Lineage, Inc. Q1 FY2026 Earnings Call

Ladies and gentlemen, thank you for joining us, and welcome to Lineage's First Quarter 2026 Earnings Conference Call. Operator provided instructions. I will now hand the conference over to Ki Bin Kim, Head of Investor Relations. Please go ahead.

Thank you. Welcome to Lineage's discussion of its first quarter 2026 financial results. Joining me today are Greg Lehmkuhl, Lineage's President and Chief Executive Officer; and Robb LeMasters, 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. 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 and supplemental package that was issued this morning. Unless otherwise noted, reported figures are rounded and comparisons of the first quarter of 2026 are to the first quarter of 2025. Now I would like to turn the call over to Greg.

Thanks, Ki Bin, and good morning, everyone. Let me walk through our agenda for this morning. First, I'll provide key highlights from Q1, then I'll share our latest view on cold storage and industry dynamics. Following my remarks, I will turn it over to Robb LeMasters, who will walk through the details of our segment performance, capital structure and expense management initiatives. I'll then return to share closing comments before we open up the line for your questions. Turning to our quarterly performance on Slide 4. Overall, the first quarter came in better than our expectations and reinforces our view that the business is stabilizing as we manage through the industry headwinds we've highlighted over the past couple of quarters, including elevated new supply and trade-related challenges. During the first quarter, total revenue was flat year-over-year and adjusted EBITDA increased by 3.3% to $314 million. Total AFFO was $201 million or $0.78 per share, representing a year-over-year decline driven primarily by the expiration of prior year interest rate hedges, consistent with our 2026 guidance. On a comparable basis, excluding this impact, AFFO per share was essentially flat. Turning to core operations. Our results were solid and better than we expected. Same-store physical occupancy sequentially declined by 290 basis points to 76.4%, in line with our expectations. Our economic occupancy of 82% also continues to track nicely at a similar spread to physical occupancy. Through a collaborative and proactive approach with customers, we've rightsized guaranteed space to appropriate levels. Stabilizing occupancy trends are consistent with our direct customer dialogue and with commentary from food producers on recent earnings calls. I will provide more color on these food industry trends in a minute. In terms of customer rate, our same-store rent, storage and blast revenue per physical pallet increased 2.2%, the fourth consecutive quarter of year-over-year increases. As a reminder, rate per pallet is impacted by mix, seasonality and FX, resulting in normal quarter-to-quarter variability. Same-store warehouse services per throughput pallet was modestly more positive than expected, driven by mix and strong performance from our international business. As an update, we continue to feel positive about realizing net price increases of 1% to 2% this year. Finally, we continue to see some softness in same-store throughput in line with both prior trends and our expectations for the first half, primarily reflecting lower import/export container volumes across seafood and other key commodities. Container volumes declined 17% year-over-year in Q1, following a 9% decline in the fourth quarter of 2025, underscoring the persistence of these headwinds. While exports were down significantly, this quarter's import decline was even more pronounced partly reflecting a difficult comp in Q1 '25, resulting from a pull ahead of imports prior to tariff actions last April. Overall, in spite of some of these factors, our 0.9% same-store NOI decline year-over-year was a welcome improvement from prior trends. Turning to our outlook. We are maintaining our 2026 guidance as we continue to expect annual same-store NOI contraction of negative 4% to negative 1% and AFFO of $2.75 to $3 per share. While we're not changing guidance, we have increased conviction in achieving the midpoint of guidance on the heels of a solid first quarter and increased stability we are seeing across our portfolio. Robb will share further guidance details later in the call. So overall, the portfolio is showing signs of stabilization with modestly better-than-expected results across most regions. While first quarter trends were encouraging, we believe additional time and consistency are required to confirm the durability of these patterns versus normal variability in customer volumes. We remain cautiously optimistic as we build on these trends through 2026, supported by disciplined execution and productivity improvements. Turning to capital investments, which is a compelling driver of upside to our medium-term growth model. In the quarter, we invested $130 million in growth capital, primarily in development projects. As a reminder, we have 22 facilities that are under construction or in the process of ramping and stabilizing, and we are pleased with their continued progress. We've already invested $1.2 billion of capital in these projects, and we expect them to deliver over $150 million of incremental EBITDA to our current run rate once stabilized, a meaningful impact to our earnings base in the future. As discussed last quarter, we continue to make solid progress on our strategic portfolio review and have increased confidence in the breadth of options available to enhance balance sheet capacity and drive shareholder value. Our early review indicates many attractive options. All options we are exploring would highlight the continued disconnect between private and public valuations for high-quality storage assets. We look forward to updating you in future quarters as we learn more. Our LinOS technology implementation now at 11 conventional facilities continues to gain momentum and is still expected to roll out to at least 20 facilities this year. Each quarter, we gain more confidence in our 3- to 5-year target we shared in December of generating $110 million of OpEx savings. Turning to Slide 5 and looking at