Lineage Stock

Hello everyone. Thank you for joining us, and welcome to the Lineage Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Ki Bin Kim, Head of Investor Relations. Please go ahead.

Thank you. Welcome to the Lineage's discussion of this second 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 everybody that our time of 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 our press release and supplemental package that was issued this morning. Unless otherwise noted, reported figures are rounded and comparisons of the second quarter of 2026 are to the second 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 the second quarter, then I'll share our latest views on cold storage industry dynamics. Following my remarks, I'll turn it over to Robb LeMasters, who will walk through the details of our segment performance, capital structure and outlook. 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. We are pleased to report another quarter of better-than-expected results. Operational trends continue to show signs of stabilization, and this quarter marks another step forward in demonstrating our ability to execute on our plan and navigate the industry dynamics highlighted in past calls. During the second quarter, adjusted EBITDA was approximately $320 million, ahead of both our internal expectations and consensus estimates. Total AFFO was approximately $198 million or $0.76 per share, also ahead of expectations. As a reminder, the year-over-year decline in AFFO continues to be driven primarily by the expiration of prior year interest rate hedges consistent with our 2026 guidance. On a comparable basis, excluding this impact, underlying AFFO trends are showing meaningful improvement.

Turning to core operations. Let's start with the solid results in our warehousing segment. We're pleased to see growth in same-store physical occupancy this quarter, increasing 90 basis points year-over-year. This is a welcome inflection point following last quarter's slight decline and the larger declines we saw throughout 2025. This reflects our ability to grow share despite competition, a function of our industry-leading offerings will discuss in a moment. The sequential occupancy trends were slightly better than normal seasonality and economic occupancy continued to track at a consistent spread to physical infancy. Same-store rent storage and blast revenue per physical talent declined 0.7% year-over-year while services revenue for thermal pallet increased 2.1%. As we've explained in the past, customer commodity and geographic mix, along with FX create some quarter-to-quarter noise in these metrics. So we tend to view them on a combined and trended basis versus a short-term proxy for pricing trends. Robb will go into more detail, but we've completed the significant majority of our 2026 customer pricing discussions and remain confident in the 1% to 2% net pricing increase we previously discussed. We remain encouraged by the strong execution of our sales team, particularly give growth environment. I'll reiterate that our full year outlook for revenue per pallet is unchanged. We still expect to be slightly down, consistent with prior guidance, reflects the trade-related and mix headwinds we've called out on previous calls, which have broadly played out as expected.

Turning to volume. Same-store throughput pallets declined 1.8% year-over-year. We continued to experience pressure in Q2 on higher turning trade-related port volumes with container volumes down 14% in the quarter. While this quarter's pace of decline represents an improvement relative to the declines we experienced in Q1, I'd remind you that cost or product mix can always play a role quarter-to-quarter. So this doesn't represent a change to how we see the full year playing I'd also remind you that we adjust labor according to mix and service activity, allowing us to react quickly to optimize cost as mix changes. Overall, same-store NOI declined 2.9% year-over-year continued improvement from the steeper declines we saw throughout 2025. Compared to the prior quarter, that's a wide decline in Q1's negative 0.9%, which is mostly explained by the step-down in FX benefit roughly 250 basis points in Q1 to about 90 basis points this quarter as well as Q1's elevated international services activity that we called out last quarter.

Before turning to our outlook, I want to briefly discuss the fire we had at our Big Bear facility in Los Angeles during the quarter. I want to sincerely thank our team members on the ground for their extraordinary response along with the first responders who act quickly to protect the surrounding community. Safety remains our top priority, and I'm incredibly proud of our team, other handling this very challenging situation. As part of our response, we committed over 3.3 million to local nonprofits through direct systems to support the local community during the cleanup and remediation efforts. Robb will provide more details in his remarks.

Turning to our outlook. We have maintained our adjusted EBITDA midpoint while narrowing the range despite the impact of the Big Bear fire. We're also raising our full year same-store NOI guidance to a range of negative 3% to 0% and increasing our AFFO guidance to $2.80 to $3.05 per share. The underlying trajectory of our business through the first half has been incurring. Operations are performing better than expected, and the signs of stabilization we've highlighted over the past couple of quarters have continued. That said, the operating environment still includes some challenges, competitive dynamics in certain domestic markets and trade-related volume headwinds, but we're encouraged by our results in the face of these obstacles. The overall direction is positive, and we have the big blocks in place through pricing discipline, productivity initiatives and the contribution of our past investments in people, process and technology.

I also want to spend a moment on something that I think it's overlooked, the strength of geographic diversification. This year and last year, our APAC, European and Canadian business have been a real source of stability. We haven't experienced the same headwinds we've done with here in the U.S., and we continue to extend our leadership position in each of these respective markets, built on the same customer service and value that has become our global hallmark. I'm excited about the trajectories in these portfolios and proud of the teams driving such solid results. As a reminder, we have 20 facilities under construction or in the process of ramping and stabilizing. We've invested $1.1 billion of capital into these projects and expect them to deliver over $134 million incremental NOI when stabilized. Non-same-store contribution in the second quarter even better than expected, given the strong continued customer demand for our high-quality modern assets, you'll also notice that our updated development pipeline disclosure that our pre-leased levels stand at 71%.

Moving to Slide 5, U.S. supply and demand trends. This slide revisits the 3 primary headwinds we faced in the recent past: supply and inventory destocking and trade impacts. I'll move quickly as we've covered each of these in detail on prior calls. We still see pockets of pressure from new supply and about 15% of our U.S. markets, but broader stabilization trends are holding. We are better equipped to send off competitors as customers increasingly recognize our superior value proposition and operational execs. Looking ahead, slowing supply growth asset repurposing potential competitor assets or bankruptcies and asset obsolescence should help offset the excess capacity overhang. We're also managing supply proactively through selected facility idling.

The second headwind, customer inventory destocking affected all of our North American business, levels that built up during COVID have since reset closer to historical norms. Finally, our third headwind is import export volumes pulling back on the tariff uncertainty. International container volumes, which are about 15% of our warehouse throughput stay pressured in Q2, and we remain cautious given the ongoing political concerns. Notably, internal international volume is highly margin accretive given the strong services attachment and network operating lever, we expect to begin lapping 2025 steep volume declines in late Q3 into Q4, easing the headwind as the year closes. Longer term, we expect U.S. agricultural trade to again become a tailed.

Beyond tariff resolution, there are several upside factors not netted in our guidance. Normalizing food inflation easing political uncertainty, new product categories at lower interest rates, any of which could meaningfully move the needle over time. So taken together, supply is stabilizing, tests behind us, and trade is a headwind that we expect to lap by year-end. None of these are structural, they're cyclical, and each is now moving in our direction. It's the same story of the past few decades of cold storage food demand doesn't go away, and we are the critical infrastructure that enables it. We like our position as we continue to turn the corner.

Moving to Slide 6. In navigating some of these macro challenges, we've doubled down on driving costs out of our operating cost base, allowing us to outperform industry inflation by 750 basis points. The Lineage operating platform and our lean continuous improvement approach are a big part of why we've been able to hold adjusted EBITDA stable year-over-year through the first half of 2026, following a challenge in 2025. The team continues to impress me by finding new ways to land new business while aggressively managing our cost to drive profitability.

And with that, let me turn it over to Robb LeMasters, who will give you more detail on the quarter and some comments on our revised outlook.

Thanks, Greg, and good morning, everyone. Starting with Slide 7. In our Global Warehouse segment, second quarter total warehouse supply was approximately $367 million and same-store NOI declined 2.9% year-over-year, both ahead of our expectations. In Q2, same-store NOI benefited by 90 basis points from favorable FX and year-over-year as we contemplated in our previously provided outlook. Looking forward, we expect FX to be a relatively minor year-over-year factor for the balance of 2026.

Within the same warehouse pool, rent, storage and blast revenue per physical pallet declined approximately 0.7% year-over-year while same-store physical occupancy improved 0.9%, reflecting strong commercial execution by our sales team. That team has built deep relationships in the food space and is now extending the reach of our sophisticated cold storage and logistics offerings into adjacent cold chain categories. As Greg mentioned last call, we secured a key confectionery account win that launched successfully in June. That ramp is off to a strong start, and we expect continued momentum from this and other candy customers, positioning confectionery as a top 10 category for us over time.

Turning to services. Throughput and services revenue per throughput pallet both came in slightly ahead of our expectations for the quarter. A favorable mix helped to offset what continued to be a challenging important volume environment tied to trade-related headwinds. As we look to the back half, the comparisons do a bit easier in the second half of the third quarter and for the full Q4 as we lap last year's post liberation days downdraft. That said, we expect the mix tailwind that benefited Q2 debate. Netting those 2 dynamics together continue to expect full year throughput and service metrics be down modestly, consistent with our prior expectations for the full year.

Shifting to Slide 8 to our Global Integrated Solutions segment. GIS NOI was $61 million. Excluding the impact of last year's Spain transportation disposition, the segment saw solid underlying revenue growth of 5%, driven by continued momentum in our U.S. transportation and food service businesses, while the underlying revenue growth was solid, 2 items impacted margins during the quarter. First, accelerating truckload and LTL carrier rates, which we passed through to customers but at a lag created near-term pressure. We expect margin recapture as new market rates are absorbed into customer pricing over time.

The second offsetting item was a $7 million legal settlement that was not contemplated in prior guidance, stemming from an employment matter for prior years. Excluding the settlement, GIS delivered solid underlying margin of 19%. Together, these drove a lower NOI for the quarter, and we're lowering our full year GIS NOI outlook to minus 4% to minus 2% from 0% to plus 2% previously. Ultimately, the strength in the transportation and food service markets that is driving the higher carrier rates and providing this temporary profit squeeze should actually work in our favor and drive more customers to our unique value-driven offering. Customers will increasingly look to offset carrier rate pressure with a well-priced integrated storage plus transportation solution.

Turning to Slide 9, adjusted EBITDA and AFFO. Second quarter adjusted EBITDA was $320 million, which includes the impact of the legal settlement I just mentioned. Second quarter AFFO was approximately $198 million or $0.76 per share. Better-than-expected results were driven by both stronger-than-expected same-store and non-same-store NOI growth. Administrative expenses, which exclude stock-based comp, were approximately $118 million in the quarter, modestly better than expected due to the timing of certain spending and better cost management. As a result, we're tightening our full year admin guidance to $460 million to $470 million, which puts us at the lower end of our previously guided quarterly range of $120 million to $125 million for the remaining 2 quarters of 2026.

On AFFO, in addition to the adjusted EBITDA, we benefited from favorable timing of maintenance, capital expenditures and tax items, driving a result of $0.76 per share, well above both consensus and our internal expectations. We're pleased to see both our core operations NOI and adjusted EBITDA come in ahead of expectations despite a challenging operating environment.

Moving to Slide 10, capital structure. We ended the quarter with net debt of approximately $7.8 billion and total liquidity of approximately $1.6 billion. We have manageable near-term maturities and ample flexibility to address them through a revolver or other available sources of capital, supported by our strong access to both the U.S. and European public bond markets. Also, we continue to make good progress on our strategic portfolio review. We're evaluating a range of options here with the goal of increasing our financial flexibility so we can capitalize on potential M&A opportunities that market dislocations may present, while maintaining a strong balance sheet to invest in future high-return opportunities alongside our customers and being able to return capital to shareholders. As we've done this work, we feel even better about the disconnect between the private and public valuations for high-quality cold storage assets. We now have firm timetables around key transactional work streams, and we're confident we'll be in a position to provide a comprehensive update by year-end.

Our adjusted net debt to transaction adjusted EBITDA stands at approximately 5.3x. This metric accounts for intra-period acquisitions or dispositions and capital invested in our development pipeline that has yet to stabilize. Keep in mind that these developed projects have been significantly derisked as the majority are anchored by customers with long-term commitments. For example, our new state-of-the-art, fully automated project in Hazelton continues to ramp in line with our expectations. These new automated buildings are genuinely complex mega builds and Hazelton is now 1 of 25 fully automated facilities in our portfolio reinforcing our leadership in developing and operating highly sophisticated productivity-enhancing cold storage solutions for our customers. Maintaining our investment grade balance sheet remains a key focus for our company, and we remain committed to bringing reported leverage currently approximately 6.0x into our targeted range of 5.0x to 5.5x.

Before turning to guidance, let me provide a little more detail on the Big Bear fire that Greg mentioned. As a reminder, this facility is roughly 500,000 square feet with about 85,000 pallet positions. So call it approximately 1% of our total global capacity. We moved quickly to engage our customers and we're able to address their immediate needs by shifting volume to ceramic sites. We believe the fire originated during third-party testing of the rooftop solar array, which was owned and operated by Altus. This is the only site where we have a relationship with Altus and we're pursuing all options to hold them accountable. In the meantime, we carry insurance for exactly this kind of event, and we are working with our insurance partners to cover immediate remediation costs and the financial impact while our responsibility gets fully worked out.

There are really 2 areas where we expect to see an impact. First, there will be a drag on the adjusted EBITDA we had expected to deliver in Q3 and Q4. That's driven by loss revenue during the recovery period, plus incremental cost to support our customers and team members through the transition. We do expect to retain the significant majority of this business but there's a lag before inventory fully replenishes and when we're back to the level of service our customers expect from us. We've estimated that impact at approximately $15 million of adjusted EBITDA and the guidance we provided today. Over time, we expect to recover that lost profit through our business interruption insurance and that recovery will be recognized below the EBITDA line.

To be clear, our current guidance does not contemplate any BI insurance benefit. As we get more clarity on both the cost and the recoveries will provide additional color next quarter. Second, we'll incur repair and remediation costs for the building structure and freezers, along with legal fees, community support costs and other onetime items. It's too early to precisely quantify all that, but we'll exclude these costs and the offsetting insurance recoveries from adjusted EBITDA, so we keep our core operating results comparable to other periods.

Moving on to our outlook. We're raising our full year 2026 guidance for same-store NOI and AFFO per share with same-store NOI growth now expected at negative 3% to flat up from negative 4% to negative 1%. On the non-same-store NOI front, the only substantial change is Big Bear moving into that pool. So an increase in same-store NOI, offset by the Big Bear headwind, we still expect total warehouse NOI growth of negative 2% to positive 1%. Other minor changes include a slight reduction in GIS NOI from the legal settlement and temporary carrier pressure, offset by an improvement in the outlook of our admin guidance. Together, these puts and takes leave the midpoint of our EBITDA guidance unchanged.

For full year 2026, AFFO per share is now expected to be $2.80 to $3.05, up from $2.75 to $3, reflecting better CapEx management from batching, CapEx projects and procurement savings. We're pleased with our consistency and better-than-expected results in the first half. Our underlying trajectory of improving same-store service revenue, same-store occupancy gains, and stabilizing development projects gives us a solid foundation. A few things to keep in mind on second half cadence. Quarterly and seasonal month-to-month timing is always difficult to precisely estimate but we want to give you as much visibility as we can sitting here today for modeling purposes. First, FX is a minimal factor year-over-year in both Q3 and Q4.

Second, Q3 2025 is our toughest comparison of the year. Given that, we still expect Q3 2026 same-store NOI to grow sequentially, but on a year-over-year basis, that same-store growth will likely be the lowest reported level of the year, probably a bit below Q2 levels. Q4 is where it gets more interesting. We're lapping an easier import/export comparison from Q4 of last year. And by that point, we'll be ramping new business wins and the continued progress we are making on our key productivity initiatives. Taken together, we think that gets us close to flat year-over-year fourth quarter same-store NOI growth.

On administrative expenses, which exclude stock-based compensation, we are expecting those should run towards the lower end of our previously guided quarterly range of $120 million to $125 million per quarter. On the non-same-store front, our outlook reflects continued strong contributions from 2025 acquisitions and the ramp up new developments. Netting out Big Bear impact, we expect a non-same-store NOI run rate of approximately $20 million per quarter in both Q3 and Q4. 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 positions us well for long-term growth.

I'll now turn it back over to Greg to wrap up our prepared remarks.

Thanks, Robb. Temperature-controlled warehousing is essential infrastructure, the connected tissue making food producers, processors, distributors and retailers. Cold storage exists to bridge the distance and time between where and when food has grown and when and where it's consumed. Data science algorithms AI don't change this. The Turkey on your Thanksgiving table this year was almost certainly frozen and stored for months in advance. People will always need to eat and food will always need to be stored along the way. And while we're not fully insulated from every permutation that can reshape our customers' behavior, we believe the core demand for what we do is structurally drilled and will grow over time.

