Lineage, Inc. (LINE) Earnings

Management highlights

### Quarterly Core Financial Performance - Adjusted EBITDA came in at ~$320 million, and AFFO was ~$198 million (76 cents per share), both exceeding internal and consensus analyst expectations. The year-over-year decline in AFFO is driven primarily by the expiration of prior-year interest rate hedges, in line with previous guidance; excluding this impact, underlying AFFO trends show meaningful improvement. - Same-store NOI declined 2.9% year-over-year, an improvement from the steeper declines seen throughout 2025, with the larger decline relative to Q1 2026 (which was -0.9%) explained by a reduction in FX benefit from 250 basis points in Q1 to 90 basis points in Q2, as well as lower elevated international services activity. - Administrative expenses (excluding stock-based compensation) were ~$118 million, modestly better than expected due to improved cost management and timing of certain expenditures. ### Industry Dynamics & Operational Progress - The three core industry headwinds from recent years (excess supply overhang, customer inventory destocking, trade volume declines) are all moving in a positive direction: supply growth is slowing, destocking is complete with inventory levels reset to near historical norms, and trade volume headwinds are expected to ease in late Q3/Q4 as the company laps 2025's steep declines. - The company has delivered consistent cost outperformance, outpacing industry inflation by 750 basis points, which helped keep adjusted EBITDA stable year-over-year in the first half of 2026. - Geographic diversification has proven to be a strength: APAC, European, and Canadian businesses have delivered stability relative to U.S. headwinds, and the company continues to extend its leadership position in these markets. - A fire occurred at the Big Bear, Los Angeles facility during the quarter (representing ~1% of total global capacity). The company quickly shifted customer volume to surrounding facilities, committed $3.3 million to local nonprofits for cleanup, and is pursuing accountability from third-party contractor Altus. Insurance covers remediation and business interruption losses. - The company's development pipeline holds 20 facilities under construction/ramp-up with $1.1 billion invested, expected to deliver over $134 million in incremental stabilized NOI. Pre-lease levels for the pipeline currently stand at 71%, and non-same-store NOI contributions came in better than expected in Q2. - Rollout of the company's proprietary LinOS productivity technology continues: 14 conventional sites are now live, and the platform is hitting all internal cost savings targets. The company remains on track to deploy the platform to 20 conventional sites by the end of 2026, with a target of $110 million in total EBITDA benefit from the initiative. - The company secured a large new confectionary customer that launched successfully in June, and this category is on track to become a top 10 revenue category for the company over time, demonstrating success expanding into adjacent cold chain categories.

Guidance

- Full-year 2026 same-store NOI guidance was raised to a range of -3% to 0% (up from the prior range of -4% to -1%). Despite the Big Bear facility fire headwind, total warehouse NOI growth guidance remains unchanged at -2% to +1%, as the Big Bear impact is offset by the improved same-store outlook. - The midpoint of full-year adjusted EBITDA guidance is maintained, while the guidance range was narrowed. The $15 million negative impact from the Big Bear fire (for H2 2026) is included in current guidance, with no business interruption insurance benefit recognized. - Full-year AFFO per share guidance was raised to $2.80 to $3.05, up from the prior range of $2.75 to $3.00. - Full-year GIS NOI growth guidance was lowered to -4% to -2%, from the prior range of 0% to +2%, reflecting the $7 million unplanned legal settlement and temporary margin pressure from rising carrier rates. - Full-year administrative expenses (excluding stock-based compensation) guidance was tightened to $460 million to $470 million, at the lower end of the prior guided range, with expected quarterly spending of $120 million to $125 million for the remaining two quarters. - Q3 2026 is expected to have the lowest year-over-year same-store NOI growth of the year (a bit below Q2 levels), though sequential same-store NOI growth is still expected. Q4 2026 same-store NOI is expected to be near flat year-over-year, supported by easier year-over-year comparisons for trade volumes and contributions from new business wins. - The company remains on track to deliver a full-year revenue per pallet that is slightly down year-over-year, consistent with prior guidance.

