehouse execution system that we've already implemented in multiple automated facilities. The software uses patented and proprietary algorithms as a result of many years of development. 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 LinOS. 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. 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 the inflationary environment. We expect LinOS 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&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 million, adding to our existing portfolio in the Pac Northwest; and $67 million in development spend in the quarter, including completing the semi-automated expansion at our Vejle, Denmark facility ahead of schedule and breaking ground on our automated expansion project at our Bergen op Zoom facility in the Netherlands, which, once completed, will be the largest cold storage in Europe. 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, Rob Crisci.

Thanks, Greg. Good morning, everyone. Starting on Slide 5 and looking at our financial results for the first quarter. Our total revenue was $1.29 billion, down 3%. Our adjusted EBITDA decreased 7% to $304 million, with adjusted EBITDA margin down 110 basis points to 23.5%. Our AFFO for the quarter was up 48% to $219 million, 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 4-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 in the last couple of years, helping drive 22% same warehouse NOI growth in the first quarter two years ago. 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've 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. 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 15% of our U.S. throughput volume is directly tied to import/exports. 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 of which we will grow in the second half. 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 we'll be better able to quantify growth as tariff policies stabilize, and we look forward to updating you next quarter. Turning to Slide 7 and covering our global integrated solutions segment. Segment revenue was down 3% to $348 million. NOI was down 3% to $57 million, with NOI margin flat at 16.4%. As expected, we saw new business that we won in the second half of 2024 starting to come online in the first quarter. 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 8. We ended the quarter with net debt of $6.7 billion. Total liquidity at the end of the quarter stood at $1.7 billion, including cash and revolving credit facility capacity. 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 continue 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 9. We are maintaining our 2025 guidance with our adjusted EBITDA range, in million, of $1,350 to $1,400 and AFFO per share of $3.40 to $3.60. Our guidance includes contributions from our recently announced acquisitions of approximately $25 million of adjusted EBITDA and $0.05 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. 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 agreements help 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 developments. 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. With that, I'll turn it back over to Greg to wrap up before turning it over to your questions.

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 billion in total capital deployment, will significantly enhance our platform and add to our global leadership position. Our acquisition of three warehouse campuses from Bellingham Cold Storage has strengthened our presence in a key market while our Vejle and Bergen op Zoom expansions showcased customer-led growth across our global markets. 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 LinOS. 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; are industry leaders in technology, automation and data science; and are the most diversified geographically and across our more than 13,000 customers. 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&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. And with that, I'll open it up to questions.

And your first question comes from Caitlin Burrows of Goldman Sachs. Please go ahead.

Hi. Good morning, everyone. Maybe 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, like how does economic uncertainty impact customer inventory and throughput? I guess that's a lot, but hopefully, it all ties together well.

Caitlin, just to clarify, so it's 15%, 1-5, directly tied to import/export.

Okay. I heard 50%, so thank you.

Yes, yes. No worries. And I will turn over to Greg.

Yes. I think that while the tariffs have created significant uncertainty in the short term, consumption really has to change. It hasn't impacted overall occupancy too much at this point. There's definitely short-term uncertainty due to the tariffs, which is causing our customers to refrain from making major supply chain decisions. However, I don't believe it has led to substantial volatility so far.

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 foods then are being consumed less today than they would have been previously? Or how does that actually end up like happening and impacting you?

I've recently met with 20 customers, and a key takeaway is that they are postponing significant decisions, leading to a sense of uncertainty. Customers are waiting for clearer guidance before determining expansions, new plant locations, transportation sourcing—whether domestically to ports or internationally—or inventory management. The ongoing fluctuations in tariff policies have caused some short-term disruptions. For instance, some customers have had to redirect shipments that were en route to destinations like China. A specific example is Alaskan seafood, typically processed in China, which is now either being returned to the U.S. for processing or sent to other Southeast Asian countries like India or Vietnam. In the protein sector, while we’ve seen some declines in export levels, production and manufacturing have remained consistent. End consumption is stable, with a slight increase in production directed toward the U.S. instead of overseas. Out of the 20 customers I spoke with, only one beef producer from Australia expressed no concerns about U.S. tariffs, citing a beef shortage in the U.S. He was confident that Americans would continue to consume beef regardless of the export price. However, the majority of others ranked tariffs as their primary concern.

Thank you.