Before I wrap up, I want to spend a moment on LinOS. In the quarter, our LinOS sites expanded to 14 total conventional sites. We saw significant progress in our productivity across locations giving us increased confidence in this investment and in achieving the goal of $110 million in EBITDA impact. In summary, this quarter's results reinforce the trajectory we've built over the past several quarters. Operations are performing better than expected, and our KPIs continue to trend positively. We're encouraged by the continued signs of stabilization in our core business and believe we're well positioned to build on this momentum in the coming quarters.

Before we move to your questions, I want to sincerely thank our global team members for their continued dedication to our customers. Operator, let's open it up for questions.

[Operator Instructions] Your first question comes from [indiscernible] with Goldman Sachs.

Could you go through your take on occupancy. So that's average warehouse occupancy of 80% from 79.9% in 1Q, why that was up sequentially. I realize it's only 10 basis points, but that's compared to 2Q normally being a seasonal step down. Do you think it was a function of something you did or customer actions or policies and whether it could potentially be related to the [indiscernible] outbreak?

Yes. I mean just to clarify, so year-over-year, exactly right. Occupancy was up year-over-year on a same-store basis, pretty great outcome there. First-time outcome for us since going public. So that's a great turn looking year-over-year. Sequentially, we actually saw about what we thought actually a little bit better. So we were down sequentially.

And in terms of occupied pallets about 1%. We revealed the USDA data is not perfect. Generally, it looks to be down about 3% sequentially. So we would know that that's slightly better than what we thought on occupancy and an occupied pallet basis.

Your next question comes from the line of Steve Sakwa with Evercore ISI.

Maybe just following up on the occupancy. It's nice to certainly see things stabilizing. As you kind of look out over the next couple of years, maybe outside of taking market share, how do you sort of see both the physical and economic occupancy kind of trending for the portfolio? And what do you think is a normalized level for the lineage portfolio?

Steve, thanks for your question. So on occupancy, we continue to see stability basically. The -- we broadly believe food inventory levels are healthy and relatively balanced. That said, we have heard several customers say, since the last earnings call. that they're rebuilding inventories because they overcorrected during destocking period that we've been discussing. I'm not saying that's a widespread trend, but I do believe it's another indication that inventories have at least stabilized. So I mean, I think we're back into a normal period, and we would expect outside of market share gains, consistent inventories that would reflect all seasonality going forward.

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

Greg, I wanted to follow up on your LinOS comments that you made at the end of prepared remarks. I know the company continues to expand this pilot program or the pilot program this year. Should we expect it to be more rolled out broadly in 2027? And when will that start to impact numbers? I mean Robb in his prepared remarks, I believe, said that there are some productivity improvements expected in 4Q '26. Is that driven by LinOS? Or is that driven by other tech-type investments the company has made?

Yes. Thanks for your question, Michael. So as you know, we've been successfully running LinOS in our automated buildings for some time, and we're now in the process of rolling out, as you mentioned, across our conventional warehouse network. We've mentioned in the prepared remarks the Hazelton automated mega build. I mean, this facility is delivering best-in-class service in an extremely competitive cost entirely because of our long-term investment in LinOS in data science and automation. The remaining 2 Tyson facilities that we're building right now will use the same tech and deliver similar performance. I will just throw out there that the Hazelton building is a site to see if anyone wants to see it live, we have an amazing team there that gives a great tour if you're interested in seeing it just get with Kevin or Alex and we'd be happy to host.

But let me spend a couple of minutes updating you on the LinOS conventional rollout. I'll start just by saying that cold storage warehouses are uniform. Every facility has its own physical footprint and product characteristics, racking maybe 2 pallets deep in 1 building and 4 pallets deep at another. Freezer temperatures are different. Obviously, cooler temperatures are different than freezers. Product categories have very unique customer requirements. We don't handle seafood the same way we handle strawberries, for example, the docs and the yards are configured differently. And so these variations are and complexity are core to our business and no doubt making building technology more challenging. But in each quarter as we roll out LinOS, we encounter new requirements and learn more. We knew from the beginning that this was a major undertaking for our company. And we're clear that the progress would probably not be perfectly linear last quarter on this call, we discussed that we were discovering new requirements in some of our larger buildings, while the smaller facility rollouts were going very smoothly.

In Q2, the team made very significant strides in the larger buildings, and I'm proud to say that we're hitting our internal savings targets across all 14 LinOS buildings and still on track to deliver 20 conventional buildings by year-end. I mean we've been building the digital foundation to make the possible for over a decade. We -- as you all know, we own this platform end-to-end, which we think is really important. And the fact that, frankly, this is very complex and difficult and that is performing as designed in 14 buildings already gives us confidence that this technology will just deepen our competitive mode of time.

On the conventional side of the business, just like it's already done on the audited side of the business with evidence like why we won Tyson. So -- and lastly, it takes real scale and sophistication to make this kind of investment, something that very few in our industry happen and it's one of the reasons why we feel so well positioned to continue to be the industry. So as far as the impact this year, yes, we'll see some impact in the fourth quarter. It's not going to be -- it's not going to move the needle this year, and we'll see increasing impact in '27 and '28, and we'll share those numbers as we move forward.

Your next question comes from the line of Michael Lewis with Truth Securities.

Early on in the call, you mentioned some headwinds the industry has faced in recent years that are now abating, obviously, elevated supply, destocking, et cetera. I was wondering if you had an update on the impact of the GLP-1 since the usage there is still going up. I know it might be hard to parse, but any thoughts on the impact of those drugs on the food industry and on your business?

Yes, great question. We hear a lot of noise around GLPs. And actually, since our last call, we've dug into the new Cornell research as well as several other indeed studies, and I think the data is getting better. And so what we've learned is even under the most aggressive adoption scenarios, GLP-1 penetration lands in the mid- to high teens as a share of the adult population. Critically, that the steepest calorie reductions are concentrated in snacks and packaged foods, not fresh and frozen. And so when we apply the individual commodity impacts in the study to our actual commodity mix, even the most bearish studies suggest that the impact of our business is in the very low single digits and the most current research voice is something less than 1%. And so lastly, GLP-1s were designed to target obesity and diabetes, which is the fourth largest killer in the United States. And one of these studies factor in the potential impact of people living longer on total food consumption. So long story short, we're going to continue all of this data extremely closely. But based on the most temporary research, we don't believe the GLP-1 drug will have a material impact on our business.

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

I appreciate the commentary around new supply growth. I wanted to ask about supply. Last quarter, you commented that you thought you were past the peak impact from new supply and you and your peers have been idling warehouses, Greg, I think you mentioned functional obsolescence and you've talked also about customers sort of transitioning back to the Lineage platform assuming a relatively steady demand environment, how are you thinking about the industry's return to a tighter supply/demand balance and what that time line might look like?

Yes. Great question. And what we've been discussing openly for several quarters now, our view is that the cold storage industry right now is going through a real rationalization, and we think the outcome is going to be a story of winners and losers and the larger, more sophisticated providers like the need will be the winners. As the largest company in our industry by a significant margin, we have advantages that are very hard to replicate. The scale of our network allows us to move customer inventory across the system in ways a regional or subscale operators simply cannot. Our tech platform, I just talked about LinOS,our procurement capabilities, our customer relationships, the ability to deploy capital into sophisticated purpose-built automated warehouses like Hazelton for Tyson are all just compounding advantages that widen the gap between us and the rest of the field. And what we're seeing in the market is consistent with what you'd expect at this point in the cycle. Some operators overexpanded, lack the capital structure to absorb the challenges that we've been facing and don't have the platform to deliver against both diverse and extremely stringent customer requirements and are under a lot of pressure. And so we wouldn't be surprised at all, and we're certainly hearing on the street, if you will, there'll be a couple of competitor exits in the coming quarters, and we think this is just a natural way the supply gets rationalized in any real estate cycle and will ultimately benefit the operators who have the staying power of the capital and the platform to absorb the volume and in some cases, the assets.

On the idling front, we -- I think you know we idled 10 facilities last year. We've idled 5 so far this year, taking out almost 2.5 million square feet of capacity or about 1% of the U.S. -- our U.S. capacity. We're evaluating a handful more this year. But because our occupancy level levels are strong and our new business pipeline is so strong. I wouldn't expect that pace to continue. We're happy with where we sit right now. And also, I think -- it's exciting to point out that a couple of the buildings that we've idled, we believe that we'll be able to turn those back on for specific customer activities. So I think the industry is shaking out, and we're in a great position to capitalize.

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank.

I wanted to talk about GIS for a second. Some of the kind of like weaker port activity that you kind of noted impacting the business. Just kind of curious how you're thinking about that unfolding back half of '26 into '27 just given some of this kind of incremental information around taxes, tariffs from the Trump administration. And second of all, if you still feel like there's still opportunities to kind of lower labor costs in general within that business so that you can still kind of manage your margins.

Yes. Thanks for the question. Yes. So GIS is a tale of a couple positives, negatives at the year sort of unfolded for us we clearly highlighted that the settlement was not contemplated in our guidance, so that kind of came in the quarter. So when you back that out, we actually had a pretty good quarter, right? It was actually in line to slightly better, excluding that. what we're really dealing with there is we have had some benefits overall in the business as it relates to fuel. That's generally a pass-through, but that's come through slightly better than we thought. What's really hit us, as you mentioned, was on the drayage side, and we contemplated the container volume in our warehouse business. That was contemplated. I would say that's about in line, maybe a touch harder than we've thought in that business. And then we have the carrier rate situation, which is really just a tightening of the economy ultimately drives up the rates and what's going on with supply and demand on the trucker side that generally leveled out, it can take a quarter or 2. So as we made a comment, we're lowering our guidance generally from the $7 million settlement and a little bit of softness related to that carrier issue.

So I think that kind of covers all the different puts and takes as we roll forward, given your comments there, we still are positive about what's going to happen with the drayage long term and with import exports on our warehouse business. But we really haven't contemplated a pickup as it relates to the second half.

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

Greg, on your comments about confectionery becoming a top 10 category. Talk a little bit about like where are you winning this business from where they currently doing for storage and logistics?

Yes. Great question, Michael. So for the customer that we launched this building for the product was flowing through the traditional food service segment or channel, it was not going through third-party cold storage, and they felt they could get better service and better cost through working with us, and we believe that's a trend that will continue with this customer and others. And so it is -- it does have specific requirements, specific temperature requirements and pulling it out of just the normal food service channel made sense to them. And we believe of both or others. And so we are really excited about the next several years in growing this segment of our business, and it's a great example of how some of the excess supply get absorbed.

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

I guess just I wanted to dig into the cost more in the warehouse segment. Just if you can unpack a little bit more kind of on labor, on power, et cetera. What's your ability to control costs from here, what's the impact positive negative from oil perhaps? And then we just think about the occupancy build, do you mind giving us a little bit of color on how that should influence the margin.

I'll take the first one. You want to take the second?

Sure.

Okay. So I mean, we have a culture of being continuous improvement at Lineage, and we're making productivity, energy gains every quarter. Our technology platform is a huge supporter of that. LinOS continues to ramp up, but we have a lot of other initiatives and technologies rolling out side by side with LinOS like our Easy Metrics platform, which is a labor planning tool, and we have that just this year, we went from very few to 100 buildings. So we feel great about our ability to manage labor over time. And we think we have many years of runway to attack that cost and that is obviously our largest controllable cost.

Yes. And just in terms of guidance, in terms of thinking about the margin as well as occupancy and a couple of the factors that we generally go through with you guys. Yes, as we contemplated the guidance, there's a couple of different aspects there. There's the volumetric side the revenue side, the revenue per pallet side, if you will, and then margins. As we're looking through those different components and as the year has unfolded, on the volume side, really, that has to do with keeping your eye on occupancy as well as throughput pallets, right? Those are our 2 different businesses, the storage business for occupancy.

And then as you think about throughput, that really drives what's going on in the services side. When you blend both up, right, seeing good stuff on the occupancy front and still seeing headwinds on the throughput. So generally slightly better than where we came in the year as it related to the total volumetric side, but still probably flat to a little bit down when you blend up those 2 business lines in the volumetric side.

On price, just to review that, on the storage business, again, we look at those kind of together. We have the RSP for physical pallets and then we have services revenue per throughput pallet. Every quarter, there's both a price element of how we put it out to the street. Greg talked about how we're getting that book businesses at a 1% to 2%, but then different quarter-to-quarter mix or commodities or different customers can really move that around. And so we've been consistent all year, and we still see that ultimately blending to a slightly down rate for the full year. Again, that's RSP side as well as services revenue per throughput side. So that will be a slight negative. And when you take those 2, right, that kind of blends to a same-store revenue flat to down a little bit. And Greg talked about that you try to offset that with the cost savings initiatives, but you're fighting inflation, right? And so any business that has a challenged top line like that, which we're coming through, really hard to mitigate all the labor inflation you have, and Greg and the team are doing a great job.

But the third component then becomes around margins. We generally are baking in a slight decline in margins because that saw that this quarter had a little bit of margin pressure, last quarter we did well. So that's really our third component. But to keep margins at almost flat in this environment is a stellar outcome. So those are the 3, hopefully, that helps you kind of parse through how we're thinking about the minus 3% to 0% overall guidance.

Our next question comes from the line of Jamie Feldman with Wells Fargo.

Sitting in for Blaine, who's out today. But I appreciated your color on the back half kind of some of the comps for same-store NOI and how to think about the model. Is there anything as we look ahead to '27 that sticks out is particularly easy or challenging comps. I know you also mentioned this year you had a drag from some refinancing. But just kind of like big picture, line items, where do you think it gets particularly easy next year? And where may not be so easy based on how you did this year?

Yes. No. I mean just moving through the P&L as you think about the different components, generally, a little bit early to go into 2027. But we're setting up good as we exit the year right? We said we're scratching out a flat outcome. I think Greg has really helped the team battle through those 3 headwinds, but there's a couple that are still kind of rolling over as we go to next year, import export being on top of my mind, just given geopolitical attention. So we'll see how that same-store NOI sort of builds as we turn the corner on the non-same-store NOI, I think there's good evidence that we're really building our greenfields and expansions, and that should build admin. We've talked about that we've really gotten ahead of that. That's nice, but we'll be fighting inflation again next year. So we've taken out the costs and we want to continue to invest in the business, but I think you'll have good outcome there. So generally, that's our view. A little bit too early to say. It's still really attacking the problems at hand so we don't want to get ahead of ourselves. We've had a good first half, but need to get through the second half.

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

Just wanted to follow up on some of the other uses this cycle. I mean you talked about confectionery, I think we talked about sort of pharmaceutical and NAREIT as well. And again, just a little bit more color if we could get some more hard numbers of what you think this revenue opportunity could be? Is that business price like the rest of the business is where are the puts and takes as it does seem like this is different versus previous cycles?

Sure. Thanks, Ronald. Yes, Confectionery does price similarly to the rest of the business. We love the business. We like margins, and we think this could be multiple hundreds of millions of revenue over time. So that's the way we're looking at it. I think on the other uses or absorption of supply. There has been a couple of deals already where we've idled buildings, where we've been able to make deals to either sell or working on leases for noncompetitive uses. And so one was with the trucking company, was with a producer that would clearly not -- would ensure that those -- that capacity exits the third-party public warehousing space. And so that's just the overall [indiscernible].

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

Maybe a two-parter here. I guess just first on conversations you're having with tenants, I mean, we're starting to see some in your tenant based kind of cut prices as the last resort to spur volumes and so they're already getting pressured on margin there. Just kind of curious how that bodes for kind of your ability to push through rent increases as we go forward here, and what you're discussing with tenants so far. And then just second on the guidance. My understanding was always the second half was ramp versus the first half on earnings. But if you look at the run rate, you guys are deselling in the back half of the year. And I understand Big Bear to $15 million EBITDA headwind, but you also have a $7 million legal settlement. And so it's -- that $0.05, $0.06 drag from Big Bear -- I'm just trying to think about why guidance shouldn't trend towards the high end of the range versus the new midpoint.

So I'll take the first one first, and then I'll turn it over to Robb to answer the second one. So on rice, as the new supply hit us over the last couple of years, we had to contend with price challenges. We reported already and discussed that this year, we expect to get net price increases of 1% to 2%. And I think we've worked through the vast majority of that new supply getting delivered. And so I would expect similar results next year where we would have net positive price.