Segment performance

1. Global Warehouse Segment: Second quarter 2026 total net operating income (NOI) was approximately $367 million. Same-store NOI declined 2.9% year-over-year, ahead of internal expectations. Same-store physical occupancy increased 90 basis points (0.9%) year-over-year (the first year-over-year increase since the company went public). Rent, storage, and blast revenue per physical pallet declined approximately 0.7% year-over-year, while services revenue per throughput pallet came in slightly ahead of expectations. This segment contributed 85.8% of total segment NOI in Q2 2026. 2. Global Integrated Solution (GIS) Segment: Second quarter 2026 total NOI was $61 million. Excluding the impact of the prior year's Spain transportation disposition, the segment delivered solid underlying revenue growth of 5% year-over-year, driven by momentum in the U.S. transportation and food service businesses. A $7 million unplanned legal settlement from a prior-year employment matter and near-term pressure from lagged pass-through of rising truckload and LTL carrier rates weighed on quarterly margins. Excluding the legal settlement, the segment delivered a 19% underlying margin. This segment contributed 14.2% of total segment NOI in Q2 2026.

Risks & headwinds

- Ongoing trade-related volume headwinds: International container volumes (representing ~15% of warehouse throughput) remain pressured amid ongoing geopolitical and policy uncertainty, and port-related throughput volumes declined 14% year-over-year in Q2 2026. - Competitive pressure in some U.S. markets, with excess capacity overhang still weighing on pricing in the near term. - The Big Bear facility fire is expected to create a $15 million drag on H2 2026 adjusted EBITDA from lost revenue and incremental transition costs, even though most customer business is expected to be retained. - Temporary margin pressure in the GIS segment from lagged pass-through of rising truckload and LTL carrier rates. - Uncertainty around the timing and scope of insurance recovery for the Big Bear fire, though the company carries adequate coverage for the event. - Leverage is currently above the company's 5.0x to 5.5x target range, at ~6.0x reported leverage, requiring progress on the strategic portfolio review to delever to target levels.

Analyst Q&A

• Q: What is the expected impact of GLP-1 weight loss drugs on Lineage's business, based on recent research? /

  A: Management analyzed recent independent studies including Cornell research, finding that even under the most aggressive adoption scenarios, GLP-1 penetration reaches only mid-to-high teens of the U.S. adult population. The largest calorie reductions are concentrated in snacks and packaged foods, not the fresh and frozen categories that make up most of Lineage's commodity mix. Even the most bearish analysis pegs total impact at low single digits, with most current research pointing to an impact of less than 1%, so the drug class is not expected to have a material effect on results. Longer term, increased life expectancy from GLP-1s could even offset any small consumption reductions.

• Q: How is industry supply rationalization progressing, and when is supply-demand expected to tighten? What is Lineage's positioning? /

  A: Management noted the cold storage industry is currently going through rationalization, which will result in a clear winner-takes-most dynamic, with larger, sophisticated operators like Lineage as the primary beneficiaries. Smaller competitors lack the scale, platform, and capital to navigate current challenges, so management expects some competitor exits in coming quarters. Lineage has already idled ~2.5 million square feet (1% of U.S. capacity) in the last 18 months, and does not expect to continue that pace as occupancy has stabilized. This rationalization will ultimately reduce excess supply and benefit established operators like Lineage that can absorb displaced volume and assets.

• Q: What is the progress of the company's strategic portfolio review to sell assets and delever, and when can we expect updates? /

  A: The review is targeting ~$1 billion in asset sale proceeds, which is the amount needed to bring reported leverage down to the company's 5.0x to 5.5x target range. Management has narrowed the list of potential transactions, hired advisors to assess valuation, and soft-circled attractive transactions that would hit the target. The company expects to provide a meaningful update on the majority of the planned divestiture program by the end of 2026. Any deleveraging transaction is expected to have only minimal AFFO dilution, which is not material enough to concern investors.

• Q: How does the expected Big Bear fire impact net of any benefits from moving volume to existing facilities, and how does insurance compare to the prior Kennewick incident? /

  A: The $15 million adjusted EBITDA headwind included in guidance is already net of any benefits from moving customer volume to other facilities in the Southern California network. Management noted Lineage's large regional network allowed it to quickly absorb most displaced customer volume, and the company's insurance coverage is adequate for the event, similar to the prior Kennewick incident. No material differences in insurance structure, recovery timing, or expected final outcome are expected compared to that prior incident.

• Q: What is the outlook for LinOS rollout and when will it start delivering full EBITDA impacts? /

  A: LinOS, the company's proprietary operating technology, has been successfully deployed in automated facilities for years, and the rollout to conventional facilities hit a key milestone with 14 live sites in Q2 that are all hitting internal cost savings targets. Rollout to larger conventional facilities, which posed more technical challenges due to site-specific complexity, made significant progress in Q2, and the company remains on track to deploy to 20 conventional sites by end of 2026, on track to hit the target of $110 million in total EBITDA benefit. Full broad rollout will continue into 2027, with productivity impacts ramping gradually as more sites come online.