Lineage, Inc. Q3 FY2025 earnings call

• Recap of third quarter performance: Total revenue increased 3%, adjusted EBITDA increased 2% to $341 million (quarterly record), total AFFO grew 6% year-over-year, AFFO per share $0.85 (down 6% year-over-year) due to IPO impact. • Occupancy and price: Same-store physical occupancy improved sequentially by 50 basis points to 75%, anticipate further gains in Q4; pricing strategy unchanged, net price increase expected between 1%-2% this year. • Industry supply and demand: U.S. public refrigerated warehouse supply grew ~14.5% from 2021-2025, CBRE forecasts 1.5% new capacity in 2026; demand for fresh and frozen food volumes stored in network grew cumulatively 5% from 2021-2025. • Management changes: Rob Crisci announced retirement, Robb LeMasters to take over as CFO; Ki Bin Kim joined from Truist. • Operational highlights: Invested $127 million in growth capital in development projects, 25 facilities in process/ramping expected to deliver $167 million incremental EBITDA once stabilized; LinOS warehouse execution system deployed in 7 conventional sites, expecting 10 deployments by year-end.

Global warehousing: Total revenue grew 4%, total NOI grew slightly to $384 million, same-store NOI declined 3.6%, same warehouse storage revenue per physical occupied pallet grew 1%. Global integrated solutions: NOI grew 16% year-over-year, led by U.S. transportation and direct-to-consumer businesses. Revenue was flat in the segment, and NOI grew to $65 million with a 250 basis point increase in NOI margin to 17.9%.

• Fourth quarter: EBITDA $319 million to $334 million, AFFO per share $0.68 to $0.78. • Full-year: EBITDA $1,290 million to $1,305 million, AFFO per share $3.20 to $3.30. • Lower than previous guidance due to: $20 million decline in same warehouse NOI from tariff uncertainties impacting import/export container volumes and lower U.S. occupancy outlook despite unchanged total occupancy outlook.

• Tariff uncertainties impacting import/export container volumes, leading to softer year-end services revenue. • U.S. occupancy slightly lower than previously anticipated due to import/export volumes and less-than-expected U.S. new business. • Competitive environment in certain U.S. markets. • Potential impact of SNAP benefits elimination (impact on food consumption ~1%) and government shutdown impacts (delays in inspections, certifications, documentation).

Q: Could you talk a little bit more about that expected lower U.S. new business in 4Q? How important is new business versus existing business throughout the year and in 4Q specifically?

A: Tariff uncertainty impacted import/export volumes, especially in West U.S. business unit; competition in certain U.S. markets impacted new business, expecting less new business in 4Q than previously guided but still expecting a record new business year overall with a strong pipeline.

Q: Can you provide an update on the pricing strategy during the quarter, given demand headwinds and supplies?

A: No change to pricing strategy in the quarter, net price increase expected between 1%-2% this year, not trading volume for price, talking to each customer uniquely.

Q: What are your expectations looking forward on that physical occupancy given excess capacity?

A: New supply forecasted to be low in 2026 (1.5% new capacity), market-by-market absorption of new supply, optimistic about key markets like New Jersey, Dallas, Houston where new capacity was absorbed and inventories are building back.

Q: Just as we think about the third consecutive guidance cut we've had, if you guys are having this much trouble underwriting your own portfolio, how do we get comfortable with yields on the capital you're deploying?

A: Industry challenged with new supply and hard to predict, developments generally customer-led with strict volume/revenue guarantees, not building spec buildings; REIT structure beneficial with valuable real estate portfolio.

Q: Just a lot of really helpful breadcrumbs on 2026 with the interest guidance and so forth. Going back to the question of excess capacity, what can you control?

A: On pricing, having conversations with customers about 2026 pricing, targeting low single-digit net price increases, not expecting to give up occupancy to achieve these increases.

Q: Can you give us some color on how Lineage was able to push their guarantee contracts up a little bit this quarter?

A: New customer-led developments include long-term contracts with higher volume guarantees; sales team broadening customer base utilizing volume guarantees, new business coming in with higher volume guarantees than average.

Q: Greg, you mentioned that international is performing much better versus the U.S. Is it simply a matter of the excess supply, and that's really the difference?

A: Impacted by 20% reduction in import/export volume in U.S. West business unit and competitive pressure in certain U.S. markets; global footprint diversified, benefiting from growth in other markets to balance performance.