Yes. And then talking about the math around your question as to how the year unfolds, right, to be clear, what we've commented on is the year-over-year growth. So we do see the second half of the core business on the warehousing side being up dollars, right? But as you think about the year-over-year, you're quoting some year-over-year growth rates. And I think the simple way to think about it is the first and the second quarter, same-store NOI blends to about a minus 2%, right? The first quarter was about 1 minus 1, and we just reported a minus 3. So you blend those two together and that's a minus 2. And you know that our new guidance is minus 3 to 0. So midpoint there is minus 1.5. So you can see really you line up quite nicely. So nothing really to deal with. And then, of course, I'm sure you're adjusting for FX. That has been a tailwind in the first part of the year, and that goes away as we think about the second half. So we're pretty proud of the team and nothing to call out. We are not seeing a deceleration at all given your question.

Your next question comes from the line of Ami Probandt with UBS.

I'm here with Michael Goldsmith. A couple of questions on the new development disclosure. First off, how fast do you expect to ramp occupancy at the development facilities, which were delivered in the last year. Should we expect a similar path to those delivered 2 or 3 years ago? And then for facilities, what is the -- what's leading to the spread between the achieved economic occupancy and NOI?

So on the development pipeline, yes, we're seeing a very similar ramp across the portfolio, really good outcome as you study that page, you'll see that the class that really you watch right before it becomes part of our base. the IRR that we're expecting actually notched a little bit up, right? So sequentially from Q1 to Q2 that's what I keep my eye on, and you can see that, that 25-month to 36-month class, in Q1, we were expecting about a 12% return. Now we're expecting at 13%. These are smaller numbers, but generally just points to really the aging of our portfolio right before it becomes part of our base, really is looking nice. So nothing to call out in terms of the years, it's a multiyear ramp for projects.

And then I think your question -- your second question had to do with economic versus physical occupancy, I believe, but you can clarify if I didn't get it right. We're generally seeing the same trends in the second quarter. We've talked about that generally being a spread of about 400 to 600 basis points, and we came in right in that range. Very consistent with what we saw in Q1. So we've addressed that in the last couple of earnings calls that we really worked with our customer, and we do on a year-to-year basis, and we generally feel like people have a need for that extra capacity that they sign up for. That is what's caused the delta between economic and physical. And that range really feels like we're in the right zone right now with our customers. They need that for seasonal purposes or other means. And so we really feel like we're in a good shape there. I don't think you'll have any surprises up or down from the range that we've been consistently at the past couple of quarters.

Your next question comes from the line of Vince Tibone with Green Street.

Can you provide an update on the strategic review process. At NAREIT, I think you talked about selling -- potentially looking to sell up to $1 billion. Just want to see if that's still the case and how we should think about kind of the most likely timing of any transaction? Is it possible something is agreed upon and announced for year-end? Or is this more of a '27 event now?

Yes. Thanks for the question. Yes. Again, we really took it on ourselves to look at portfolio and see the disconnect that we're seeing in the public versus private markets. and take advantage of that, frankly, to solve where we want to get to from a leverage standpoint to have more optionality in the future. As you know, our reported leverage is 6x right now, and we made a commitment to our rating agencies and to all of U.S. investors that we want to have flexibility to get into the range of the 5 to 5.5x, which is what we committed to at the IPO. If you do the math as to how you get there, you're exactly right. You need to divest a little over $1 billion of proceeds at the multiples that we've outlined in the past in order to get that done. And so we still see a really good path. What I've done over time is look at the various transactions that we could do. We've narrowed it down. We've hired advisers or consultants to kind of try to understand what the value could be. And I think our comments today just say we really have soft circled a couple of interesting transactions that would get us there. We're encouraged by that. And we expect, to your question, that we'll have a meaningful update on the lion's share of those transactions within this calendar year. Now the cash proceeds could spill over into the early part of next year. But I know everybody is watching kind of getting there by year-end. And so we're feeling increasingly confident that we can make substantial progress this year. And give you an update by our year-end announcement.

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

Just following on Vince's question. I realize, Robb, you're not giving '27, but overall, it sounds like the macro environment is the macro environment, it sounds like customers are settling out, maybe a little plus, maybe a little bit minus but settling out. But if we think about you guys selling $1 billion of assets and deleveraging, it sounds like net-net, '27 is a lower number than '26. I realize you're not giving guidance, but just conceptually from what you guys have talked about the macro and then what you're doing strategically that's mentally sort of how the math seems to pencil. And I just want to make sure if that's correct or if you do anticipate '27 would be positive versus '26 on an FFO basis.

Yes. No. So again, we're not guiding to AFFO for 2027, but you've laid out a couple of pieces there. I think we generally have outlined that if we find the right transaction at the right pricing, we don't find this to be a super dilutive event at the AFFO. It's hard when for a period of time, you sell an asset and then you put the cash on the balance sheet and you don't earn the same. That's just a fact of deal map. But we don't think that, that AFFO dilution from that event alone will be substantial to be concerned about. And so then you just have the business, and as I commented earlier, it will be too difficult to kind of talk about the business outside of outside of that transaction.

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

On Big Bear fire, you mentioned that you were able to relocate some of your customers to nearby facilities. So to what extent does that create tailwind for your same-store portfolio through higher occupancy and throughput and is the estimated $15 million impact net of those benefits? And also compared to the kinemic incident, are there any meaningful differences in the insurance structure, expected timing or potential scope of recoveries that could result in different financial outcome this time around?

Thanks for your question. So I'll just start to talk just a couple of high-level comments on the fire, and then I'll turn it over to Robb on the financials. But I, again, just want to thank our team. This is a very, very, very challenging situation and our response on the ground it was nothing short of extraordinary from literally day 1 standing side by side with the firefighters and helping them solve how to put out this fire was simply remarkable. As Robb talked about, the facility is a relatively small portion of our overall network, just about 1%. And we've been working with customers literally from the first day to divert product across the network to provide solutions for them. It's also important to recognize another kind of network effect or benefit scale is that we have almost 30 other facilities in the broader Southern California region, and those teams have jumped in and helped our customers in a heroic way. And so right now, we are focused on the cleanup entirely supporting the community. We've given over $3.3 million to the local residents through charities and directly and feel great about our remediation and community support efforts.

As far as the Kennewick piece and comparing it to that, yes, our insurance coverage is adequate to handle this, and we wouldn't expect the cash flows to be much different than that played out.

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

Maybe I wanted to touch on some comments you made about just operators looking to exit and capacity potentially being flushed from the North American market. But you also commented on potential institutional interest just within the cold fur infrastructure and the public-private disconnect valuation. Just curious how you think it could play out from a pricing impact if you're starting to see some of the private players get more involved and maybe get some reset basis on some of these assets? Is that put downward pressure on pricing for the portfolio overall? I guess how are you viewing -- being aggressive on the acquisition front versus just letting capacity get flushed out of the system?

Yes. I mean I think we're in the best position to acquire the assets that we want as some of these companies take different strategic directions because we have the most synergies because we have the densest network and we can have the technology and capability and add an structure to optimize these assets. As far as new private institutional investors coming in I think it's clear that it's very difficult for these small companies to compete with the more established providers. And so I don't think there's a lot of motivation for them to come and buy a 5-asset company that's struggling because them buying them doesn't change their trajectory because they're not in a different competitive position. So we don't see that as a major threat. And we think, if anything, give this shakeout could firm up price over time and allow us to get closer over time to being able to recover inflationary levels as it plays out.

That is all the time we have today for questions. Apologies to those whose questions we did not get to. I will now turn the call back over to Ki Bin Kim for closing remarks.

Thank you, everyone, for joining our second quarter earnings call. Have a good week.

Thanks, everybody. Appreciate it.

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

Ladies and gentlemen, thank you for joining us, and welcome to Lineage's First Quarter 2026 Earnings Conference Call. [Operator 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 thorough layers 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 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 1 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 just -- 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 2 impacts. And just to dive into them, Michael, as we talked about on the admin side, I would say about 1/3 of the beat came there. You know that certain expenses in that line can be uneven. Quarterly timing can move different items such as training or T&E. And so I think all the scrutiny that we expose the teams to in terms of reviewing and pacing investments ultimately probably led to some pause. And so we see those expenses coming back in Q2 and into the second half. So that's about 1/3, Greg, when I kind of did the math myself.

And then the other 2/3 really comes from those issues around international. And we delved into that. And those items also can kind of come quarter-to-quarter. Really, we saw a couple of factors that are, frankly, just customer programs that materialized in the quarter in certain geographies. For instance, in Canada, we saw a short-term lift related to exports. There were some things that happened with Canada and China trade tensions that eased. So that helped a little bit there in Canada.

In APAC, I saw a little bit of a handful of customers that had specific events that drove higher case pick. And then finally, in EMEA, we all know that trade flows can be disrupted. That actually led to some extra handling activity. So all these were items that we saw as discrete customer items. And so we'll evaluate. I think, Greg, you're exactly right. Those have moved in the opposite direction. So we're pleased and encouraged, but I just think that we need consistency before we kind of make any 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, 3 years? And do you expect any of that selling to start in 2026? Or has it been allowed or happened already?

Yes. Thanks, Caitlin. So 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. And I just want to clarify something. While that's managed under the purview of Bay Grove and often people per your question, talk about a sell-down of that. They're really managing the ultimate distribution of that. And frankly, as we discussed with them and they discussed with their investors, there's no impetus that caused them to need to sell down that 70%. The lion's share, as you mentioned, are very long-term holders, not the least of which is Bay Grove, which sits in our Board. They're extremely long term. They're a significant amount of that 70%.

And then other holders in their base, frankly, are really looking to sell in the near term or even potentially in the long term. So this is not something that keeps me up at night. We're not looking for some immediate sell-down. I think that -- if I was in Bay Grove's shoes, I think they're just evaluating how share price appreciates from here. I'm sure they're focused on the public float. I'm sure they're focused on expanding for index funds and so forth. So all those factors go in, but there is no pressure to sell. And so I do not see this as a pending issue that's sort of 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. I mean, should we expect a potential larger scale deal on the horizon to kind of help you get back down to those longer-term leverage targets in the low 5s?

Yes. Michael, thanks for the question. So 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. And proceeds from any potential transactions would just enhance our financial flexibility and create optionality across several priorities, including deleveraging the balance sheet, funding our development pipeline, which we have a very deep pipeline for and a lot of demand for, pursuing targeted acquisitions should market dislocations arise and returning capital to shareholders.

So all I'll say at this point is we're encouraged by the progress to date, and we would 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 I guess, peak impact from new supply growth. When will the pressures start to abate? Have you seen that yet? Or do you think that, 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 the new supply deliveries to meaningfully slow in '26 and '27, declining below 2%. And given the current supply-demand dynamics and elevated construction costs, the incremental speculative development is just no longer economically compelling.

And so I think we're past the biggest impact as we described in this quarter's prepared slides and last quarter's prepared slides, 85% of our U.S. network is on stable ground or growing even after that new supply has been delivered. And so I think it's also important to point out that we think a lot of these new operators are under pressure due to high basis of their assets. And a subset of them will continue to struggle or ultimately fail, and we're going to assess those consolidation opportunities thoughtfully as they arise.

That said, we'll remain disciplined and selective, focused on only acquisitions that enhance our network and certainly meet our return thresholds. At the same time, we believe some of the new inventory that's been delivered is just structurally disadvantaged, whether that's because of local oversupply in certain markets, construction quality, location, design limitations. And ultimately, some of that new supply will become -- will be used for things other than long-term cold storage. So long story short, we think we're past the worst of the pain. We see pricing more rational than it was a couple of years ago, and the number of markets we're concerned about continues to go down every quarter.

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

I guess 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 I guess, how negative would that number have been still?

And so I'll just start by talking container volume. And if Robb, do you want to dig into throughput, that's fine. So from an import/export perspective, container volumes, as we stated, were down 17% year-over-year in the quarter, following a 9% decline in Q4, but that was largely in line with our expectations because we knew the first quarter of this year was the toughest comp from last year. And so it's always -- with so many moving pieces in the network, it's hard to take one impact out and say what would have happened without that.

But stepping back and just talking about container volumes and import/export activity from a macro standpoint, global trade volumes have grown at a 5.7% annual rate for the past 25 years, well ahead of inflation. And that growth has been broad-based across our categories as supply chains have become increasingly global. And so we think this reduction in import/export activity is transitory. And as that trade volume normalizes, we would expect to benefit from both positive operating leverage and the high service revenue tied to this part of the business.

So it was an impact on throughput. It wasn't all the impact. We also saw some customers with greater inventory turns have lower volumes this quarter and customers with lower inventory turns have higher volumes. And that's why occupancy stayed about the same and throughput was under a little bit of pressure.

Yes, I think that's right. On the lower returning side, Greg, and as people on the call know, I've dug into that issue. Really, there can be a positive there, right? As you have lower returning customers, that's not always a negative thing. You can actually support a lower labor. So you have a commensurate ability to reduce your labor. So as you think about throughput volumes, Greg talked about the import/export side and also talked about low turning customers. On the second one, right, you can navigate through that. So that's not always a bad thing.

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

Maybe, Robb, you've talked about some of the strength you've seen on the international side. And Greg, I appreciate the commentary on just the power side. But 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 2 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?

Yes. On the international side, I mean, I think I picked up a couple of examples where you don't exactly know why you pick up a little bit of services. I think there's positives and negatives from the conflict. And ultimately, this is fed into kind of the trade situation. In the U.S., that probably resulted in maybe a touch lower container volumes than even we thought. In other markets, right, you can pick up a little bit. So it's really in the noise as we evaluate that situation. The trade lanes have largely seemed to reset. Sometimes you pick up a little handling as volumes turn back around and so forth. These are small things in the grand scheme of things. So I think it's a set of positives and negatives, and we're just kind of watching the situation.

Yes. I mean if anything, I think we have more future upside as container volumes normalize as we spoke about 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 kind of a somewhat granular question on your development schedule on Page 22. So if I -- sorry, excuse me, Page 20, 22 was the last quarter. So 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. Is that right?

Yes, that's exactly right. This is Robb. I'll take that. Yes. So basically, stuff from in-process, that moves up into the 1 to 12. And then, of course, the 1 to 12 moves up to 13 to 24. And we're seeing really good trends. Of course, you can see we're quite proud of the 25 to 36 class. The stabilized ROIC bumped up a hair there since I think the last you saw it. So that class is doing great, and all the other ones are just going to age really nicely.

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

I guess, 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. I guess how are you thinking about that business going forward?

Yes. So it's a critical part of our offerings to customers. I mean we think we have a distinct advantage by being able to offer truly farm-to-fork solutions for customers. So we love the business. We love the leadership. We love the team. We love what they're doing worldwide. The revenue impact is simply because of a divestiture in Europe last year that was real low margin. And if you want to provide...

Yes. No, I think it's even in the queue if we haven't broken it out, but just to help you, if you actually back out that Spanish acquisition, the business grew just a little bit on the revenue side. And then I think we've said it's been neutral to actually even in Q4, it was a hair to the negative. So when you back that out, you see that the revenue growth is coming right in line with how we think about that business growing on an organic basis. And then margins are, again, if you back it out from last year, are flat ex that factor.

And there was a couple of factors that impacted their performance in the quarter. The first one was the transportation and food service business is extremely strong. We have a lot of demand for specifically our consolidation business, which makes our customers' deliveries to retail distribution centers more efficient, especially with the price of fuel going up, the demand for that is even being pushed higher. The downside of the quarter, the tough part of the quarter was container volumes being down 17%. And we have a robust drayage business across most of the ports in the U.S. and many around the world. And so those kind of offset to a relatively flat quarter.

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

Greg. Just a quick 2-parter. I think in the past, you've talked about sort of maintaining inflation plus type pricing in this environment as well as occupancy starting the year may be on the lower end in building. I just -- I'd love to hear some updated thoughts on sort of pricing and the occupancy trajectory. And the second part is just a clarification on the FX impact to the same-store NOI. It sounds like 250 basis points in 1Q, 100 basis points in 2Q, if I have that correctly. Maybe can you just dimensionalize what the FX impact is? And how do you guys sort of calculate it? Are you using spot and so forth?

Sure. Thanks for your question. I'll take the first one and then I'll pass it to Robb. And so 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. And while there's certainly competitive pressure, still, we are seeing more rational pricing in the marketplace than we have in the last couple of years. And our commercial team is also delivering very strong new business wins and a robust new business pipeline. And so what we're seeing is customers are gravitating or gravitating back depending on the customer towards the more established operators with larger networks, more secure businesses, sophisticated technology, automation and just broader service offerings. And so we feel really good about pricing, and we wish it was higher, of course, but it is net positive even with some excess supply in some markets.