U.S. supply and demand trends, particularly for those who are new to our story and as we've shown in past presentations, from 2021 to 2025, U.S. public refrigerated warehouse supply increased approximately 15% on a square foot basis, while consumer demand for the categories we serve grew about 5%, resulting in roughly 10% excess capacity. Despite this, Lineage delivered average physical occupancy of approximately 75% in 2025, down only 300 basis points from our 2021 level. This performance reflects the strength of our network, our commercial execution and customer preference to partner with the industry leader. As Lineage and the industry sought to digest this new capacity, on the right, you can see how those recent supply additions impacted our markets. This analysis focuses on U.S. assets held consistently since 2021, representing over $500 million in NOI. Importantly, what we've seen is that after new supply is delivered, market rents adjust fairly quickly, reaching a new equilibrium and tend to stabilize from those levels after a period of market digestion. And so you can see that approximately 85% of that U.S. asset NOI is located in markets with limited new supply growth or in markets that have had higher supply growth but earlier in the cycle where market rents have adjusted and stabilized. Markets with low supply growth, shown in green, represent more than 60% of that U.S. portfolio. These high barrier markets have remained resilient and NOI is steady after COVID destocking and other headwinds. Markets with greater than 15% new supply delivered during 2021 to 2025 are split between early and late cycle. Early supply markets shown in blue had new supply delivered in '22 and '23. After seeing NOI pressure in '23 and '24, performance stabilized in '25 and is expected to remain stable this year. These markets represent 21% of that U.S. NOI. Together, low new supply and early supply markets comprise approximately 85% of the U.S. NOI and are clearly demonstrating stabilization. Late supply markets shown in gray, saw supply delivered primarily in '24 and '25 and are experiencing near-term competitive pressure. These markets represent approximately 15% of U.S. NOI, and we expect them to show a similar pattern as early cycle markets over time. Furthermore, with new deliveries expected to decline sharply in 2026, we anticipate conditions to improve in the medium term. Looking ahead, new supply is expected to slow significantly going forward as the current environment does not support speculative development. Across the industry, we believe we will see increasing examples of asset repurposing, potential competitor exits or bankruptcies and asset obsolescence cutting into excess capacity overhang. We are also actively managing supply through selective idling, having idled 10 facilities in 2025 and planning another handful this year. On demand side, resolution of tariffs, normalizing food inflation, easing geopolitical uncertainty leading to a rebound in container volumes, expanding our customer base with new product categories like candy and flowers and lower interest rates, all represent potential upside that we have not baked into guidance, but could emerge as a welcome tailwind. In summary, we have worked through much of the new supply, and while a limited portion of our portfolio is managing a near-term supply imbalance, the vast majority of our U.S. NOI is on more stable footing. As excess capacity is absorbed and the food industry normalizes, we are well positioned for sustained growth. As a reminder, demand improvement should create additional upside given the inherent operating leverage in our business that could be further compounded by productivity and cost measures. Turning to Slide 6. To help contextualize some of the challenges we and other large food companies are navigating today, we want to share a few charts that illustrate the trends we discussed on recent calls. The chart on the left shows days of inventory outstanding across many of our key food production, distribution and retail customers in the frozen and refrigerated categories in which we participate. While the data has limitations and encompasses more than just temperature-controlled segments, it is directionally consistent with our customer dialogue that the COVID-driven inventory build and subsequent destocking cycle have largely played out. Inventory days have flattened and converged to historical norms. The middle chart illustrates U.S. food import volumes of key agricultural commodities, which historically have been a meaningful driver of warehouse services in our network. After a multi-decade period of growth, volumes have declined recently due to tariffs and geopolitical uncertainty. This dynamic helps explain why throughput remains pressured year-over-year, but we believe that in the long run, U.S. agricultural trade will once again serve as a tailwind to our industry. Importantly, incremental volume in this category is highly margin accretive, driven by strong services attachment and the operating leverage in our network. As volumes recover, we would expect meaningful flow-through to EBITDA. Finally, the chart on the right reinforces a simple point. Even through geopolitical shocks and recession, food demand has remained resilient, and it continues to support long-term growth. While we're not immune to disruptions, the food industry has proven to be among the most durable and steadily growing categories, delivering a roughly 2% CAGR in inflation-adjusted food sales over the past 25 years. Like many of you, we're closely monitoring the situation in the Middle East, and we've assessed the potential impact on our business. We have limited exposure to the Middle East, and we expect the near-term impact to be largely net neutral for both our warehouse and GIS segments. And specifically, with respect to energy costs, we are largely insulated in 2026 and 2027 through a combination of in-place hedges, surcharge mechanisms, regulated utility exposure and on-site solar generation. This reflects the strength of our approach to energy management and efficiency. Like all of you, we're hoping for a swift and peaceful resolution to the conflict. With that, let me turn it over to Robb LeMasters.