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

Great. Thanks for taking my question. On the assets that you're acquiring from Tyson, can you talk about where they are in the supply chain 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. The assets that we're acquiring are a mix between production and distribution. More slanted towards the distribution side, though.

Great. Thanks.

Your next question is from the line of Samir Khanal from Bank of America. Please go ahead.

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 a recovery in the second half. So any color on that would be helpful.

Yes, certainly. So we talked at length last quarter about how there was a multiyear inventory stocking 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 holds true through this quarter. We are seeing normal seasonality despite the tariff uncertainty. 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.

I 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?

Yes. Great question. So our data science team studied the last almost 10 years of our data for what we call core inventory holdings. These are customers where we neither won new business nor lost any business 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. 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 normal seasonality has returned and the inventory destocking concluded in the third quarter of last year.

Thank you.

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

Thanks. Greg, can you provide some more color on your storage and service rental rates? I know both looks like they were down a decent amount year-over-year and sequentially. I guess what's driving those weaknesses? Is Lineage cutting rates to win market share? Or is there a mix shift? I guess what's going on with those numbers?

Yes, that's a great question. Let me provide some insights into what we're observing in the industry in response to your query. Several factors are at play simultaneously. First, we've seen a decrease in inventory occupancies due to destocking. Normal seasonality has returned, but we will face challenging comparisons in the first half of this year. In the first quarter, inventory levels of core holdings decreased, and our customers have adjusted their volume guarantees to lower levels to align with their inventory requirements. Additionally, some new capacity has become available in certain markets over the past couple of years. In this challenging environment, we have focused on maintaining high physical inventory. I mentioned in our last earnings call that we are open to strategically trading volume for price when it benefits the long-term health of the business. Our sales team has done an excellent job managing the situation by acquiring new business, which has largely balanced out the decline in core holdings. This is reflected in our physical inventory being down only 1% despite the overall decline. As you've noted, part of our strategy to win new business has involved negotiating prices with customers. While we face short-term pressure and the marketplace remains competitive, we believe we've returned to normal inventory holdings and seasonal trends, even without expecting any significant inventory rebound. The year-over-year pricing challenges reflected in our numbers will ease as the year progresses, as customers have basically reset their volume guarantees, primarily in the first quarter, and inventory levels have stabilized. Looking ahead, as Rob mentioned in his prepared remarks, we anticipate a similar environment in the second quarter as in the first quarter, followed by a return to same-store growth in the second half. We aren't offering a specific same-store growth estimate for the second half due to macro uncertainties, as various short-term factors could influence our performance in either direction. However, we are confident in the mid-term outlook, thanks to the scale and diversification of our network.

Okay. With the minimum resets and stores numbers declining affecting that rent number, is that all already reflected in the 1Q figures? I believe you mentioned that. So we should consider that as stable today, without any additional weakness, and it could possibly recover over time, maybe in line with inflation.

Yes, I believe that's a reasonable assumption. It makes sense, Mike. There is some uncertainty regarding everything we've discussed, so we want to proceed with caution as we learn more each day. We are optimistic about having a strong year and a positive second half. However, it's difficult to quantify all the factors we have addressed.

Yes. But 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 we would expect to get 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.

Okay. Great. Thank you.

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

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 on that would be great.

I would say the situation is more relevant for producers than retailers since consumption in the U.S. isn't changing. It's primarily about Tyson making structural changes, such as contracting with forwarders for certain international routes for a year and locking in prices amid significant volatility. Producers on both the export and import sides are uncertain about their sourcing and shipping of products. What we know is that food flows globally like water; people will continue to eat everywhere, and regardless of challenges, we believe we will be well positioned in the future.

Got it. Okay. And then, I guess, second 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 normal course one-off activity?

I would say all the deals that we announced today are in line with our historical expectations. We value the customer and believe we can significantly assist them with our technology and automation. We are confident that we can collaborate with them to further optimize their supply chain, and these deals will be accretive to us in a manner consistent with past deals.

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

Got it. Okay. Thanks.

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

Hi. Good morning, everyone. I wanted to follow up on the changing assumptions here. If it hadn't been for the Tyson's deal, you would have lowered guidance by $0.05. What is the biggest pressure point as you reevaluated the risks of tariffs? Is it further erosion in occupancy, rate, margins? What concerns you the most from a visibility standpoint?