Yes, that's right. And on FX, let me just address that. Yes, you're exactly right that it was 250 basis points to the positive on the NOI line. That also bleeds into revenue and expenses. So as you just think about all our metrics, right, back that out of both revenue and your expenses as you think about pricing metrics and so forth, revenue per throughput, right, that would be affected by that same factor. That was fully contemplated, as you know, we announced guidance sort of in late February. And if you look at the FX curves, right, you actually had seen the move up all through 2025. And so basically, it was just sitting there, a little move up into guidance. And so we actually included all that in the guidance, which again will be 250 basis points that we saw in the first quarter, and then it steps down to that 100 basis points in the second quarter and then a flatter result in Q3 and Q4 to ultimately blend 1% for the year.

As it relates to how we think about that forward trajectory, yes, we take our commentary today is basically looking at the existing spot rates and then also looking at the forward curves just to make sure that if anything is actually forecasted to happen over the subsequent part of the year, we haven't seen huge moves in that. So our guidance is intact, no change.

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

Greg, as you guys do this strategic review, clearly, you guys were a pretty rapid growth company over the past 15 years and you expanded Europe, Asia, et cetera. Now it looks like you're reassessing how the portfolio is structured and where you own assets. Is this all driven because of the oversupply in the U.S. and how the pandemic disrupted inventories? Or when you guys laid out your plan and then executed, what you found is, yes, there was the oversupply and the COVID disruption, but things didn't pan out the way you guys thought.

And where I'm going with this is we hear that the international is stronger, the U.S. is the market with the issues, but yet you guys have built this massive infrastructure to support a large platform. So I'm just trying to understand if the market changed or if as you guys have grown up in the industry, you kind of realize that actually you can be a smaller company and be more profitable rather than being a global company. I'm just trying to understand.

Yes, I'll start and maybe hand it over to Greg in case he doesn't have anything. I mean, again, we're early in the portfolio review. So to be clear, it's not like we've decided to sell international at the expense of North America, right? We're evaluating that. We're seeing where there's value in the portfolio. So please don't assume anything has been determined by any stretch, right? What we're doing in the review is to look at where we believe that there is opportunity to magnify what we see as an upcoming opportunity that we could see on the dislocation of various markets, frankly, or just to be more opportunistic. We ultimately want to build balance sheet capacity.

We look at our credit ratios, which I outlined, and we ultimately want to get those into a zone that maintains the strength that we've always displayed. We want to maintain our investment-grade credit rating. So the first thing we do is to say where can we build that capacity and then see ultimately if opportunities manifest. We could see opportunities with customers. We could see M&A opportunities, as you said, in North America. So we just want to get ready for that, and you'd obviously go to places that you think that you can actually magnify that value. So that's what the portfolio review. No decisions have been made. And so please don't assume that we've strategically changed our position.

Yes, I think that's a great commentary. And I think whatever we do, we'll highlight the large discrepancy between the private and public market valuations. And I think we want to build a fortress balance sheet to continue to grow the company. And that means investing in AI and technology, and we have customers knocking down our door for us to build around the world at really good returns. And we want to make sure that we're positioned to be the best partner to do that for them.

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

I wanted to just clarify 2 things on the call. So I guess, one, just the pricing commentary, you sort of said the 1% to 2% benefit. I want to clarify, does that essentially mean based on your prior comment, I guess, last quarter, would we see pricing come in for the rest of the year? Because I think you had mentioned overall, it will be flat. So what was the mix shift, mix change impact? And what do you anticipate for pricing for the balance of the year?

And then just given the, I guess, better-than-expected trends, do we -- does this suggest that you're being conservative on the guide? Or is the rest of the year just going to be towards the lower end to get you back to that midpoint?

Yes. Maybe I'll start with just how we frame up guidance in terms of our same-store NOI, what was included. So to be clear, there's a couple of different components of that same-store NOI. There's a volumetric component. There's, if you will, revenue/price component and then there's the margin component. You've asked about the second one, which is the revenue component. To be clear, we see a price to the market of the same storage, the same services, the same geography. We see that price up, and we continue to realize that as we move deeper into the year. We're about 70% of the way through that exercise. So we're getting deeper into that. We have very good conviction that we'll ultimately see a 1% to 2% price that we'll put out in the market. Now that blends lower because of the factors we've talked about around mix and so forth to ultimately blend to a negative revenue per whatever volume you want to think about.

So yes, we had a good result in the first quarter, but we ultimately see that playing out. I would remind you that in the first quarter, we did see that FX impact. So if you just lop off that 2.5% that we saw at the NOI line from the revenue metrics, you can see that those are blending, right, ex FX, and we lose that FX impact a little bit as we move through the year. So there's no change in guidance that ultimately we see the revenue per pallet, the revenue per throughput, if you will, on the services and storage side that's 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.

I know there have been a few questions here on guidance. Maybe I'll ask it another way. If you looked at today's guidance range that's maintained versus when you gave it back in February, could you give your conviction levels at the low, mid and high point today versus maybe back in February, given the stronger performance in first quarter. And now that we're almost halfway through the second quarter, maybe roll in, are you seeing a lot of these trends sustained into the second quarter?

And then I guess just the last part, I know you guys are doing the strategic review here. Future asset sales acquisitions are not included in guidance. I mean, how much of -- if you guys do execute on some of this later this year, how much of it impacts '26 versus kind of the '27 run rate? And how should we think about accretion dilution given the mix of options you guys are thinking about?

Yes. I'll start on the guidance point. Look, I think I'm new to seat, I'm looking at all the numbers, and this is early in the year. We have had some impacts in the first quarter that ultimately you have to sort of review and watch as we move through. As we move into Q2, Q3, Q4, I think we highlighted that there are some factors that we benefited from. We're going to lose a little bit of FX. I'll just remind everybody that we do have wage increases that we implement on April 1. So that becomes an incremental headwind as we move through the year as you just think about our kind of 1% that we did this quarter and then we're still guiding to the minus 4% to minus 1%. So you lose a little bit of the FX, which was contemplated in the guidance. You have a little bit of more headwind from inflation.

And then we've just been talking through this call that the international factors really that helped us in the first quarter, right? We're not really ready to bank that. And then finally, as you just translate that through to guidance down on EBITDA, we talked about the admin factor, which ultimately I actually see as sort of building a higher run rate going forward. So that all goes into my thinking to say it's early in the year. These are factors we still need to contend with. We feel increasing conviction as we talked about on the call that the midpoint is there, which is a good place to be. But give us time. We've seen it in the opposite direction. We've been through a challenging environment. And the world is still an uncertain place, right? So we're sitting here amid day-by-day headlines that we think we can traffic through, but we want to get deeper into the year before we make any kind of change.

Yes. I wouldn't say anything different on that point. On your last question on potential -- our portfolio review, we're not ready to announce the scale or timing on any of any portfolio actions, but we will say that we're not going to do anything that's dilutive period.

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

So following up on the topic of macro headwinds. So rising fertilizer and diesel costs driving the shift of crop mix. Just one example of soybeans increasingly replacing corn, which is around 7% of total cold storage inventory in the U.S. per USDA. So there is clearly a potential risk that frozen vegetable production volumes can be lower this year versus last year. So what are you hearing from customers on this front? And does this mean that we once again can see seasonally weaker inventory build in Q3 this year?

Yes. Good question. So on energy and diesel, we're largely insulated through everything we talked about in the prepared remarks and surcharges. On fertilizer, in general, fertilizer costs for our customers, what we're hearing from them is they're locked in from a pricing perspective for most of this year at least. And so if there is an increase that impacts their production, it's going to be a next year impact. And if those prices persist into next year, the U.S. is better from a relative cost of production perspective than the rest of the world.

And given that our core business is in the U.S. and that frozen food overall is a better relative value versus other non-frozen products as prices increase, we think we're in a pretty good position. And the bottom line is people are going to eat. There's been these inflationary factors for years now. And if you look at the consumption of fresh and frozen food, it's been stable or growing for the last 5 years, and we would expect that to continue for the last multiple decades, right.

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

Greg, I appreciated your comments in the prepared remarks just around inventory levels in the industry and in your portfolio writ large and as we're kind of reaching this bottoming of a bleed down from a customer perspective. But as you kind of see it right now, are we hitting the nadir in terms of that inventory bleed down this year? Can you maybe give us some insights into maybe the next 12 to 18 months if that's going to rebound? Just trying to get a sense of if this is the bottom or if we could be sitting here 6, 12 months from now and there's another shoe to drop. And I realize it's hard to forecast this business over a longer-term timeframe, but just give us a sense of sort of where we stand from a bottoming perspective as it relates to inventories.

Sure, sure. Great question. So I'll broaden that question a little bit and just say, over the last couple of years, the industry has been working through 3 meaningful headwinds. The first one is the one you talked about, inventory destocking. And we do believe this is largely in the rearview mirror as inventory levels have returned to normal levels and are at kind of a lean level, if you will, at this point. And that's what we're hearing from customers. And so we don't think there's another shoe to drop on the inventory side. We think our customers are being prudent with their inventories at these interest rates at these demand levels, which are fairly flat. And we think we've kind of reached the bottom from that perspective. And that is, again, what our customers are telling us.

The second major impact to this industry is the new supply deliveries. And as we've noted, 85% of our U.S. business in those markets are stable or growing and our international markets are strong. And so while we -- and that said, we still face pressure in about 15% of the U.S. markets where the supply came online more recently. And the last major impact is the trade volatility driven originally by Ukraine and then tariffs now at the Iran. And we continue to navigate that. And as we said in a couple of the different questions here today, we do believe that is transitory, and it will revert back to the long-term growth we've seen over the last 2+ decades.

That will just be a nice tailwind for us, given our port infrastructure and the relatively high margins of that import/export business. So put all that in the soup, take it together, we believe we're moving beyond the most challenging period in our industry's history. I think occupancy being flat year-over-year just reinforces our conviction that the industry is stabilizing and that occupancy trend is trending as expected so far this year and did in the second half of last year.

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

Can you give us an update on the 2 automated Tyson facility developments? Do you expect a step-up in CapEx over the next 1.5 years or so before those properties open? And how is the construction environment right now around cost timelines? Anything would be helpful.

Sure. The Tyson developments are going as planned. We've already launched in our Northeast distribution center, and we're performing exceptionally well and working in close partnership with Tyson. On the other developments that we'll be deploying for Tyson, those are obviously in our CapEx plan, and we've already locked in the construction agreements. And so we feel our returns are secure there, and we won't see -- it won't be pressured by incremental inflation.

Yes. And that's exactly right. Nothing to add other than to say those projects will ultimately not affect maintenance CapEx, of course, because they're new. Those will run through the growth CapEx line and have been contemplated as you think about our supplemental. We outlined those in our greenfield and expansion projects. So those 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.

Well, 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.

Hello, everyone. Thank you for joining us, and welcome to Lineage Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Ki Bin Kim, Head of Investor Relations. Please go ahead.

Thank you. Welcome to Lineage's discussion of its fourth quarter 2025 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 and 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 and 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 fourth quarter of 2025 or to the fourth quarter of 2024. Now I would like to turn the call over to Greg.

Thank you, Kevin, and good morning, everyone. Let me start by first thanking our valued customers and all our incredible team members at Lineage, who did an outstanding job driving efficiencies and executing on significant new business wins in the quarter and throughout 2025. And I'm truly grateful to be working alongside such an outstanding group of men and women each and every day. I'll walk through our agenda for this morning.

First, I'll recap our fourth quarter performance, which came in line or slightly ahead of our expectations on all key metrics. Then we'll discuss our 2026 outlook, followed by our latest view of cold storage supply and demand. Following my remarks, I'll turn it over to Robb Masters, our new CFO, who started back in November and has already made meaningful contributions to the business.

Robb will walk through the details of our segment performance, expense management initiatives, capital structure and our outlook for 2026. I'll then return to share some closing comments before we open up the line to your questions.

Turning to quarterly performance on Slide 4. During the fourth quarter, total revenue was flat year-over-year, and adjusted EBITDA decreased 2% to $327 million. Total AFFO of $214 million and AFFO per share of $0.83 were flat year-over-year, but both ahead of our expectations.

AFFO this quarter was propelled by better management of maintenance capital expenditures and more advanced cash tax planning relative to our initial expectations. I continue to push the team to optimize every aspect of our business to drive cash flow generation. Rob will expand on these efforts later in his remarks.

Full year 2025 adjusted EBITDA declined 2.3% year-over-year to $1.3 billion and full year AFFO per share increased 2.4% year-over-year. Looking at the underlying business drivers, we saw further occupancy stabilization in the fourth quarter. Same-store physical occupancy improved sequentially by 400 basis points to 79.3% in further signaling that our business is returning to a more normalized seasonality, just as we anticipated when providing second half guidance last year.

Year-over-year physical occupancy was down only 50 basis points and improved cadence compared to the first half -- that being said, we're entering 2026 at a slightly lower occupancy level compared to last year. Encouragingly, our economic occupancy continues to track nicely with our physical occupancy.

And we expect to maintain a similar spread between the 2 metrics to what we observed throughout 2025. We look to partner with our customers to manage the seasonal ebb and flow of their inventory levels and we are comfortable that our physical versus economic occupancy spread is both appropriate and sustainable.

As a reminder, we have largely navigated the volume guarantee adjustments stemming from our customers' multiyear inventory destocking post-COVID. During the quarter, we grew rent and storage revenue per pallet year-over-year by more than 1.5% on a same-store basis and by over 3% for the total warehouse segment despite headwinds from the industry's challenging macro environment.

Throughput volumes declined 2.8% and warehouse services per throughput pallet was down 70 basis points as a result of lower inboard export volumes that we highlighted as a concern in our third quarter call. Our container volumes for the fourth quarter were down 9% year-over-year.

This softer volume and lower price mix weighed on profitability resulting in lower margins for the warehousing segment. Overall, same-store NOI was down 5% year-over-year but was in line with our guidance. We continue to see early signs of stabilization in many areas of our business.

And in fact, many geographies are stable or growing including Europe, Asia Pac, Canada and most U.S. regional markets. While we're not out of the woods yet, we believe we will continue to build on these trends throughout 2026 and drive further productivity to address this temporary new normal.

We plan to deliver significant incremental new business given our strong performance for customers strategically located assets and our unmatched breadth of service offerings. Turning to our Global Integrated Solutions segment. In the fourth quarter, GIS saw year-over-year NOI growth of 15% led by our U.S. transportation and food service businesses.

This rounds out a really great year for the global GIS team who delivered nearly 10% year-over-year NOI growth in 2025. Great job to Greg Brian and the entire GIS team. Turning to capital investments, which is a compelling driver of upside to our medium-term growth model. In the quarter, we invested $170 million of growth capital primarily in our development projects, and we're pleased with the continued progress on these projects.

As a reminder, we have 24 facilities that are under construction or in the process of ramping and stabilizing. These projects represent over $1 billion of previously invested capital and a significant amount of our future asset mix. We expect these assets to deliver over $150 million of incremental EBITDA once stabilized, a considerable addition to the linear space.

Also, we're not just growing to grow. We are constantly looking to manage our portfolio of assets. In December, we sold a noncore asset in Santa Maria, California, at a mid-6 cap rate for $60 million. This is consistent with several other recent private cold storage transactions that were executed around a 6 cap, further reinforcing the strength and resilience of private market valuations for our real estate.

We're actively looking at numerous options to take advantage of the mispricing between the public and private markets to enhance shareholder value. We think this makes sense, especially as you consider that most recent research implies that we traded over a 35% discount to our NAV, over an 8.5% apply cap rate and, in our view, an even larger discount to the replacement cost of our portfolio.

We have plenty of attractive opportunities to redeploy this capital into our balance sheet to further enable strategic acquisitions, customer-led developments and capital return strategies. This is a very active work stream, and we look forward to updating you in future quarters.

We believe these efforts will not only highlight the mismatch between private and public valuations, but also position us to continue to consolidate the U.S. market as opportunities present themselves.

Turning now to our outlook for 2026. We expect same-store NOI growth of negative 4% to negative 1%. Adjusted EBITDA of $1.25 billion to $1.3 billion and AFFO per share of $2.75 to $3 per share. Robb will provide future guidance details in a moment, but I'll share the macro assumptions that inform our guidance.

In 2026, we expect 1% to 2% net pricing increases in our warehousing segment. While it's only February, we've already worked through 65% of our warehousing revenue base. We also expect our business to attract a normal seasonality in 2026, albeit entering the year at a slightly lower occupancy level than we entered 2025.