Thank you, Greg, and good morning, everyone. Starting with Slide 7. In our Global Warehousing segment, first quarter total warehouse NOI increased 1.1% year-over-year to $364 million, and same-store NOI declined 0.9% year-over-year to $347 million, both ahead of our expectations. In Q1, same-store NOI benefited by approximately 250 basis points from favorable FX year-over-year, just as we contemplated in our previously provided 2026 outlook. Looking forward, we expect FX to be a relatively minor year-over-year factor for the balance of 2026. In addition to the FX tailwind, year-over-year performance was driven by strong international NOI growth, including continued uptake of value-added services in multiple international geographies. Collectively, these results underscore the resilience of our diversified global platform. Within the same warehouse pool, rent, storage and blast revenue per physical pallet increased 2.2% year-over-year and utilization was 76.4%, down just 30 basis points from the prior year, reflecting a more consistent operating backdrop and strong commercial execution by our sales team. Throughput volumes were modestly softer, down 3.3%, although services revenue per throughput pallet increased 50 basis points. While occupancy has largely stabilized, throughput continues to reflect lower trade-related port volumes. Shifting to Slide 8. Global Integrated Solutions segment's NOI was flat versus prior year at $57 million. Our first quarter GIS NOI margin improved by 190 basis points year-over-year to 18.3%, reflecting an improved margin mix after divesting a lower-margin international transportation business last year. We are continuing to see positive momentum in our U.S. transportation and food services businesses due to the value these integrated solutions provide to our customers. This strong performance was masked by lower drayage activity associated with suppressed container volumes. As a reminder, we see solid long-term upside in the combined offerings of our GIS businesses and our Warehouse segment. Our ability to bring a global network of assets and end-to-end solutions is unique and being rewarded by our customers. Turning to Slide 9. First quarter adjusted EBITDA increased 3.3% year-over-year to $314 million and first quarter AFFO per share decreased 9.3% versus the prior year to $0.78, both ahead of our expectations. Better-than-expected results were partly driven by the timing of administrative expenses, which were a key focus in Q1 and reflected tighter oversight during our cost rationalization work, influencing near-term spending patterns. A portion of these costs were deferred into Q2 and later in the year. Thus, we expect administrative expense to normalize to approximately $120 million to $125 million per quarter for the balance of the year, consistent with our guidance and indicative of the progress we're making heading into 2027. I'll share more on that in a minute. We are pleased to see both our core operations NOI and EBITDA grow over the prior year despite operating in a challenging environment. Moving to Slide 10. We ended the quarter with total net debt of $7.9 billion and total liquidity of $1.6 billion. We have approximately $600 million of debt maturing in 2026, which we believe is very manageable. We have ample flexibility to address this through our revolver or other available sources of capital, supported by our strong access to both the U.S. and European public bond markets. As Greg noted, we continue to make progress on our previously announced strategic portfolio review. We are evaluating a range of options to increase financial flexibility and build dry powder for potential market dislocations while maintaining the ability to invest in high-return growth opportunities with our customers or to return capital to our shareholders. Over the past 15 years, we've demonstrated a consistent track record of disciplined capital allocation, and we look forward to discussing these opportunities with you in the coming months. Our adjusted net debt to transaction adjusted EBITDA, the metric we introduced last quarter stands at 5.3x. This metric is more comparable to our peers and accounts for intra-period acquisitions or dispositions and capital investments made into our development pipeline that have yet to stabilize. Keep in mind that our development projects have been significantly derisked given the majority of these projects are anchored by customers with long-term commitments. Additionally, maintaining our investment-grade balance sheet remains a key focus for our company, and we remain committed to bringing reported leverage, which currently stands at 6.0x into our targeted range of 5.0 to 5.5x. Turning to Slide 11. I wanted to provide an update on a key cost initiative consistent with our focus on controlling what we can control. As outlined on our fourth quarter call, we have identified a plan to remove $50 million or more of our administrative and indirect cost base. We have already executed several of the required actions, positioning us to realize approximately half of the savings in 2026 and the full benefit in 2027. This is not simply a cost reduction exercise. It is intended to enhance execution discipline and reinforce our culture of continuous improvement to support scalable, profitable growth. Key actions include centralizing and optimizing indirect costs, internalizing third-party activities and leveraging AI and digital transformation. The initiative requires a modest upfront investment of approximately $15 million, primarily related to technology and personnel transitions. These costs will be recorded below EBITDA in late 2026 and into 2027 as we execute our efficiency and digital initiatives to drive recurring savings. While SG&A is a key focus, the same discipline is being applied across procurement, CapEx and working capital. These efforts are expected to support same-store NOI and EBITDA and ultimately drive free cash flow and AFFO per share growth. Moving on to our outlook. We are reiterating our 2026 guidance with same-store NOI growth of minus 4% to minus 1%, total warehouse NOI growth of minus 2% to plus 1%, GIS NOI growth of 0% to 2%, adjusted EBITDA in the range of $1.25 billion to $1.30 billion and AFFO in the range of $2.75 to $3 per share. On this slide, you can also see the additional guidance detail we provided in the past. Please note that we expect a fully diluted share count of 260 million shares in Q2 and 259 million shares for the full year, which is unchanged from prior guidance. While we are encouraged by our better-than-expected first quarter results, we are maintaining our full year guidance. The majority of the outperformance was driven by 2 favorable dynamics, and we would like to see more consistent upside performance before factoring that into our outlook for the remainder of the year. First, administrative expenses were lighter in Q1, reflecting tighter controls and the timing of our $50 million cost rationalization planning. As we move through the year, we expect expenses to normalize toward a more typical run rate, consistent with the midpoint of our full year guidance. The pace at which savings are realized will depend on the timing and execution of these initiatives. And second, NOI in the quarter was supported by strong international performance, driven by a particularly favorable mix and elevated services revenue. Separately, as you think about Q2 cadence, we would point to a few items. FX is expected to be less of a benefit to same-store NOI, approximately 100 basis points in Q2 versus 250 basis points in Q1. Administrative expenses should trend back toward a more typical rate of $120 million to $125 million per quarter following the Q1 underrun. And finally, our occupancy historically shows a modest seasonal decline from Q1 to Q2. On the non-same-store front, our outlook reflects continued strong contributions from 2025 acquisitions and the ramp of new developments. The high teens millions of NOI generated in Q1 supports a progression towards an approximately $20 million quarterly run rate with further upside as assets continue to mature. On profitability, we are leaning into productivity improvements and digital enablement to refine how we operate our warehouses and allocate capital more broadly. The objective is not just efficiency, but to structurally strengthen our platform and extend our competitive advantage. A stabilizing supply and demand environment and a sharper focus on revenue growth, coupled with expense management and balance sheet optimization provide a solid foundation for 2026 and a clear path to long-term growth.