I think it's just the unknown and the uncertainty of the tariffs. I mean, again, we're all over the world. We can support consumption in all the major markets in which we operate. But our customers are telling us they're not sure what they're going to do. They don't know where they're going to build inventories. They don't know how they're going to direct trade flows, and that could have a short-term disruption even though we're very confident we'll support their needs in the medium and long term. So given that uncertainty, given 19 of the 20 clients I met with said we don't know what's going to happen with our supply chain, we think it's prudent to reinforce our overall guidance with the acquisition, new cash flows, but not try to get specific when none of our customers know exactly what's going to happen in the short term.

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 get into the system any time you have disruption. We've seen that many times over history.

Yes, Brexit, COVID.

Yes, so Brexit, COVID, et cetera. So I just think, again, it's just hard to predict. As Greg mentioned, I mean we're going to be within a range, but it could go a few points one way or the other. And so we really want to see more, and we'll update everyone as we see things here into the next quarter and the second half of the year.

Yes, there have been supply chain disruptions in the past, such as port strikes, COVID, and Brexit, but this situation is unprecedented. No one can predict what will happen with global trade flows. We are grateful that we are not involved in consumer electronics or auto parts, which could be adversely affected in the medium to long term by these changes. We are in the food industry, and people will continue to eat, plus we have a global presence and diversification. Therefore, we believe we are very well positioned compared to most companies in the long term. However, in the short term, there may be some volatility.

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 kind of new deals?

Regarding the volume guarantees, our sales team is successfully securing new volume guarantees, achieving record new business even in this challenging environment, with over 42% of new business coming from volume guarantees. However, existing customers, particularly those with core holdings, have reduced their guarantees since the beginning of the first quarter. This has impacted our revenue per occupied space and throughput pallets. While we appreciate generating revenue from our customers, we believe it is not advantageous in the long term for customers to pay significantly more for space than they are actually using. We prefer a smaller gap between physical and economic capacity for this reason, as a larger gap could lead to future problems. We believe we have addressed these issues, and stability should improve moving forward.

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

Hi. 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.

Yes, that issue is mainly linked to the Kennewick fire from last year, and it significantly impacted the first quarter.

So 42 properties experienced a drop in occupancy, which was entirely due to one property.

Yes. There were also issues related to Big Bear. We experienced a few incidents, particularly with the fires, which was the main factor. The Kennewick location was one of our largest facilities, and it is relatively small when considering the broader non-same-store category.

It was totally full.

Yes, it's totally full. Yes. So I think that's a big driver, Alex.

The second question is about the normalization of inventory levels, which we've been discussing for the past few quarters. You all have significant experience in this area, but it appears that every quarter we are saying the same thing about the next quarter. I'm wondering if, in light of this cycle and the stable consumption in the food business, there is something distinct about this situation compared to your experiences over the past 15 years that is causing the inventory normalization to take longer. COVID was several years ago, and the destocking should have happened a few years back, especially before April 2. I'm just curious why this process seems to be extending beyond what we initially anticipated during your first earnings call.

Yes, I'll start and hand it over to Greg. From an occupancy perspective, we are right where we anticipated for the first quarter. We experienced normal seasonality. As we mentioned, our core holdings stabilized after the second quarter of last year. From the occupancy standpoint, we are in alignment. The rate was slightly lower, as Greg mentioned, and that was the primary factor. We were quite close to our internal models for Q1, consistent with what we had communicated. Now, I'll pass it over to Greg.

No, I would just reiterate what you said. We said very clearly last quarter, we thought 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.

Thank you.

You have a question from the line of Blaine Heck of Wells Fargo. Please go ahead.

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, whether they might need any redevelopment or repositioning as Tyson moves from those properties into Hazleton 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?

Start with the...

Yes. So I think we talked about 9% to 11% on the development. In terms of the EBITDA contribution of these acquisitions, we're low double-digit EBITDA multiple on the acquisitions we announced this quarter.

Yes, 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.

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 spend on development underway and potentially any debt paydowns that you might be considering?

Yes, sure. So I think this is all in line with our normal operating cadence where we spend money using our revolver. We still have a ton of capacity. We're a solid investment-grade company. 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 get the flywheel that we talked about. So we still have capacity now. We're going to be very thoughtful in this market. Again, we're always going to be patient, and we'll manage this investment-grade balance sheet and continue to grow the business.

Great. Thanks.

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

Hi. 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 as 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 how are you adjusting to this type of environment?