We anticipate that the industry will continue to digest new supply and remain competitive. Our observations mirror what many food producers and distributors are saying. Global food demand remains stable as highlighted by the recently published [ Cercana and Nielsen ] data but the consumer continues to exhibit value-seeking behavior, trade down activity and incrementally shifting their spend from restaurants to retail.

Given that we ultimately serve the end customer, whether they choose to eat at home or at a restaurant, by national or store brands demand in our business in the long run remains stable. And as I mentioned, we believe that we're past the inventory drawdown after COVID and remain optimistic that the categories we serve will continue to grow.

Overall, we're assuming a similar operating environment as 2025 and not building into our guidance any upside from potential catalysts such as tariff resolution, interest rate reductions, a stronger consumer or the benefits to the consumer from pending tax relief.

In the meantime, we're not standing by waiting for a stimulus. Lineage remains focused on controlling the controllables and driving efficiencies wherever possible. Robb will discuss this more later, but he has helped accelerate our efforts, and we expect to remove $50 million annualized admin and indirect cost by the end of this year.

These savings will not discourage our investments in our sales, our customer support team, lower our prudent technology investments to stay the industry leader in automation and warehouse execution. We are using this challenging time in the industry to become a better, leaner company with even more positive operating leverage in the future.

Turning to Slide 5. As a reminder, last quarter, we collaborated with CBRE to gain additional insights into new supply and demand trends within the industry. At this point, our analysis is focused on U.S. markets where we have the most accessible data.

To recap the analysis we put out recently, CBRE data shows that from 2021 to 2025 U.S. public refrigerated warehouse supply increased 14.5% on a square foot basis, while consumer demand for these categories stored in our network grew 5%. That implies a 9.5% excess capacity across the U.S. over 4 years. Even so, Lineage's 2025 average physical occupancy was 75%, only 300 basis points below its 2021 level despite tariffs reduced U.S. agricultural exports and inventory destocking, a testament to our network scale, hard work and commercial team and the customer's desire to align with the industry leader.

Looking ahead, new supply in 2026 is expected to slow significantly, which is logical given the current environment just does not support speculative development. To further mitigate supply side challenges, we are idling buildings where appropriate and finding alternative real estate uses.

We also think competitor weaknesses that asset obsolescence could help ease industry capacity. On the demand side, potential catalysts such as tariff resolution, tax stimulus, moderating food inflation and lower interest rates can serve as meaningful tailwinds to our business.

Moving to Slide 6, using the latest CBRE data, we take a closer look at when the new supply has come online and its magnitude. As new supplies added to the market, customers naturally reassess their options. They decide whether to stay with Lineage or to switch providers, which in the near term, increases competitive pressure.

What we've observed is that this customer switching largely occurs in the first 1 to 2 years after new supply comes online. Then markets typically begin to stabilize. To break this down, we're focusing on a subset of our U.S. assets that have been in the same-store pool since 2021 and represent over $0.5 billion of our U.S. NOI.

The top chart shown in green reflects markets that have seen less than 15% cumulative new supply over the last 4 years. Many of these markets have high barriers get constrained land, challenge permitting and high building costs. And together, they represent over 60% of our U.S. portfolio.

NOI growth in these markets has been relatively insulated from new supply pressure, though they were impacted by inventory destocking coming out of COVID in 2023 and 2024, and as well as other macro factors, like declines in import export volumes and tariffs.

Now that customers have rationalized their inventories, we are seeing stabilization in 2026. The next 2 charts represent markets that have experienced more than 15% cumulative new capacity in the last 4 years. We further split these into early cycle supply markets shown in blue where most of the new capacity was delivered in 2022 and 2023 and late cycle supply markets is shown in gray, where most of the new capacity was delivered in 2024 and 2025.

The early cycles chart in blue saw on average same-store NOI declines in 2023 and 2024. But thereafter, these markets saw slight organic NOI growth in 2025 and are forecasted to be relatively flat in 2026. To be clear, these markets still carry new capacity overhang, but NOI has begun to stabilize as the inventory destocking is behind us and as the markets absorb the new supply leading to market rent equilibrium.

Importantly, in many cases, customers who originally left for lower prices have since returned to our network because of our service excellence. With limited incremental new supply over the past couple of years and with inventory destocking behind us, we have a more favorable outlook for this group, which accounts for 21% of our sampled NOI.

Combined, the low new supply markets and the early cycle supply markets make up 85% of our U.S. NOI and both groups have demonstrated improved NOI stability, something we expect to continue in 2026. Finally, the gray chart at the bottom represents the late cycle supply segment. These are places where we are seeing the most competitive pressure today as the new supply was delivered more recently, and we expect this competitive pressure to continue into 2026.

These markets make up only about 15% of our U.S. NOI in this pool. Importantly, across the U.S. overall and especially in these late cycle supply markets, we expect to see a significant decline in new deliveries in 2026. And as the supply is digested, we expect to regain opportunities to grow with our customers.

Net-net, this data shows while a small portion of our portfolio is navigating a temporary supply-demand imbalance 85% of our NOI in the U.S. is on stable footing. Despite macro headwinds, I'm confident that we are well positioned to grow over time as the food industry normalizes, new capacity is absorbed.

In our commercial energy admin and productivity initiatives, including LinOS, continue to accelerate. Now let me turn it over to Robb LeMasters, Robb, welcome to Lineage.

Thanks, Greg, and good morning, everyone. I joined Lineage a little over 3 months ago, and it has been great meeting our talented team members and many of the investors on this call. These past 3 months have confirmed my view that Lineage is a world-class organization, and I look forward to actively engaging further with you all in the months to come.

Now on Slide 7, you can see our global warehouse settings. In the fourth quarter, total warehouse NOI declined 2.4% year-over-year to $373 million, while same-store NOI declined 5% year-over-year to $340 million, both in line with our previously provided guidance.

In our same warehouse segment, as Greg highlighted, we grew our rent storage and blast revenue per physical pilot by 1.7% year-over-year. We also saw an impressive sequential growth in our physical utilization of 400 basis points to 79.3% signaling further evidence of a return to the more normal seasonality and great forecast last summer.

Conversely, throughput volumes were slightly softer, down 2.8% year-over-year with services revenue per throughput pallet down 70 basis points. For the full year, total warehouse NOI declined 3.3% to $1.48 billion, while same-store NOI growth was minus 5.8% while our occupancy has been stable, services mix and throughput volume continue to be weighed down by lower import export volumes related to the shifting tariff announcements during the second half of the year.

Keep in mind, volume shifts in certain higher-value commodities can incrementally impact results given the attachment of higher value-added services. Shifting to Slide 8. Global Integrated Solutions segment's EBITDA grew [ 50% ] to $61 million in our fourth quarter and was up 9% to $251 million for the full year 2025 and continuing this division's great trends all year.

Our fourth quarter NOI margin for GIS improved by 470 basis points to 19.5%. We are continuing to see strong momentum in our U.S. transportation and foodservice businesses due to the value of these integrated solutions provide to our customers.

As a reminder, we see solid longer-term upside in the combined offerings of our GIS businesses and our Warehouse segment. Our ability to bring to market a global network of assets to offer customers an end-to-end solution is unique and rewarded by our customers.

Turning to Slide 9. Fourth quarter adjusted EBITDA declined 2.4% year-over-year to $327 million and full year adjusted EBITDA declined 2.3% to $1.3 billion, both in line with our expectations. Fourth quarter AFFO per share was flat compared to the prior year at $0.83 and full year AFFO per share grew 2.4% to $3.37 per share, both ahead of our expectations and consensus.

As we progress through the wrap-up of 2025, our first full year as a publicly traded REIT, our tax team was able to successfully enhance its tax planning initiatives to substantially drive upside to our guidance. We finished the year with a current tax expense for AFFO of $15 million versus our prior guidance of $30 million to $35 million.

Our fourth quarter tax expense was better than our expectations by approximately $18 million or $0.07 per share. On a go-forward basis, we expect about half of that beat to be sustainable. Hats off to our tax team for driving continuous improvement in our tax structure.

Ultimately, even if we excluded $0.04 of nonrecurring tax benefits, we still came in above the high end of the guidance range. In addition, our heightened cash flow focus allowed us to better manage recurring maintenance capital expenditures, allowing us to come in slightly lower than our guidance at $56 million for the quarter.

We know investors focus on same-store NOI. And so we but we are also focused on driving every lever of efficiency and cash generation, not just same-store metrics. We are proud to see our team members also focus on EBITDA and AFFO outperformance.

To that end, today, I want to announce that we have accelerated our internal efforts to drive efficiencies and on our admin and indirect expense cost base. We see opportunities to further streamline our organization while continuing to fully support our team members in the field.

We have line of sight to $50 million plus of annualized cost savings by year-end 2026 by streamlining and centralizing select functions. We have been studying this opportunity for a couple of quarters and believe we can prudently rightsize the combined teams to drive immediate savings and speed up decision-making.

We see about half of this hitting 2026, and we'll describe how we layer this into our guidance further in my prepared remarks. Turning to Slide 10. We ended the quarter with total net debt of $7.7 billion and total liquidity of $1.9 billion. During the quarter, we issued $700 million of 7-year euro bonds at a 4.125% coupon and locked in at $1.25 billion floating to fixed forward swap at a rate of 3.15% through February 2028.

These fourth quarter transactions come on the back of our inaugural USD 500 million bond offering issued at a coupon of 5.25% in June of 2025. We appreciate the confidence of our fixed income investors and our investment-grade rated balance sheet. We welcome all these new global fixed income investors to our call, and I look forward to meeting you in the coming months.

On leverage ratios, you can see here that our net debt to adjusted EBITDA was 6.0x at the end of the quarter. Also on this slide, we added what we hope is a helpful supplemental disclosure commonly asked for by our investors. This metric, adjusted net debt to transaction adjusted EBITDA adjusts for the $1 billion of capital investments made into our development pipeline the corresponding non-stabilized NOI and the NOI tied to intra-quarter acquisitions or dispositions.

Under this methodology, which is consistent with the reporting practices of other top companies within the REIT sector like Prologis and First Industrial, our leverage is 5.2x. Also, keep in mind that our development projects have been significantly derisked, given most of these projects are anchored by customers with long-term commitments.

Thanks to our new great leader of Investor Relations, Ki Bin Kim, many of you know from his prior life, you will notice this and other supplemental disclosure enhancements now and into the future. Finally, I would be remiss to not mention the sale of our Santa Maria site.

A great example of the shareholder value-enhancing transactions we are evaluating. As Greg mentioned, we will explore every opportunity to address the valuation mismatch between the public and private markets, including joint ventures and/or partial monetization actions that help generate capital and highlight the locked up potential in our world-class portfolio.

On Page 11, let's discuss our outlook for 2026. We are initiating 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 of $1.25 billion to $1.3 billion and AFFO per share of $2.75 to $3 per share.

You can also see the additional guidance details we have provided in the past, including admin of $465 million to $480 million, stock-based comp of $125 million interest expense of $340 million to $360 million, current tax expense for AFFO calculations of $20 million to $30 million and recurring CapEx of $170 million to $180 million. stocks.

Further, we expect our same-store NOI keys to start the year at the lower end of our annual range and see improvement into the second half. Supporting this outlook will be the ramp of our development projects and the 2025 purchased M&A coming online throughout the year. We will also see acceleration of our productivity and SG&A initiatives as we move through the year.

As we centralize and optimize some field expenditures into admin, this will create a modest headwind to admin expense. This will also conversely act as a tailwind of about 100 basis points to 2026 same-store NOI. Ultimately, our guidance for admin is $465 million to $480 million, which contemplates the field cost shifts inflation and higher 2026 bonus.

These items will be offset by the cost savings initiatives we outlined earlier. Together, these factors and the typical seasonal shift from Q4 to Q1 will result in adjusted EBITDA in the first quarter of 2026 following a sequential decline comparable to that experience in the first quarter of 2025.

Finally, AFFO in 2026 will experience a headwind from expiring interest rate hedges from annualized interest expense from the U.S. dollar and euro bond offerings we did in the middle of 2025. However, prudent CapEx management and improved tax planning will allow us to deliver a solid base of cash flow per share.

All of this should set us up to deliver a solid 2026 and allow us to focus on continuing to mature the organization and remain the industry leader for years to come. Now that Rob has walked you through our 2026 guidance, I want to reaffirm that while we're operating in a difficult environment in certain markets, we believe Lineage remains extremely well positioned to exit these challenges as an even stronger company by increasing our future operating leverage across the business.

Allow me to summarize the 4 key points. First, our industry is showing signs of normalization with a return to normal seasonality, customer inventory destocking largely behind us, and many markets stabilizing after digesting new supply. Second, we are focused on controlling the controllables as highlighted by our $50 million admin and indirect expense saving announcement.

These are in addition to our already in progress productivity initiates, including LinOS that are expected to offset inflation again this year. Third, while not built into our guidance, we see potential headwinds turning into tailwinds. And including reduced inflation, interest rate reduction, consumer tax stimulus and international trade stabilization.

Lastly, while our balance sheet is already in great shape, we will continue to look for opportunities to unlock value, further enhancing our liquidity. This will maintain our investment-grade rating and enable us to opportunistically take advantage of strategic investment opportunities.

Before turning it over to your questions, I'll provide a quick update on LinOS, our proprietary warehouse execution system. As of today, we've deployed LinOS to 10 sites and expect to at least double that number in 2026, but for accelerating even further in 2027.

We remain confident and on track to deliver the savings we outlined at NAREIT in December of $110 million run rate savings over 3 to 5 years. When I take a step back and look at our company, I see the largest, best positioned player in a mission-critical business with excellent team members in a resilient long-term industry.

The cash flow generation of our company remains strong. Our balance sheet remains solid, and our dividend is well covered and likely to grow over time. We grew this business successfully for 15 years leading up to the IPO, and we believe the industry's fundamentals are stabilizing.

Again, I want to thank our global team members for their dedication and commitment to our customers.

Operator, at this time, I'd like to open it up for questions.

[Operator Instructions] Your first question comes from Ronald Kamdem with Morgan Stanley.

Great. I just had a question on the same-store NOI guidance. You exited the year down 5%. You talked about sort of the first half versus second half dichotomy in 2026. And the disclosure on the markets that are stabilizing down, I think, is really helpful.

But just wondering if you could just contextualize just the conviction on the same-store getting better. And when you think about sort of the markets and the different supply cycle, any sort of numbers on how the same-store and range is between those buckets.

So first was on the volume or occupancy side, if you will, we're coming into the year in 2026 at a little bit of a lower level. You can see that in our same-store metrics. So you can see that we're going to ultimately have that as a little bit of a headwind as we go in.

That's just a minor headwind as we go into -- the second element of how we thought about our guidance is that while we're seeing great net price put out to the market, and we have the same factors that impacted us in 2025 in terms of mix, in terms of import export just as we look out. And so that ultimately will be a little bit of a drag of our revenue per pallet, if you will.

Again, we're seeing net pricing of 1% to 2%, that blend just slightly lower. And then the final factor, as we thought about it is just we are fighting inflation overall at the company. We're doing a lot on the productivity side. And so we're really striving to keep NOI margin, if you will, flat. But that, of course, you have just minor pressure there.

We saw a little bit of that in 2025. So those 3 factors really kind of blend up. And we'll see a good pattern as we evolve through the year. As we said, we're starting at the low end but all the initiatives that Greg outlined really sets us up nicely as we kind of move through the year.

Your next question comes from the line of Michael Goldsmith with UBS.

Can you talk through the impact of aging assets? How many assets did you idle during the quarter? Did that have a positive impact on occupancy. And if you can quantify that?

And then also, if you're idling assets, what are the add-backs to earnings just to try to just to try to get a better understanding of kind of what has been moving in and out of the same-store pool and the financials.

Sure. Thanks, Michael. So last year, we idled 10 sites and the benefits are obvious. We can move labor, move the customers to adjacent sites and lower overall cost and increase our occupancy in the receiving sites for 2026, because our physical occupancy is relatively strong, we don't think we'll see quite as many opportunities in 2026 as 2025.

And the overall impact on the NOI and the occupancy was pretty negligible. We took out less than 1% or around 1% of our supply as far as we treat how we treat these, we don't add back any of these costs, they roll into our nonsame-store pool and roll up to AFFO and EBITDA accordingly.

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

On dispositions, the non-for-SoCal disposition you did, what made that property noncore and how representative is the mid-6% cap rate in the U.S.? And then are you willing to sell international assets and what types of multiples or cap rates are you seeing in the international assets?