Q: First quarter in a while you guys really haven't done much on the acquisition side. Just curious what you're seeing from that perspective.

A: Highly disciplined on capital deployment, cognizant of developments, leverage ratios in good spot, not interested in issuing equity, will be opportunistic but disciplined on acquisitions.

Q: I was hoping to get some more insight into the earnings commentary regarding improvement in fresh and frozen demand that Lineage is seeing. Is that in reference to the Q2 seasonality trend?

A: Third-party data from Nielsen and Circana showing continued growth in fresh and frozen food categories consumed in the U.S., underlying demand growing despite elevated food inflation.

Q: You all mentioned the stronger international trends versus the U.S., which does align some with what we've seen for other global brands this earnings season. Can you just remind us what the rough revenue breakdown is between the U.S. and international?

A: Roughly 70-30 split between U.S. and Rest of the World; European team winning in many European markets, excited about continued growth there.

Q: Congrats to everyone on their new roles. Just two clarifications. One, on just the numbers, maybe you can share some color on what you've seen in October, specifically to keep sort of the occupancy seasonal uptick. Your peers sort of assume the occupancy does an uptick. So why are you still assuming occupancy upticks? And just on the comment on you can get pricing next year, if there's still supply volumes are muted, like what gives you confidence on pricing?

A: Occupancy trend spot on with expectations, first time in 8 quarters same-store occupancy higher than prior year; confident in getting price next year as got price this year, initial conversations with customers open to modest price increases, think low single-digit increases achievable despite supply.

Q: Just following up on guidance. With respect to the fourth quarter, it's a relatively wide range between $0.68 and $0.78. So can you just share your thoughts on what key drivers or line items are kind of the biggest variables that could result in AFFO coming in towards the upper or lower end of the range?

A: Recurring maintenance CapEx, typically seasonally highest in 4Q, can move $5M-$10M based on spending; same-store NOI most important, October looking okay but hard to predict November/December end-of-year activity.

Q: I wanted to ask, I don't think anybody asked about this lapsing SNAP benefits, right? So it will be a temporary thing. I just wonder if there could be any impact on 4Q from that.

A: SNAP benefits impact on food consumption ~1%, not meaningful in short/medium/long-term; government shutdown impacts include delays in USDA cold storage survey, import/export order delays, but USDA/FDA inspections unaffected.

Q: I guess, Greg, I was looking at this chart on Page 30, which is the presentation you have up there, where you show economic and physical, an 80% economic today; I mean do you have data going back prior to, let's say, '21 and even 2020? Just trying to see if there was any other time before 2020 or '21, where occupancy was below 80%.

A: Challenging to go back prior to 2020 due to acquisitions, but memory suggests occupancy was lower in prior years (2016-2018) when company was smaller and had different footprint.

Q: Curious, what are your larger customers telling you at this time about volume expectations for 2026? And have you seen any customers wanting to shrink their fixed commitment agreement yet?

A: 2026 hard to predict, customers' business hard to predict; volume guarantees reset in first half of 2021, at healthy level now, new business coming in with slightly higher volume guarantees than average, no large drops expected in volume guarantees.

Q: Just in terms of the tariff uncertainty that you cited and the decrease in container traffic, it seems like some of this is just lost business, but is there an impact on inventory levels as a result of this decrease in container traffic that you mentioned that might create some pent-up demand to the extent that there's improved visibility or if there's some change around tariffs here? How could this sort of play out in the quarters ahead?

A: Container volumes dropped, seafood customers holding off reorders, potential pent-up demand if tariffs improve; impact on inventory levels and future business dependent on tariff resolution and container volume recovery.

Q: Just as we think about the excess capacity you all highlighted within the presentation, we're hearing a lot from the food manufacturers on restructuring, rationalizing supply chains. I was wondering if there's anything Lineage just been doing on their own network, whether it be closing underutilized facilities or just rationalizing their footprint within the U.S. being a large player that could maybe close that gap with excess capacity we're just seeing from a national picture.

A: Idled 8 buildings this year, moving business to adjacent facilities; some competitors struggling, potential to consolidate facilities into network; not all warehouses equal, making strategic acquisitions for capacity when makes sense; some new supply added in wrong locations/configurations will fail, leading to capacity coming out.