I'll start by saying that labor productivity remains a strong point for us, as we've discussed. Our same-store warehousing costs have decreased in the quarter, which is a positive impact thanks to our focus on labor productivity and efficiency. We will also discuss LinOS and its potential, but overall, it's a good story with many positive factors contributing to our success.

Yes. I would say, certainly, the labor front is stable, and we're seeing wage increases of about 3.5% a year, which is in line with history.

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

No, I don’t want to get into the details on that. However, as I mentioned, we’re seeing a low double digit EBITDA when you look at the numbers.

Great. Thanks.

Your next question is from the line of Omotayo Okusanya from Deutsche Bank. Please go ahead.

Yes. Good morning, everyone. I was hoping you could dive a little deeper into guidance. So again, it's unchanged. You're gaining $0.05 from all the acquisition activity. Could you just talk a little bit about all the other moving parts, whether it is, we're now expecting slightly worse by X amount on operations, but we're picking up this amount from better cost? Just to kind of get the general sense of how guidance still kind of ends up being flat, but understanding some of the moving parts a little bit better.

Yes, for sure. So it's really about all the uncertainty that we talked about earlier. So there are a lot of moving parts. We have a lot of levers to pull. We feel very confident in these guidance ranges that we gave you on adjusted EBITDA and AFFO per share. There's a lot different ways to get there. 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? I mean 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.

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

Okay. 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?

Yes. The price pressure we experienced with the volume guarantees resetting was mainly seen in the U.S. However, our Asia Pacific and European businesses are performing very well and seem to be improving. While our GIS segment was down compared to last year, we are still expecting 5% to 10% EBITDA growth for that segment, and we are optimistic about it.

Thank you.

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

Hi. 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? Obviously, without putting an exact number on it, but how are you guys thinking about that down and recovery in the second half of the year?

Yes. We are confident in growth for the second half of the year due to the easier comparisons and seasonal factors. However, we are uncertain about the extent of that growth, which is why we are being cautious about providing specific ranges.

Yes, those are the key points.

Great. And then my second question is 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 positioned than any other sort of post tariff announcement?

Yes. I would say we are taking a wait-and-see approach regarding any changes to our inventory positioning or levels of holdings. Our seafood business, which we discussed extensively last year, has stabilized. I believe we are now at a normal consumption level for seafood. We are observing that inventories have decreased from the peak during COVID, and there is no longer any downward pressure in that segment of our business.

Great. Thanks so much.

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

Yes, thanks. Good morning. I don't know if you guys saw there was a major article about the Chinese that had canceled a 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.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 import/export business?

Yes, that's a great question. That situation could definitely happen. The uncertainty we're facing is not only negative; there are various factors that could positively impact our occupancy and results. One of these factors is China, which is a significant trading partner for the U.S. in the food sector. We've been in discussions with our team and several commodity experts. It's important to note that while China is a major partner, they have employed nontariff trade barriers for many years, so this isn't a new challenge. Although it seems that its impact could be more significant than before, it is something our customers are accustomed to managing. For instance, last year, China did not renew export licenses for several U.S. protein suppliers competing with their domestic industry, and our customers adjusted to those circumstances. Consequently, both customers and producers are already making plans to redirect their exports to other countries, which they will continue to do if tariffs remain in place or increase. As we've mentioned, food is highly adaptable in global trade; if it’s not sent to China, it will be exported elsewhere or redirected to the domestic market here in the U.S. So yes, as you noted, there is potential for positive outcomes.

Okay, did you want to say something else?

No, all good. Proceed.

Okay. Just second question. Just I guess as you think about capital deployment and like this Tyson's deal, does the economic uncertainty maybe create more opportunities for you guys as customers look to kind of shed costs and streamline their business? And 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?

So we think it could. We're always looking at risk-adjusted return, and our cost of capital is a key component of that calculation that we talk about every week in our capital deployment call. But certainly, 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 execute on any major supply chain changes. And so Tyson is one that was obviously born well before these tariff policy changes. But as things change, we tend to get even more valuable with our customers.

Thank you.

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

Good morning. Thanks a lot. 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?

It varies by customer, by region, by commodity, yes.

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

Yes. I believe that since the volume guarantees were recently reset in the first quarter, customers now have an adequate amount of space allocated for their business needs. If there's any change in inventory levels or an increase in consumer sentiment that results in higher sales and volumes, it would be beneficial for us, and our additional margins are very robust. We are currently at a low point in inventory, and any stimulus to rebuild or reorganize will further aid us.

Got it. And then just a 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?