Thanks, Robb. We believe Lineage is well positioned to emerge from this period stronger than ever as we continue to invest in and extend the structural advantages that differentiate our platform. Allow me to close with highlighting our key strength and differentiators. First, we own and operate essential infrastructure in the global food supply chain, playing a key role in delivering food from farm to table for millions. Our business and the broader industry has proven resilient and capable of growth across cycles. Second, we are the global leader in our markets with a network of modern hard-to-replace assets strategically located near population centers and key thoroughfares of commerce like ports. Third, operational excellence is a structural advantage for us. We are a leader in automation, AI-enabled operations with our proprietary LinOS platform, positioning us to drive even greater efficiency as it scales across our network. Fourth, through our global integrated solutions platform, we deliver a comprehensive end-to-end suite of value-added services, including drayage, freight forwarding, rail, e-commerce and food service, enabling us to partner more deeply with customers and enhance retention. Fifth, we have a strong track record of disciplined capital deployment, supported by a solid balance sheet. From our first acquisition in Seattle to our most recent fully automated warehouse development for Tyson, we have consistently created value through our investment decisions. And finally, our industry-leading platform is enabled by a world-class team, defined by a performance and ownership-driven culture and deep expertise in both operations and technology. While progress may not always be linear, we are seeing continued signs of stabilization in our core business. We are encouraged by our first quarter results and believe we're well positioned for long-term growth. Lastly, I want to thank our global team members for their dedication and commitment to our customers. Operator, I'd like to open it up for questions.