Also the SoCal asset, I would say, was kind of a medium quality asset. In our U.S. portfolio, it was a single user and did not support any of the surrounding public customers in that region. And so the user wanted to purchase it. It was a reasonable price for us, reasonable valuation. So we decided to go ahead and achieve a little bit of liquidity there.

As far as other dispositions, Robb will probably talk about this on other questions, but we're looking at the entire portfolio to optimize and certainly analyzing the public versus private disconnected valuations and kind of more to come on that as the year progresses, nothing to announce today.

Yes. I guess I would just comment I had the group as some new kind of look at the overall environment and what we're seeing in terms of transactions and actually pleasantly surprised with some of the comps that I'm seeing out there.

Over the past year, we've seen over $1 billion at least of transactions that we've been tracking but DHL or [indiscernible] or otherwise. And of course, we're familiar with the multiple we saw on our property. We're really seeing strong mid-teens EBITDA multiples. Now sometimes these are certain geographies but that ultimately translates into those low 6% to mid-6 cap rates.

So we're feeling good about it. I wouldn't say there's any comment we have about specific geographies per your exact question. We'll really look as Greg said, are we the best owner of that asset or not. And so we'll be going through an evaluation just our whole portfolio as we always do, but we'll be looking very unemotionally at that.

And frankly, we see the opportunity to create capacity for opportunities that we are almost sure will present themselves. We don't currently have anything on the docket now, but we're looking hard at as this industry turns really having the firepower to do whatever want to do.

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

Just going back to the topic of customers switching. You mentioned sort of 1 to 2 years after tenant takes a new facility that they may end up switching. We've been hearing about this for quite some time.

I just want to get a sense, is this more of a talking point or -- are you seeing like tangible or anecdotal evidence where hey, in the past 6 months, we've seen a noticeable uptick in people moving out of new entrants into your facilities. Just trying to see, as the supply ebbs how much this is really a tailwind versus just something that is a talking point, as I say.

Yes. Thanks, Alex, and happy birthday to you. So as we talked about in the prepared materials, we are seeing a clear trend.

So in the U.S., where we're seeing really the only region in the world where we're seeing the excess supply. 60-plus percent of our markets are -- have not seen excess new supply. We had to work through the destocking, but those have been on stable ground for some time, and we expect them to be on stable ground in 2026.

Where we're -- directly to your question and why we feel so good about our ability to compete in the medium term is because markets like New Jersey, Dallas, Houston, where this new supply hit earliest, we did take a hit there. And now we're seeing -- this is an anecdotal. We're seeing a lot of customers come back to us because of our -- because of all the structural advantages we have, especially on our service excellence.

And so we can group those into a very large pool and say, the NOI went down and now been up or stabilizing and then when we look at our 2026 plan, we can see late cycle markets like Allentown and Miami, where we're still facing pressure. But the fact that we've seen so many markets go through this cycle, and we're seeing ourselves starting to win again gives us confidence that we can kind of work through this last wave and the new supply being delivered in 2016 and beyond is minimal.

And so even without supply absorption, which we think there's lots of reason to believe that will happen faster than some may fear, we think we can win in this existing environment.

Your next question comes from the line of Blaine Heck with Wells Fargo.

More of a high-level question. There's been a lot of attention paid to the impact of AI on different businesses over the last several weeks and months. I know you guys have done a lot on the technology enhancement and data analytics side already. But in general, how do you see your business being impacted by AI, whether that be on the warehouse or GIS side.

So I'm glad you asked that. We've been thinking a whole lot about this. I mean -- so certainly, AI promises to make supply chains more efficient. And that could potentially reduce storage needs over time. But supply chains take a long time to change and optimize -- and what we're seeing right now is that customer inventory levels are effectively at the bottom, given a couple of years of destocking after COVID high interest rates, food inflation, international trade chaos driven by the tariffs, all for all these reasons, our customers' inventories are very low.

But when you take a step back and you think about our industry in we think we're one of the most insulated from disruption. And actually, at Lineage, we think we have some of the most upside driven from AI so think about the industry first. So fundamentally, cold storage infrastructure is necessary to bridge the duration between when food is produced and when it's consumed and AI cannot change when food is produced or whether it's consumed. So cold storage is durable and essential in the long term, even in a world of AI.

And there's millions of examples of this, but think about a frozen chicken, frozen french fries stake, we don't think those will ever ship directly from a processing plant directly to somebody's hold. And I can't change the seasons nor when seasonal products are harvested. So they'll always need to be stored. AI is not going to change the need for people to need.

We're pretty sure that's a durable trend. And our industry has hard expensive assets required to operate our industry and AI cannot create or replicate those. And if AI does change how consumers behave, so if there's more online shopping, more multichannel, that just generally increases the need for warehousing because of more SKUs and more nodes of distribution.

Also, I think as in our recent -- I saw a recent announcement is evidence of our industry has an evolving data center and self-driving electric vehicle use case that's unique to our high-powered assets. So plug-ins for electric vehicles and using our excess power to fuel small to midsized data centers.

And so -- but if you double-click on the industry to a lineage perspective, we think we're farthest along on the use of AI. We've been investing in data science as many of you know, for more than 10 years, we're cloud native. We're API-oriented already. We already rely on AI to make operational decisions within our warehouse, the most recent example of that is our rollout of lines where our AI, our patented AI is deciding which operator performs, which task which priority to optimize labor and to optimize our customer performance.

We're also already using AI for our entire automation stack. I think everybody knows we're the world leader in cold storage automation for our energy management initiatives that have shown over many years to offset energy inflation. And we're also using AI in our computer vision in a technology we call the Lineage [ Hi ] in our most tech forward warehouses and that's technology that basically identifies what the pallet is in its contents and streamlines the inbound process and makes our receiving more accurate and efficient -- we're also best at, and maybe this is the most important one.

We're best positioned to leverage robotics and AGVs or automated guided vehicles because of our approach with its LinOS is built to tell robots, the next task the next best ask just like it tells people the next tax task today and so as AGVs and robots get certified for cold and they're quickly getting there, we are ready to interweave those into our workforce and gain efficiencies faster than anybody else in our space, we feel.

We're also -- I think we've proven we're effective acquirers and developers and can apply AI tools to the acquired companies and developments better than any other company. And lastly, we have borrowed away the largest data set of warehousing data and probably the biggest data set of temperature-controlled transportation data other than arguably [indiscernible] and we can harvest that data to provide our customers with insights and help them optimize their supply chain overall.

And so overall, yes, could this help customers optimize their supply chains over 10 years, sure, but we think we're very much insulated from disruption as an industry, and we see upside across the business here at Lineage.

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

Greg, can you provide us some color on the seasonal pickup that was delivered this past quarter? I mean how would you qualify that pick up? Was it more muted than normal seasonal patterns? Or was it in line with historical patterns. And if it's more in line, I mean, can we assume that the inventory destocking is probably behind most of these customers?

Or I guess, how should we think about this occupancy being higher than expected probably in the fourth quarter, at least versus consensus estimates?

Yes. Michael, good question. I mean we kind of called the bottom of inventory stocking in the first quarter of 25, and I think history is proving us right there. And in mid-25, we said that the seasonal pattern was very much back to a normal seasonal pattern. The uptick happened a little bit later in the -- it happened in July versus June and then it hit as normal.

So I think -- 2 things that are really important takeaways here. We believe inventory destocking is behind us. We believe our customers' inventories are very, very low and lean levels, given all the macro factors we believe normal seasonality has returned, and we think that's evidence that the evidence of that is our 400 basis points pickup in physical occupancy going into the fourth quarter. And we would expect a similar seasonal pattern, and it varies a little bit each year, year-to-year.

But we would expect a similar pattern in 2026, and that's what our guidance is based on.

Your next question comes from the line of Greg McGinniss with Scotiabank.

I just want to talk on the Integrated Solutions. We saw the considerable margin improvement with the European disposition. Is there more room to run on that business? Would you get back into Europe can margin improve further from here?

Yes. So I'll take that. It's Robb. So we had a really good margin performance in the fourth quarter. I think that's emblematic of kind of how we see the business now generally, the GIS segment has a strong Q2 and Q3. So just be aware of that. But overall, the reason the margin really ticked up was just as you shedded that European business, which frankly did not have comparable margins to the overall base. you take that out, you take the revenue out.

And really, as you start looking at the fourth quarter, that's the way to start taking in the underlying business. So we still see opportunity. Overall, we see good growth in that business. So of course, we'll leverage the cost there. But I think that's a good run rate to kind of be thinking about margins and the profile going forward.

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

I just want to circle back on the asset sales kind of market potential pricing for assets. I know you guys said the 6 cap was on a user sale. Just curious, was that already a triple net lease? Or were you guys kind of operating that? And what do you think that would have been on a kind of a true sale to an investor rather than the user? And also, Robb, I think you said pricing may be in the mid-teens EBITDA correct me if I'm wrong, but you said that translates into the low 6 cap rate. Could you kind of just bridge that comment and just provide as much color you guys have?

Yes. Overall, it was a triple net lease. So that was the property. It's always hard to say with the buyer and so forth now that they play pay relative -- I can't really go there. We think it was a good sale price overall -- as I mentioned, we're seeing mid-teens EBITDA multiples and low to mid-6 cap rates. So ultimately, I mean, it depends on the region they're sold. It depends on the mix, depends on the buyer, as you say. So I'm just trying to give you a general sense for what it is, but it really matters what geography you're in and so forth and who the buyer is.

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

Great. I'm curious your thoughts on the feasibility of converting a lot of cold storage facilities out there to alternative uses. I know there have been some reports, I think there was a facility and L.A. that was getting converted to a sound stage, Greg, you talked about the potential for data center conversions. Is this a real catalyst to improve the supply picture?

Or I realize any prospective investor would probably have to get in at a favorable basis. So is it just on the margin going to help supply? Just curious your thoughts there.

Sure, Michael. Let me take that question and broaden it a little bit, just our thoughts on overall supply. And so we think there's a bunch of reasons why supply can get absorbed over time faster than if you just take the new supply minus the 1% increase in end consumer demand.

The first one is the one you highlighted there, it's just the alternative uses. I think we are seeing that. There was -- in the last couple of quarters, there was a facility in Atlanta that was quite large. I believe it was about 1 million square feet that was repurposed for residential. We are days away from signing our second small data center installation and we continue to pursue those types of opportunities as we have excess power in the network already.

And we believe we have the ability to dial up power with the utilities over time. So I think this is a really real opportunity. It's not going to dramatically change the supply picture in itself in 2026. But we're evaluating our global portfolio. We calculated how much excess power we have in a number of buildings already. And we're looking to see how much more power we can get in areas that would be attracted to data center partners.

Other things that could impact the supply picture are -- we believe that some of the new entrants into our industry over the last 4 years based on our channel checks and direct conversations with some of these companies we think that they'll exit the industry, and we think some of those assets, especially in kind of the most oversupply markets, will not be -- will not continue to be cold storage, and that will take out some supply.

And where they're in good markets, if a competitor that is failing has 4 buildings we want to be in the position to absorb 2 in the markets where we're full, and it would make sense to add those buildings to our network. The other thing I'd like to highlight is [indiscernible] and so over the last couple of years, especially coming out of COVID or during COVID, when every single pallet position basically in the U.S. and around the world was full because our customers were overstocking, if you will, it didn't make sense to retire old assets because they could sell cash flow -- and despite the kind of structural advantages of a little less productivity, a little more higher ongoing maintenance, it made sense to keep those open.

But the average age of cold storage facilities here in the US is 42 years. And given that there is oversupply that we think we'll start to see some of these buildings being shuttered and repurposed to residential or various other applications, and we don't have perfect estimates here, but we think that number could approach up to 1% a year in the coming years.

Also, we talked about this already, but the large operators have the advantage Austin coal basically have the advantage to idle facilities and take supply out that way. Between us and co, we took out 20 buildings last year. I think they said they were going to take out another I don't know what it was 9 or 10 last week, and we'll do more this year as well.

So that will lead to some supply being absorbed. And I think maybe most importantly, as I've already discussed, even in the current environment, we think the best capitalized operators with the best service with the best long-term reputation with the best technology with the best scope of services with the highest level of customer relationships are going to win and even in this environment, we can be successful.

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

I guess, Greg, I'm sorry if I missed this, but when I look at the GIS segment and your guidance for the year, the 0% to 2%. I mean, it is a decel. You did, I think, 8% last year, double digit in 4Q. Is it just sort of tougher comps? Or is there something I'm missing?

Yes. It's -- I mean, we had a great year this year. So there are tougher comps, but there's a couple of things I'd highlight that are weighing on our guidance there. The first 1 is fuel is down, and we actually -- we mark up fuel like we do everything else. So in fuel declines, especially as is happening right now and is forecast to happen in the first half year, that weighs on our results. Also as trucks -- as fuel is down and trucking continues to be relatively inexpensive. Our rail business doesn't do as well.

Modal shifting happens for economic reasons. And when truck is strong, rail has weakened for those 2 reasons, we're a little bit more cautious on our guide in GIS for 2026.

Your next question comes from the line of Daniel Guglielmo with Capital One Securities.

Can you just give us a quick update on the Lean journey. How many facilities have been done there to date? And as you roll out to additional warehouses, have there been any changes to that program or how you implement it?

Yes. I mean we're up to, call it, 1/3 of our revenue base being directly supported bile manager. We are taking those resources now and elevating them from a single building or 2 buildings to a regional support and we're also kind of joining their efforts with our LinOS deployment team. So we're deploying technology and process at the same time, been seeing good results there even since the NAREIT conference in December. And so we're committed to lean as a philosophy as a way to remove waste from our business, and we continue down the same path we've been on and continue to see good results.

And I think that's why you'll see year-over-year, we expect to offset inflation through those efforts and other productivity initiatives even before LinOS gets meaningful to our financial results.

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

I wanted to see if you're able to share in end of January or year-to-date occupancy update. And then I think you commented that the 600 basis point spread between physical and economic occupancy is expected to be stable throughout the year and that you are through a good portion of the volume-based guarantees and resets this year. last year, there was a little bit of volatility moving from 4Q to 1Q. So I was just wondering if you can provide a little bit more detail on where you're at in that process.

Sure. So January has come in line with our forecast. For modeling purposes, keep in mind that the first quarter is a seasonally soft quarter. Historically, if you just look at kind of pre-COVID USDA data, the first quarter would be down 3-ish percent in occupancy from Q4.

Again, we think the season will reflect more normal times. And so we would expect a step down from Q4 to Q1. Also weighing on our Q1 is the ongoing reduction in the trend in import/export container volume. If you look at Q4, import export volume was down 9% year-over-year, and that trend has continued into the first quarter, which we expect to be a headwind for us.

With regard to the volume guarantees and the spread between physical and economic occupancy, 400 to 600 basis points is our normal, we would expect to hold that trend through the year. And I think as we've discussed in prior calls, we effectively mark-to-market the majority of our business each year.

So there's no big resetting coming here in January. We've already worked through 65% of our revenue base as we sit here today on our contract negotiations. And that just gives us more confidence that the volume [indiscernible] will be or the economic physical spread will be consistent, and we'll be able to achieve that net new pricing increases of 1% to 2%. SP-24 I might just comment that it's 1 of the lowest levels we've seen, if you look at our supplemental, we go back over several quarters, you look at our same-store data, that 6% really represents.

So Greg had made comments earlier last year about working through sort of that disparity that we had in economic and physical. So we sort of try to address that as early as we could. As we look at other players having to address that, that is a painful factor just trying to work through your economic versus physical. And so I think the team has done a great job as I come in here of working that through and not having as a headwind that others maybe have to contend with in the future.

Your next question comes from the line of Brendan Lynch with Barclays.

I wanted to ask on the evolving tariff situation and how it's going to impact your business I think post liberation day, there were some concerns around seafood in particular. So is the current 10 or I guess it's now 15% blanket tariff better or worse than the tariff policies that have been in place since April?

Yes. Great question. I mean our seafood customers are very opportunistic, I would say. And when they order the tariffs drive that, the ocean rates drive that, the sales prices here in the U.S. drive that.

And we'll see what happens with the Supreme Court hearing. Obviously, it's being challenged in multiple ways. I think the or the bull case there is that tariffs could be lowered on China and Brazil, which could be meaningfully increasing trading partners with us given where they've sat in the last couple of years in the tariff rates they've been experiencing.