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 U.S. incremental pallet positions. That came down by about 50% in '24 and, again, similarly this year. So about 2% new pallet positions added in the U.S. 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 pallet positions added in the U.S. will kind of be back to historical pre-COVID levels. But I think it's important to mention that, that capacity that's been added over the last several years has been built at the highest cost to build ever, and the cost of capital has obviously increased. So it's hard for these smaller players to succeed at anything below kind of market prices. And we expect some of these businesses to underperform and some to fail, and we're definitely seeing evidence of that in the marketplace. And we expect those dislocations to create opportunities for us to either grow organically or through acquisition. And I think 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. We have proprietary technology even before the LinOS launch. We have 13,000 customer relationships, and we have global farm-to-fork service offerings. And so we have a really deep moat. I mean, for example, I'd argue that if you think about this new capacity or new companies that have entered our space, I think we're the only one capable of successfully signing and executing a deal like to the scale of the Tyson Foods agreements.

Thank you very much.

Your next question is from the line of Todd Thomas of KeyBanc Capital Markets. Your line is open.

Hi, thanks. Good morning. First question, I wanted to follow up on the minimum volume guarantees, which decreased 200 basis points sequentially to the 42% level. This decrease happened before the tariff announcements. I understand there is uncertainty regarding how inventory levels will trend in the near term due to trade flows and inventory uncertainties. Regarding those changes, I wanted to clarify if this was primarily a first quarter adjustment or if you anticipate that this process will continue throughout the year, and whether the percentage of fixed commitments might decrease further, possibly below 40%.

It primarily occurs in the first quarter. Most of the resets happen during this time. While existing customer volume guarantees have decreased slightly, the new business we're securing shows an average volume guarantee of over 42%. We expect this to hold, and I don’t believe tariffs will affect it. As Steve mentioned earlier, if there is any stockpiling of inventory or goods that need to be redirected back to the U.S., it could create additional demand for space and possibly lead to requests for increased volume guarantees outside of the usual cycle. We'll have to wait and see how it unfolds. There's a lot of uncertainty, but to answer your question directly, the majority of it is indeed a first quarter phenomenon.

Okay. I have a separate question about the Tyson transaction. Concerning the existing facilities that will be moved to public warehouses, will those warehouses see a drop in occupancy in 2027 or 2028 during this transition? How will the hand-off be managed? I'm also interested in how these operations are expected to trend during that transition period, specifically if they will need to fill up and if they will operate similarly to lease-up or development assets during this time.

Yes, we can't disclose all the details of the agreement, but there will be a very smooth transition. Like anything else, it will become a public warehouse. There may be a slight initial decline as we fill up the new warehouse over the next couple of years, but there is a structured transaction in place for this.

Yes. The answer is, yes, there will 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.

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

Thanks for the question. Regarding the guidance, I understand it's challenging to predict the same-store warehouse or the global solutions NOI growth. However, to maintain the guidance, you must have accounted for something. To put it another way, if tariffs were to be eliminated tomorrow, would you still meet your original guidance? Or are there other factors at play? If you are maintaining the guidance, what other elements are you adjusting, considering the same-store performance might fall short of your initial expectations?

It's really difficult to predict the impact if tariffs were to suddenly disappear. If you look at our guidance and the $25 million we expect to achieve, it means we are potentially losing $25 million elsewhere. This would bring us closer to the lower end of our original same-store guidance. However, there is a lot of volatility, with potential for both upside and downside. We are confident in the strategies we can implement regarding costs and other factors. We are committed to delivering within these ranges, unless something significant happens in the economy, and our aim will be to exceed these expectations.

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

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

Okay. Can you clarify how much of the challenged same-store performance is related to your large global portfolio and its scale? Are you able to share any industry statistics that demonstrate how the Lineage portfolio is outperforming even in this environment? What changes have occurred in economic occupancy among your peers or overall growth? Any statistics you can provide that would indicate Lineage's continued fundamental outperformance?

There's not much publicly available information, or it's very fragmented in the industry.

The industry is very fragmented and lacks transparency, even in the U.S., let alone in international markets. Our insights come from the 250 salespeople we have around the world who are highly aware of the capacity and occupancy levels of their competitors. I have personally visited teams in about 12 markets this year and they are very attuned to market conditions, customer movements, and the capacity at competitor facilities. Based on this information, we believe we are performing very well from a physical standpoint.

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

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 call.

Thanks, everybody.

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