Operator provided instructions. Your first question comes from the line of Michael Goldsmith with UBS.

Can you dive a bit deeper into the factors that drove the earnings upside in the first quarter and if you see these as sustainable? And it seems like you're looking for more evidence that these factors can be sustained before you touch your outlook. So can you help us reconcile the upside from the first quarter to that full year guidance, which you reiterated?

Sure. Michael, thanks for your question. So I'll just start by saying we did deliver a strong quarter, and I'd like to just thank our global team members for servicing our customers at the highest level and doing a great job controlling expenses. The team executed exceptionally well. And as we've discussed, mix can move results in either direction from quarter-to-quarter, and there's always puts and calls. With 500 locations and 15,000 customers in 19 countries, there's a lot of things moving around all the time. And we've worked through several periods recently where the net impact of mix was a headwind. And in Q1, it was a tailwind led by great strength in our international business. And I think this quarter just reinforces the advantage of our scale and diversification across our network. So while we're certainly excited about Q1, it's just one quarter. And while we're working hard to build off that foundation and certainly seeing signs of the industry stabilizing, we're being prudent and just reiterating and holding our guidance for the full year and just simply saying that it gives us more confidence in hitting the midpoint of our range. I don't know, Robb, do you want to add more?

Yes. I mean I think that's right, Greg. As we outlined on the call, there's really a couple of things that we benefited from one on sort of the cost side and timing related there. And then the second one really being around international, the customer side there. So those are really the two impacts. And just to dive into them, Michael, as we talked about on the admin side, I would say about one-third of the beat came there. Certain expenses in that line can be uneven. Quarterly timing can move different items such as training or travel and entertainment. All the scrutiny that we exposed the teams to in terms of reviewing and pacing investments likely led to some pause. We see those expenses coming back in Q2 and into the second half. So that's about one-third. The other two-thirds really comes from international. Those items also can move quarter-to-quarter. We saw a couple of factors that were discrete customer programs that materialized in the quarter in certain geographies. For instance, in Canada, we saw a short-term lift related to exports due to eased tensions in trade lanes. In APAC, a handful of customers had specific events that drove higher case pick. And in EMEA, trade flow disruptions led to extra handling activity. All these were discrete customer items. We'll evaluate, but we need consistency before making adjustments.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs.

Maybe switching gears to the lockup and a few shorter questions. So could you go through what portion of the share count is the free float today? And then for the rest, what portion is company management versus other investors who may look to exit within the next, call it, three years? And do you expect any of that selling to start in 2026? Or has it been allowed or happened already?

Yes. Thanks, Caitlin. As you know, as we went public, we floated about 30% of the company. So 70% of the company is still managed under the purview of Bay Grove. I want to clarify something. While that's managed under the purview of Bay Grove and often people talk about a sell-down of that, they're really managing the ultimate distribution of that. As we've discussed with them, there is no impetus that caused them to need to sell down that 70%. The lion's share are very long-term holders, not the least of which is Bay Grove, which sits on our Board. They're extremely long term and represent a significant amount of that 70%. Other holders in their base may look to sell over time. This is not something that keeps me up at night. We're not looking for an immediate sell-down. If I were in Bay Grove's shoes, they would evaluate how share price appreciates from here, focus on public float and index inclusion. All those factors go in, but there is no pressure to sell. I do not see this as a pending issue looming over the company.