But it's just really hard -- it's really hard to know as all these are still being challenged in the state federal courts. I think we're -- if we look at import export, we're at -- if you look at multiple years of both the import and export side. We are at a historic low right now, and that's hurting us. It hurt us in the fourth quarter. We expect to hear this in the first quarter but we would expect that to normalize at some point, and that could be a meaningful upside to our business as so much of our real estate is in high-value, hard to replace port markets around the world.

Your next question comes from the line of Omotayo Okusanya with Deutsche.

Yes. Good morning, everyone. The $15 million of savings that was discussed, I just wanted to kind of get some clarification around that. Is that mostly G&A-type expenses, -- is it more of a focus on kind of cost of operations in terms of labor and power? And also hello...

We can hear you.

Okay. Perfect. And I also want to kind of get a sense of -- in terms of timing as well? I think you kind of mentioned half of it kind of coming on in '26, but how do we kind of think of beyond 2026.

Yes. Thanks for the question. Yes. So the $50 million of annualized savings that we hope to essentially get our hands around during 2026 to see the full impact of that is both an admin thing as well as indirect, if you will. We are seeing opportunities at the indirect side at the sites.

These are exercise that we've frankly been looking at for a while. We've been growing quite rapidly as a company. I came into the middle of an exercise that was being done to really look across the company and say, where can we sort of centralize where do we optimize, where we bring some productivity are the overlapping functions that are frankly happening at the sites versus an admin.

We're also looking to deploy different technologies in AI, just frankly, figure out how to make -- do more with less. And so these are never easy decisions. So the timing of how we actually see that playing out in 2026, we roughly think about half of that, but we'll see how the year goes and we need to progress through all those initiatives.

But again, it's about $50 million. Just to touch on how the site level expenditures happen versus the admin. We talked about that 100 basis points. So we went out to the sites and at corporate and sort of try to do an inventory, and we saw some opportunity at the sites to essentially bring some of those costs in.

We would have optimized them anyways, frankly, at the sites. And so as we combine those and actually bring those into corporate. We're sort of saying that, that's going to be a net impact. If we had not sort of brought that into corporate, that would have been a net impact of about 100 basis points.

I wouldn't be surprised if we actually figure out how to optimize that even more and bring that at a lower impact, if you will, on a pro forma basis to something like 75 basis points, but that gives you a sense for both the $50 million as well as how we see that playing in admin.

There are no further questions at this time. I will now turn the call back to Ki Bin Kim, Head of Investor Relations, for closing remarks.

Thank you, everyone, for joining the fourth quarter conference call. Have a good week. And we're around if you have any questions. Thanks, everybody.

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

Good afternoon, and thank you for joining us. My name is Ki Bin Kim, Head of Investor Relations at Lineage. Today's presentation will focus on Lineage's warehouse productivity initiatives, in particular, LinOS, our internally developed next-generation warehouse execution platform.

Our goal is for you to leave with a deeper appreciation of our unique operating and technology platform, which we believe will continue to set us apart from our peers.

Now I'd like to introduce our executive leadership team, all except for Robb, who just joined us as our new CFO, have over a decade of experience with Lineage. Starting in the middle, we have Greg Lehmkuhl, our President and CEO. We'll kick off today's agenda by discussing the state of our industry and how Lineage is best positioned to win over the long term. And then to my right, we have Jeff Rivera, Chief Operating Officer, will share our warehouse productivity achievements, beginning with our approach to people and processes. And Sudarsan Thattai, our Chief Information Officer and Chief Transformation Officer, will cover Lineage's technology edge and digital enablement journey. And to the far right, we have Elliott Wolf, Vice President and Chief Data Scientist, will dive deeper into LinOS. And finally, our new CFO, Robb LeMasters, who will join us on the stage in a second, will summarize upside opportunities and provide financial impact details of LinOS.

With that, let me turn the stage over to Greg.

Thanks, Ki Bin, and thanks, everybody, for joining us today. We're excited to talk about Lineage a little bit and dive deeper into our warehouse productivity journey at LinOS. And so I'll start just with a quick company overview for any of you that haven't -- aren't familiar with us. So after 17 years of hard work, we built Lineage into the largest company in our industry. Our global network is comprised of 3.1 billion cubic feet of warehousing capacity and generated about $1.3 billion EBITDA in last year. With a global footprint, we have 488 facilities comprising 86 million square feet in 19 countries around the world.

Our strategy focuses on operating modern and strategically located assets in key real estate markets and ports. We have an orientation toward the distribution side of the cold chain, and we have the largest network of 82 automated warehouses around the world. We are a values-driven organization with over 26,000 team members around the world who are committed to fulfilling our purpose. And importantly, and especially for today's discussion, our labor expense is 60% of our total operating expense. And while we've made substantial progress increasing productivity in recent years, thanks to this guy, we still view incremental opportunities on the labor side as one of our biggest controllable levers moving forward.

And so let's move to the next slide and talk briefly about our purpose and values. And so while transforming the food supply chain to eliminate waste and helping to feed the world might sound a little lofty, we really do play a crucial and central role in the global food chain. For example, we estimate that we transport or store about 30% of the temperature-controlled food and therefore, calories consumed in all the United States. We're also a people and values-driven company where our core values drive our behavior and our decisions on a daily basis.

So moving to Slide 6. Let's talk about supply and demand for a minute because I get more questions on this topic from investors than any other one by a long shot. And we discussed this on the last earnings call. But we understand that we're in a niche industry, and it's a specialized part of the real estate landscape with very limited public available data. And so as such, as the industry leader, we've been working with CBRE to provide insights to investors on new supply growth in our industry. At this point, we focused on the U.S. market where we have the most accessible data and where we're seeing the most acute supply-demand imbalances in some markets.

So let me just walk through the slide quickly. The upper left, left-hand chart labeled A shows that from 2021 to 2025, public refrigerated warehouse supply grew by approximately 14.5% on a square footage basis. And importantly, if you look at CBRE's outlook for new capacity next year in '26, that's down substantially to 1.5%. From a competitive standpoint, all of the capacity that's added in this period was built at the highest cost to build in our industry's history. And since that period, the cost of capital has increased significantly.

The upper right-hand chart labeled B is based on the widely used Nielsen data, that's the point-of-sale data for retail and the Circana data, which is like the gold standard for food service, showing fresh and frozen food volumes. Importantly, the data shows demand for food categories stored in our warehouses grew cumulatively by 5% during the 2021 through 2025 time period. And this is in spite of consumer price inflation on the food side, which has been super high, interest rates, other headwinds. And despite all that, end consumer demand in our business continues to grow. And if you look at kind of the tale of the tape of the last few years, this growth was clearly masked over the last two to three years because our customers overbuilt inventories during COVID and then subsequently destocked that inventory right as we were leading up to our IPO. And so while our customers' inventory holdings has seen truly unprecedented volatility in the last couple of years because of COVID, the underlying demand for our -- for the goods that flow through our warehouses has been growing at a steady pace.

And so at the bottom left-hand side of the slide, we just bring these two concepts together to calculate the estimated excess capacity, about 9.5% in the U.S. market over the last four years. But despite this nearly 10% imbalance, our 2025 -- what we guided to last quarter, 2025 total estimated average physical occupancy is 75%, and we're -- we think we'll achieve that.

We'll see how December comes out, but we're on track to achieve that, is down just 3 points from 2021. And so nobody likes fighting 15% new capacity or the resulting 300 basis point decline in occupancy. But given the backdrop that we've been fighting through, we're proud of this in a very, very tough environment. And certainly, as evidenced by what the team will share today, we're not standing still in face of these headwinds. We're laser-focused on improving our go-to-market approach, streamlining our operations, lowering our admin cost and carefully managing our balance sheet.

So a few more thoughts on supply and demand. Regarding supply, it's important to point out that the new supply is concentrated in select U.S. markets. While many markets in the U.S. are still at equilibrium and our European and Asia Pacific business are not experiencing the same type of new supply pressure. And diversification is just one of the scale advantages that we enjoy versus our smaller competitors that may have more concentration in these markets that have had the new supply delivered.

We also believe that there's a number of factors that will tighten this dynamic over time. On the supply side, we believe new deliveries, as evidenced by the CBRE data have peaked, and we're hearing that very limited interest in new developments, which we think is rational given the supply-demand imbalance in parts of the U.S.

Regarding the existing supply absorption from the supply that's been delivered recently, major players like ourselves are idling buildings and exploring alternative uses like data centers and other energy-intensive alternatives like Waymo or electric vehicle charging, which we're uniquely positioned to supply those type of surfaces because of the amount of power we have being delivered to our buildings. We're also seeing in this environment that new -- that older, less efficient buildings are becoming obsolete and are being repurposed for higher and better uses.

Finally, given the complexity of operating cold storage warehouses and the relatively high cost of entry, we believe a number of our new competitors will exit the market in the medium term. And we believe we're best positioned to absorb some of this capacity, the most attractive pieces of this capacity over time.

On the demand side, there's no doubt in our minds that demand has been muted for all the reasons I stated before. And there are a number of potential catalysts that could accelerate demand, including tariff resolution, interest rate declines, food inflation moderating and customers trading into frozen categories given the attractive value proposition of the frozen food category. And so while we're certainly facing a challenging market in the near term, we're controlling the controllables. We're best positioned to win in the long term in our industry, and we believe there's a number of catalysts that will bring the market closer to equilibrium in the medium term.

So moving to Slide 7. So acknowledging what I just said about the macroeconomic dynamics. One of the things that gives me confidence is if you just look at this map, you'll see Lineage has a presence in all the key markets around the world where our customers need us most. This is very, very hard to replace, very strategically located, very modern real estate and buildings. And that gives us the largest and the best positioned as well as the most diversified real estate portfolio in our space.

So in addition to that best-in-class real estate portfolio, we also provide our 13,000 customers with the broadest suite of supply chain solutions with our Global Integrated Solutions segment. And so if you look at our customers' spend, 75% of their supply chain spends on the transportation side and 25% on the warehousing side. And we're the only one that can provide that farm-to-fork solution with a broad set of global integrated solutions that we provide to help them impact their total landed cost and also get their product reliably their customers. And lastly, on this slide, I could talk all day long about our lean operational excellence, but I'd be stealing Jeff's thunder, and he'll be double-clicking on that in just a minute here. But I do want to say, I think we -- the way we approach that element of our business is differentiated and that our process for continuous improvement is excellent.

So before I turn it over to Jeff, I'll just spend a minute outlining the value creation levers that we're working on as a management team to ensure that we deliver shareholder value for our investors. So a number of us will speak on each of these, but I just want to spend a minute outlining the four key drivers as a group. We see a lot of potential in the way we go to market and customer excellence, capital allocation and network effects in addition to the warehouse productivity topics that we'll talk about today. And as you've heard us say many times before, what underpins all those value levers is our laser focus on digital enablement that supercharges the impact of these levers over time and puts us in a differentiated position.

So let's dig into it. And as I said, we'll double-click on the warehouse productivity today, and I'll hand it over to Jeff here. But we'll come back at the end to answer your questions and have a discussion after you learn more from the team here. So Jeff?

Great. Thanks, Greg. So we're going to start off really digging into the people and process part of our journey, and this is the foundation to enable us to realize the benefits of technology that's coming. So the focus we've had in the last few years has delivered significant improvements in safety and productivity and quality and customer service. And we'll walk you through some of the key steps that we've taken here.

All right. On the people side, it all starts with engaging our team on our purpose as Greg started with earlier, something that our team can emotionally attach to and be intrinsically motivated by, and this creates pride in their mission to help feed the world. We have multiple reinforcement mechanisms in place to be able to catch our team members live in the values and to recognize them for that.

In 2024, we took another significant step by creating a stock ownership program for a significant percentage of our global workforce. So this has led to an act like an owner mindset, and we've established quarterly ownership meetings where we provide an update to all of our team members on how Lineage is performing and what their individual role is in helping to drive continuous improvement and success.

Next, we focused on talent development with an intentional approach on hiring to our values and competencies and the focus on culture and talent, as you can see on the right there, has resulted in over a 50% reduction in turnover over the last four years.

Moving over to the process side. We've built on the foundation of culture with our focus on leveraging a lean operating system to drive continuous improvement. So Lineage has been driving a lean operating system now for almost 10 years, very similar to the Toyota Production System or to the Danaher Business System. We've structured a methodology to teach our team members and ensure we're driving a consistent approach around the globe. So a consistent approach not only to drive continuous improvement, but a consistent look and feel for our customers. And given that we've grown through acquisitions, having this approach is critical to drive consistency and to engage our team members around the world.

To date, we've had over 80 sites that are on the formal lean journey that are going through different certification levels of lean, and we have over 9,000 team members that are engaged in helping us solve problems driving our lean methodologies.

And our lean journey starts with standardized work. So we've created the One Lineage operations playbook with over 400 standardized operating procedures that is used by our facilities around the world to drive continuous improvement and then also to audit to identify where there's gaps to be able to drive overall performance improvement opportunities.

We've also created continuous improvement road maps in over 450 of our buildings. So continuous improvement road map is a detailed plan that has smart targets, actions, owners and dates for the team to be able to realize improvements throughout the year to be able to deliver financial performance.

In the middle column there underneath visual management, we've deployed a real-time metrics platform called metricsOne, refreshes every 15 seconds, and I can look on my phone or laptop and have visibility to 100 metrics for each facility around the globe. And we have a view of looking at the site level, region level, country level, business unit level or a global view to see how we're performing.

We have a saying that right is good or problems are good and that we want to identify problems quickly so that we can attack those problems and improve overall performance for our customers.

And lastly, on the problem-solving piece, we have over 9,000 team members that have been trained on how to solve problems on the floor. And we've conducted almost 1,000 Kaizen events that have realized over $20 million in savings by engaging our team members to help us identify and eliminate waste.

So what does this mean to productivity? Our focus on people and process have resulted in a significant impact over the last eight quarters. As you can see on the left here, the dotted line shows industry wage inflation versus the dark blue line showing our actual labor cost staying flat over the last 8 quarters. On the right, a similar view of total labor cost per throughput pallet also shows our ability to offset wage inflation, again, through our focus on people and process.

And with this foundation, it's setting us up for the next horizon of benefits as we commence on our tech journey. And Sudarsan is going to start walking us through where we're going next.

Yes. Thank you, Jeff. Much appreciate it. I really want to kind of take this opportunity to kind of dig a little bit into both our technology journey and our digitization enablement journey as well as LinOS, and we'll talk about that between me and Elliott a little bit in detail.

Our technology enablement or digital enablement really started over the last decade, right? We've invested significantly in our systems and digitization. It allows us to unify data, modernize our systems in pursuit of kind of lowering our transaction costs across both our warehouses and also our back offices. So it's our kind of backbone for execution. Those efforts have created a digital foundation that we now operate on, and they support really five pillars and our digital transformation model, which I'll walk through in the next slide.

Here, what I really want to kind of talk about in these five pillars is the first is our like scalable digital core, right? What does it actually mean, right? Our unified data and integration layer that gives us consistency across the network that also allows us to deploy these capabilities globally.

Second is our decision algorithms. Elliott is going to talk about in detail about these algorithms in a minute here. But these engines make real-time choices around labor dispatching, power routing and dock allocation, right? They reduce idle time and help us get more throughput from the labor that we already have. This forms the core of LinOS, and we're going to be talking about this in the subsequent slides.

Third is customer experience. Both Greg and Jeff alluded to how it's important for our customers to have a unified experience given our network and how varied and wide it is. Lineage Link, which is another digital-enabled platform allows our customers to get real-time facility, inventory, orders, appointments and shipments. And this platform reduces friction and makes us easier to do business with.

Fourth is energy. Energy is another large expense for Lineage after labor. We're an industrial consumer of power. We've been deploying AI-driven controls that help optimize refrigeration and power usage, lowering energy consumption and operating costs across our network. Think about energy kind of costs like a thermostat in your home, like if you had a smart thermostat at your home. And basically, our industrial platform is exactly like that, but for a giant industrial freezer.

Finally, the future of automation is really from a LinOS perspective is our warehouse execution layer, and we're going to be talking about this in a great amount of details. This is the software layer that orchestrates people, equipment and automation in a single consistent way. Together, these pillars help us run a more productive and predictable and resilient network as these technologies continue to roll across our network.

All right, LinOS. LinOS is the execution layer that brings our investments together, right? It is a warehouse decision engine that has been built over many years. LinOS really makes thousands of decisions each day, assigning work and routing pallets and sequencing all of the tasks in real time. These are practical operational decisions that have a measurable impact on productivity. Somehow these algorithms work together in practice and kind of make -- because of the spatial awareness, it makes execution really, really simple within the four walls of the warehouse.