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

Greg, can you provide some context on how Lineage is looking to reshape its portfolio? I know you probably can't say much about the potential APAC sale, but I know in your prepared remarks, you highlighted that the company is pursuing several different opportunities. Should we expect a potential larger scale deal on the horizon to help you get back down to those longer-term leverage targets in the low 5s?

Yes. Michael, thanks for the question. As we said in the prepared remarks, we continue to advance our strategic portfolio review. The opportunities we're looking at are broad and flexible, ranging from the potential sale of individual assets to larger portfolio transactions, as you allude to, as well as joint venture capital solutions. Proceeds from any potential transactions would enhance our financial flexibility and create optionality across several priorities, including deleveraging the balance sheet, funding our development pipeline, pursuing targeted acquisitions should market dislocations arise and returning capital to shareholders. We're encouraged by the progress to date, and we expect to share more in coming quarters.

Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

I appreciate the commentary around new supply growth and the updates there. And you talked, Greg, about the lower level of new starts, but it looks like the estimate of excess capacity increased slightly to 10% from 9.5% last quarter. I'm just curious, when do you think the industry achieves peak supply growth or peak impact from new supply growth? When will the pressures start to abate? Have you seen that yet? Or do you think that is soon to come?

Yes. Todd, the 10% was just rounding effectively; we didn't see any meaningful change. As we mentioned, we expect new supply deliveries to meaningfully slow in 2026 and 2027, declining below 2%. Given the current supply-demand dynamics and elevated construction costs, incremental speculative development is no longer economically compelling. I think we're past the biggest impact. As described, 85% of our U.S. network is on stable ground or growing even after that new supply has been delivered. A lot of new operators are under pressure due to the high basis of their assets. A subset will continue to struggle or ultimately fail, creating consolidation opportunities. Some new inventory delivered is structurally disadvantaged due to oversupply in certain markets, construction quality, location or design limitations; that inventory may be repurposed. We think we're past the worst of the pain. Pricing is more rational than a couple years ago, and the number of markets of concern continues to decline every quarter.

Your next question comes from the line of Michael Mueller with JPMorgan.

If you strip out what you saw as abnormal port activity in the quarter, where do you think the year-over-year throughput volume comp would have been compared to the down 3.3% that you reported? And how negative would that number have been still?

I'll start by talking container volume. From an import/export perspective, container volumes were down 17% year-over-year in the quarter, following a 9% decline in Q4, largely in line with our expectations because Q1 was the toughest comp from last year. With so many moving pieces in the network, it's hard to isolate one impact. Stepping back, global trade volumes have grown at a 5.7% annual rate for the past 25 years. That growth has been broad-based across our categories as supply chains have become increasingly global. We think the reduction in import/export activity is transitory. As trade volume normalizes, we would benefit from positive operating leverage and the high service revenue tied to this part of the business. It was an impact on throughput. We also saw some customers with greater inventory turns have lower volumes this quarter and customers with lower inventory turns have higher volumes. That's why occupancy stayed about the same and throughput was under a little pressure.

On the lower returning side, as people know, I've dug into that issue. Lower returning customers aren't always a negative. You can actually support lower labor, so you have the ability to reduce labor costs. As you think about throughput volumes, Greg talked about the import/export side and also about low-turning customers. On the second point, you can navigate through that, so it's not always bad.

Your next question comes from the line of Nicholas Thillman with Baird.

Maybe, Robb, you've talked about some of the strength you've seen on the international side. Greg, I appreciate the commentary on the power side. With geopolitical disruptions, and I know the U.S. is a little bit more insulated from an energy cost standpoint. But I just wanted to dig in on what you're seeing from the customer side, maybe on the last two months or so on the international side, if there's been any material impact on flows, or just overall activity on that side of the business?

On the international side, I picked up a couple of examples where you don't exactly know why you pick up a little bit of services. There are positives and negatives from the conflict. Ultimately, this feeds into the trade situation. In the U.S., that probably resulted in maybe a touch lower container volumes than we thought. In other markets, you can pick up a little handling. These are small effects in the grand scheme. It's a set of positives and negatives, and we're watching the situation.

If anything, we have more future upside as container volumes normalize because of the high service revenue associated with that volume.

Your next question comes from the line of Rob Simone with Compass Point.

I have a somewhat granular question on your development schedule on Page 20. Am I right in assuming that the change in in-process developments basically shifted into the 1 through 12 and then the 13- to 24-month bucket?

Yes, that's exactly right. Stuff from in-process moves into the 1 to 12 bucket, and the 1 to 12 moves up to 13 to 24. We're seeing really good trends. We're proud of the 25 to 36 class. The stabilized ROIC bumped up a hair since the last update. That class is doing great, and the others will age nicely.

Your next question comes from the line of Samir Khanal with Bank of America.

Greg, can you provide a bit more color on the GIS segment? I know NOI was flat, but revenue growth was down, I think it was like 10% year-over-year, which is more than we expected. How are you thinking about that business going forward?

It's a critical part of our offerings to customers. We think we have a distinct advantage by offering truly farm-to-fork solutions. We like the business, the leadership and the team worldwide. The revenue impact is simply because of a divestiture in Europe last year that was relatively low margin. If you back out that business, GIS grew slightly on the revenue side.

If you back out that Spanish divestiture, the business grew a little on the revenue side and margins are flat ex that factor. There were a couple of factors in the quarter: transportation and food service are strong, with demand for our consolidation business improving efficiencies for customers given higher fuel prices. The downside was drayage activity given container volumes being down 17%, which offset to a relatively flat quarter.

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

Greg, two quick items. First, you've talked about maintaining inflation-plus type pricing in this environment as well as occupancy starting the year may be on the lower end in building. I'd love updated thoughts on pricing and the occupancy trajectory. Second, a clarification on the FX impact to same-store NOI. It sounds like 250 basis points in Q1, 100 basis points in Q2. Can you dimensionalize what the FX impact is? How do you calculate it? Are you using spot rates and forwards?

Thanks for your question. As we sit here today, we've secured 70% of our rate increases for the year, which gives us confidence in delivering the net full year increase of 1% to 2% across the warehousing portfolio. While there's competitive pressure, we are seeing more rational pricing in the marketplace than in the last couple of years. Our commercial team is delivering strong new business wins and a robust pipeline. Customers are gravitating back to more established operators with larger networks, secure businesses, sophisticated technology and automation. We feel good about pricing; it is net positive even with some excess supply in some markets.

On FX, you are correct that it was a 250 basis point positive on the NOI line in Q1. That affects revenue and expenses, so it impacts metrics like revenue per throughput. That was contemplated in our guidance announced in late February. The FX move had been building through 2025, and we included that in guidance. The 250 basis points in Q1 steps down to approximately 100 basis points in Q2 and then flattens in Q3 and Q4 to blend to about 1% for the year. We look at spot rates and forward curves to forecast the trajectory; we haven't seen huge moves, and our guidance remains unchanged.

Your next question comes from the line of Alexander Goldfarb with Piper Sandler.

Greg, as you do this strategic review, you were a rapid growth company over the past 15 years expanding Europe, Asia, etc. Now you're reassessing how the portfolio is structured and where you own assets. Is this driven by oversupply in the U.S. and pandemic-related inventory disruptions? Or did you find as you executed that things didn't pan out as expected? Should we infer you might be a smaller company and more profitable rather than being global? Trying to understand the rationale.

We're early in the portfolio review. It's not that we've decided to sell international at the expense of North America. We're evaluating where there's value in the portfolio. We're looking at options to magnify value and build balance sheet capacity. We want to maintain our investment-grade rating. We're exploring where to create capacity, and opportunities could include partnering with customers or M&A in North America, but no decisions have been made.

Whatever we do, we will highlight the discrepancy between private and public market valuations. We want to build a fortress balance sheet to continue growing the company, invest in AI and technology, and serve customers globally at attractive returns.

Your next question comes from the line of Vikram Malhotra with Mizuho.

Two clarifications. First, on pricing commentary you mentioned 1% to 2% benefit. Does that mean pricing will come through for the rest of the year? You had mentioned overall it would be flat last quarter. What was the mix shift impact and what do you anticipate for pricing for the balance of the year? Second, given better-than-expected trends, are you being conservative on guidance or is the rest of the year just pushed toward the lower end to get you back to the midpoint?

I'll frame how we set guidance. Same-store NOI has components: volume, revenue/price and margin. On the revenue component, we see price in the market up and expect to realize it as we move through the year. We're about 70% through that exercise and have good conviction on a 1% to 2% price increase. That blends lower because of mix and other factors and results in a slight negative revenue per unit as reflected in same-store NOI guidance. The first quarter benefited from FX; removing that 2.5% NOI tailwind shows ex-FX results blending toward the guidance. So, no change in guidance; revenue per pallet and revenue per throughput are ultimately blending slightly negative, which is one component of our same-store NOI.

Your next question comes from the line of Craig Mailman with Citi.

On guidance, could you give conviction levels at the low, mid and high point today versus back in February, given the stronger Q1 performance? Are trends being sustained into Q2? And if you execute portfolio actions later this year, how much of the impact hits 2026 versus the 2027 run rate? How should we think about accretion or dilution given the options?

I'm relatively new in the seat reviewing the numbers. It's early in the year. We had positive impacts in Q1 that need to be reviewed as we move through Q2-Q4. We'll lose some of the FX, and we implemented wage increases on April 1, which is an incremental headwind. The international factors that helped in Q1 are not ready to be banked. Admin expense that was light in Q1 will normalize to a higher run rate. All these factors go into our view, and while conviction in the midpoint is increasing, we want to get deeper into the year before making changes. On potential portfolio transactions, we're not ready to announce scale or timing, but any actions would not be dilutive.

I wouldn't add much beyond that. On portfolio actions, we won't do anything dilutive.

Your next question comes from the line of Viktor Fediv with Scotiabank.

Following up on macro headwinds: rising fertilizer and diesel costs are driving crop mix shifts—soybeans replacing corn—impacting frozen vegetable production volumes. What are you hearing from customers on this? Does this imply seasonally weaker inventory build in Q3 this year?

Good question. On energy and diesel, we're largely insulated through our hedges, surcharge mechanisms, regulated utility exposure and on-site solar. On fertilizer, customers are generally locked in on pricing for most of this year, so any production impact would be next year. If fertilizer prices persist, the U.S. remains relatively advantaged on cost of production versus the rest of the world. Given that frozen food remains relatively good value, we think we're in a good position. People will continue to eat; consumption of fresh and frozen food has been stable or growing over recent years and we expect that to continue.

Your next question comes from the line of Michael Griffin with Evercore ISI.

Greg, you commented on inventory levels and a potential bottoming. Are we hitting the nadir in terms of that inventory bleed down this year? Can you give insight into the next 12 to 18 months—will it rebound? Is this the bottom or could there be another shoe to drop?

Great question. Over the last couple of years the industry worked through three meaningful headwinds. First, inventory destocking—we believe this is largely in the rearview mirror; inventory days have returned to normal and lean levels, and customers are being prudent with inventories at current interest rates and demand levels. We don't think there's another shoe to drop on the inventory side. Second, new supply deliveries—85% of our U.S. business is in markets that are stable or growing even after new supply. We still face pressure in about 15% of U.S. markets where supply came online more recently. Third, trade volatility driven by geopolitical factors—this is transitory in our view and should revert to long-term growth, creating a tailwind given our port infrastructure and high-margin import/export business. Taken together, we believe we're moving beyond the most challenging period in the industry's history. Occupancy being flat year-over-year reinforces conviction that the industry is stabilizing.

This will be our last question. Your next question comes from the line of Daniel Guglielmo with Capital One Securities.

Can you give an update on the two automated Tyson facility developments? Do you expect a step-up in CapEx over the next 1.5 years before those properties open? How is the construction environment around cost timelines?

The Tyson developments are going as planned. We've already launched our Northeast distribution center and we're performing exceptionally well in partnership with Tyson. On the other developments for Tyson, those are in our CapEx plan and we've locked in construction agreements. We feel the returns are secure and they won't be pressured by incremental inflation.

Those projects will be classified as growth CapEx and are already contemplated in our supplemental materials. They will not affect maintenance CapEx because they're new projects and are in the process bucket.

All right. Appreciate everybody's time today, and we'll talk to you next quarter. Thank you.

There are no further questions at this time. Apologies if we didn't get to everyone's question. I will now turn the call back to Ki Bin Kim for closing remarks.

Thank you, everyone, again for joining our first quarter conference call. Have a good week.

This concludes today's call. Thank you for attending. You may now disconnect.