Let's talk about how these algorithms work together. LinOS is built around a set of algorithms that each manage specific part of warehouse execution. They assign trucks to the right dock doors, route pallets to keep them flowing, choose optimal travel path, schedule replenishments and dispatch operators. These decisions happen continuously and at speed and consistency that's difficult to match manually. Not entirely a novel concept, but the impact is straightforward, less forklift travel, higher units per hour, faster truck turn times and steadier labor utilization. The decision automation is what is driving productivity improvements that we are seeing at LinOS sites today.

So I do often ask this question, what is the difference between a warehouse management system at LinOS and warehouse execution system. If you don't live in it, it's very hard to imagine. But in a traditional WMS or a warehouse management system platform, it's primarily an inventory and a transaction system, right? Think about that as a system of record and which also enforces workflows and a rules-based decision for interleaving, right? It's highly deterministic. It still relies rarely on human planners to decide the sequence of work and it's kind of unidirectional most of the time.

LinOS is different. It sits about the WMS or the warehouse management system as a real-time decision engine. It uses live data combined with spatial awareness, to like inventory, labor, dock optimate section dock conditions, equipment availability and continuously optimizes micro decisions, like task assignments, replenishment, sequencing, routing and trip maximization. LinOS is not just a feature within the WMS, right? It's a separate execution layer as you will see, which is built specifically for high velocity kind of warehousing and distribution center operations.

And then if we go to the next slide, thanks, Alex. LinOS orchestrates both humans and robotics, right? LinOS gives us a very clear picture of what's happening in the warehouse, inside the warehouse and where the warehouse operators are, what tasks are they performing and what they're working on and what is the most efficient route to actually take, and it kind of helps reduce travel time.

The situational awareness when combined with real-time tasking, which is -- drives productivity, right? Think about this as a kind of difference between a radio taxi and Uber, right? That is the difference. We built LinOS to be software first. We're creating value now while building an execution platform that can adopt as automation technologies continues to mature.

I'm going to turn it over to Elliott, who will actually walk you through how these decisions and algorithms are made in real time in our warehouse.

Super. Thank you, Sudarsan. You go to the next slide. So LinOS started with our near decade-long journey designing, building and operating automated those greenfields use cranes instead of forklifts. They use layer pickers instead of case pickers, and they use conveyance instead of other forms of manual material handling. It's good to see some familiar faces who've been to the Olathe warehouse, for example.

Now we had to not only physically design and build those structures, build those robotic systems, but we also had to develop software that could control them. That software had to do three major things. So first, it had to control and manage the dock in novel ways due to the increase in height of the building that automation facilitated. Second, it had to synchronize the activity between the humans and robots. And then third, it had to, as Sudarsan indicated, automate -- automate the decisions made in the course of operating the warehouse.

And so go to the next slide. What you're seeing here is a 3-dimensional simulation of an automated warehouse. That simulation is not only physically accurate to model the performance of the robotic components, but it's also making the decisions that LinOS has to make in the course of executing automation. So among those decisions, I'm going to read them off clockwise from the right, where does inventory land in the storage racks, which pathway does inventory travel through the robotic layout? What schedule do we expose to which transportation carriers and which customers, in which sequence and orientation do we put pallets into trucks when we load them? Which door should each truck utilize? Which inventory do we allocate to a given order, which equipment is pulling, which pallets in which order. Each of those decisions very often has a solution space that's larger than the number of elementary particles in the solar system.

Now we make those decisions using a variety of methodologies. Those methodologies include convolutional and recurrent neural networks, include branch and bound combinatorial solvers, include convex optimization and natural language processing. It also include other forms of mathematical optimization, machine learning and artificial intelligence.

Now the objectives of these decisions are to maximize the efficiency of our humans and equipment subject to the needs of our customers, such as turn times and drop dead times. Now every one of the seven decisions that I just read out is identical to or has a direct analog to a decision made in a conventional warehouse, which is where LinOS manual comes in.

So applying those software methodologies to our conventional warehouses, there's four phases of software rollout here. So the first is high-reach operations, which is already operational and will detail today. That phase dispatches our highest skilled and the largest fraction of our labor. These are the operators that pull pallets into and out of storage racks, potentially can deliver 5 or more feet and 40 feet in the air, and then they bring those pallets to and from the warehouse docks.

Second phase is value-added services. So services such as blast freezing, stretch wrapping, placarding, date labeling and other ancillaries that we perform in addition to storage and handling. LinOS will direct the performance of those services and record whenever they are performed, confirming that we build comprehensively for the services that we provide and thereby increasing our revenue.

Third phase is case picking activity. That's the physically taxing exercise of manually removing cases of product from pallets and using them to build mix SKU outbounds. Think bouncing around a Costco to go pick an order for your family, but that outbound order weighs more than 1 tonne.

Then the fourth phase is the dock management, movement of inventory between trailers and the dock, including receiving pallets. Loading pallets absent LinOS requires a particularly steep learning curve as operators have to eyeball weight and balance considerations, stop sequences, maximize capacity and perform safety checks. All of that will be automated under LinOS.

So to understand the current state pre-LinOS, I'm going to show you what it looks like. It starts with a whole lot of paper. WMS will print out orders and then those orders will be placed in stacks. Those stacks will then be distributed to physical cubbies, which represent appointments in time. Once that appointment is there and the truck has arrived, the order gets sent out to the warehouse floor, collated, order checked.

I'm going to introduce you to my colleague here, Jose Bolona. Jose here is a high-reach operator, one of our facilities in Chicagoland. He physically traveled to the supervisor station and picked up that stack of paper representing the order that he's about to go perform. Now in addition to that administrative burden, the bigger constraint is that working stack of paper by stack of paper implies working on a single order at a time. An order is either inbound or it's outbound. It's not both. So as Jose will bring in a pallet, place it in rack and then he will drive back out again with nothing on his forks.

Now the constraint of each team member working on one order at a time implies the dynamic here that you see on the left. Pallet goes in when the driver returns with empty forks, round trip performed one task. Now the principal thesis of LinOS manual is to remove the constraint and dispatch the forklift so that it brings a pallet in on inbound order and then utilizes the return trip to bring out a pallet for a different outbound order, one round trip, two pallet moves instead of one.

Now systems off the shelf can plan interleaving in advance, but they're not dynamic to changes in the warehouse. Trucks could come in not in the order that we expect. Customer drop dead times could change. And the systems also often lack the spatial awareness, which Sudarsan mentioned. Prior to LinOS, the baseline interleaving percentages in our facility was zero. But under LinOS, we are reliably interleaving approximately 40% of our moves. So start at zero, have a discontinuous improvement up to 40%. Now achieving this level of interleaving requires not just LinOS within the four walls of the warehouse, but LinOS' scheduling of truck appointments to bring inbound trucks to docks at the building at the same time as outbound trucks. It requires LinOS' dock door selection to put the inbound truck as close as practical to the outbound truck but the net result is we're interleaving approximately 40% of our moves in the first sites.

Now we're looking here at an aerial view of a warehouse. The solid lines represent a utilized forklift, a forklift with a load performing a value-added task. The dotted lines represent switching distance. You can see here the LinOS system moving around this particular team member. Now the system is also computing the paths of the travel, which you can see in the animation. The mapping of this site and the path is thanks to our use of LiDAR scanners, sensors that send out thousands of laser beams per second to generate a sub-millimeter accurate 3-dimensional map of the warehouse. Then using that map, we computed the travel time and distance from every location in the warehouse to every other location in the warehouse.

Next slide. Now in a production warehouse, there's not just one team member to manage, but multiple team members moving freight in and out. The multiplicity of those team members means that the LinOS system has a choice of which team member to assign to which pallet movement. LinOS makes that choice by minimizing the total travel time and particularly that dotted line switching distance. So from this visualization, you can see the system functioning across all three of its DCs. One, it's fully digital dispatch dynamic to the changing warehouse conditions. Two, it's interleaving inbound movements with outbound movements to utilize both ends of the operator round trip. And then three, it's choosing which operator makes which move in order to minimize that switching distance.

The net result of all these theses together are, frankly, astounding increase in the productivity on our high-reach function. So in this particular warehouse, one of our initial sites, we got a 50% increase approximately in that forklift -- in that high reach UPH. Now there's a huge step function increase here represented by LinOS being switched on.

But also since LinOS was switched on, you see a slow drift upwards, a continuous improvement. And that continuous improvement has come and will continue to come via four additional dynamics. So, first, our operators are getting better familiarity with the system. They're getting much more used to it. Second, we're doing a better job of scheduling trucks so that inbound trucks are coming at approximately the same time as outbound trucks. Then third, we're getting better at staffing the site to better match the new and decreased labor demands, thanks to the efficiency of LinOS. And then fourth, we're tuning and improving these algorithms constantly.

So give you the after, let's meet [ Mauro Polito ], who is a high reach operator at a different site that's now operational under LinOS. So he picked up a pallet for the instruction of the system. He's driving in, scans the rack for confirmation that the pallet is landing at the right place. He puts it in. You can see the skill of the high-reach operators here. Then instantly gets another task from the system. He's supposed to go aisle over in the same room of the warehouse, pick up an outbound pallet and it's going to send him back to the dock.

So this is his return trip, which is now utilized as Mauro returns to the dock. He puts away that pallet in the dock lane and then the system immediately gives him another task, which is to go pick up the next inbound pallet that's proximate to where he just dropped off, picks it up, system gives them a location. He drives in, scans the rack for confirmation, puts the pallet away, again, can't lever to way high up in the air, then wash, rinse and repeat. It's got a next task ready to go.

And you noticed in the second video that Elliott walked through, there is no paper. There is no time going to find a supervisor. It was all directed work on the handheld. Thanks, Elliott.

I'll turn it over to Jeff Rivera, our COO.

All right. So it's early, but we have piloted at 11 sites so far this year. And in the middle bucket there, you'll see HRO productivity. So HRO stands for high reach operator. That's Mauro, who is on the truck in the video. So in this -- for his department across these locations, we've seen on average a 30% lift in high reach productivity. And then when looking at total labor cost per throughput pallet across these buildings, we're seeing overall cost reduction of 5%.

Including indirect.

Yes, that's including. That's salaried, indirect and direct, total labor. So we've learned a lot. And with any major transformation with new technology, we've experienced some starts and stops. This is -- it's major change management. It's difficult and delivering innovation is never easy. What we have found is that at our smaller buildings, being able to work through the change management and be able to get our salaried and hourly workforce trained is pretty quick. And in our larger buildings, the larger distribution centers, it has been more challenging, more change management, harder to get to third shift on a Saturday and Sunday night. And because of that, it's taken longer. So we continue to learn and adjust our training accordingly.

I'm going to walk through one example here, and I could talk about this all day long. It's pretty cool. This actually is our first building that we turned on in -- I think it was Q2 this year. A smaller building in the Chicagoland area. And what was really great about this building is within -- it's really surprised us that within two weeks, the building had really latched on and was performing well.

On the upper left here, that's the high reach operator productivity. Again, Mauro's department in this building saw a 35% improvement in units per hour. The overall site productivity, so total pallets per hour across the entire building saw a 27% lift, which is higher than our overall average, but...

25%.

20%?

Yes.

It's 25%, sorry, 25% lift. And then you can see the trend on the right there that shows kind of the week-over-week pre versus post transition after LinOS and really that significant lift.

What was also neat about this building is that about six weeks after the transition, because of the improved dock flow and improved reach truck productivity, we were able to add another customer into the building without adding any additional labor. And heard feedback from the team that without having the tech, we would have really struggled with dock flow plus the benefits of productivity. In addition, in this building, when I was standing on the floor observing, we had a very senior tenured team member drive by in a reach truck and unsolicited yelled out this system is freaking awesome. And for me to hear positive feedback is rare. So to hear that from one of our senior guys was great.

And as you saw a little bit in the video, it's just a better user experience for our drivers. They don't have to get off the reach. They just want to do their job and not have to get off and on equipment and deal with paperwork. So having an easy-to-use handheld and user experience has been much, much better for them overall. And then we've also found that it's helped a lot with new employee onboarding that they get up to speed on the system much, much faster.

With that, I'll hand it over to you, Robb.

Thanks, Jeff. Great. So Greg closed his section with this slide to show the value levers that we have in hand to combat some of the near-term challenges we've been seeing over the past couple of years. Today's presentation spent more time on productivity and the digital enablement tools, which, frankly, as Greg mentioned, underlie all these valuation value drivers. But Greg also mentioned that we have other initiatives in place to ultimately create value. And I just want to spend a minute on a couple of those other ones. Customer excellence, you see there, capital allocation and network effects.

Now we expect to do deep dives like we're doing here on each one of these in time and also give out KPIs and targets that ultimately allow you to map what we're seeing inside and so give us time to do that. But ultimately, we expect to come back and be held accountable for all these levers. But just to spend kind of a brief moment on the ones that we didn't talk about earlier with some of the speakers.

The first one would be customer excellence. This starts with providing the best service in the industry. We distinguish ourselves with our customers with responsiveness and adaptability and really try to react to what our customers' needs are. Whether they're looking for full automation solutions with dedicated sites or integrated offerings with our transportation, we really try to serve them where they need us most and their reward to us is their loyalty. We actually have about an over 30-year tenure with our customers. So it really proves out that we have long-term relationships with our customers.

The second slice or lever that you can see there in terms of value drivers is around capital allocation. So that's all about compounding free cash flow and trying to reinvest that properly. I think most people know that presently, we're very focused on building out some large greenfields that we have for large customers that have agreed to take most, if not all, of the space in those greenfields. So that's really where our allocation of capital is focused. But we'll continue to look for site expansions and tuck-in M&A as we've done in the past. And I did add balance sheet capacity because at certain times like now, one of the most compelling strategies can simply be to stockpile cash and wait for opportunities to get richer for us.

Thirdly, you can see network effects. We believe our unique scale can be a powerful force in many of the markets where we operate. We can offer customers the opportunity to grow and contract within a market, given that we have multiple locations or even across multiple geographies, we can grow with our global footprint. Our scale also allows us to idle capacity within a market, a unique advantage versus the smaller peers that might only have one or two sites that can't be shuttered or idled in a location. And then finally, in this slice, we think we can get some substantial leverage in our admin and our procurement spending areas as we mature and ultimately come more and more under one banner.

And then the final area of this slide that really we spent the bulk of the day on, just to reiterate some of the points some of the other speakers talked about today, hopefully, you took away is that this is all about getting real-time data and using it to drive lean operations. We also see LinOS and automation as tools to make better decisions and improve operational responsiveness and drive efficiency.

So here, we're trying to display some of the internal KPIs we're watching to see how our initial rollouts are going. We've talked about a couple of these in various speakers' presentations. The four key areas of KPIs that really reveal to me the significant impact we're seeing in our operations and our profits include: first, HRO, high reach productivity. This is the activity, again, of team members moving product up and down the aisles. There can be significant wasted time that we found in terms of operators only storing product or only retrieving products. And hopefully, you're convinced today that LinOS is really changing all of that. We're going to see in a couple of slides that HRO is our most significant cost of direct labor. And in early test cases, we're seeing units per hour, which is how we track this one, up 20% to 30%.

Second, in terms of site productivity, we track pallets and volume that comes in and out of the warehouse, and we track the time and cost for every movement. And we see a very positive economic impact, but also our customer response times are really improving dramatically, and this is widening our lead as the industry's frontrunner in customer responsiveness. We track this one with PPH. And so Jeff gave a couple of those. We're seeing a double-digit improvement across the pilots in a pallets per hour basis.

And then thirdly, direct labor costs. We're finding that warehouse managers are finding ways to reduce shift labor and using employee attrition to decrease direct labor at some of those pilot sites over time.

And then finally, total labor savings, which includes the indirect labor areas such as maintenance and site management. And what we're seeing is that with better data and asset utilization, the deployment of technology is causing some great gains there, too.

So all of this really rolls up on the layer at the very bottom in green, which is labor per throughput pallet. This is the statistic that we encourage you all to really track us on over time. You can do this calculation from an outside basis, and we're going to see that statistic continually be driven down by this team.

Okay. So the base case estimate that we see in terms of the savings playing out for us and the annualized EBITDA impact is $110 million I put in the lower right-hand corner. Let me build you to the elements of that. The possible enhanced profit is really going to come from two different elements, a cost element and a revenue element.

On the element of labor savings, first is HRO. As we mentioned a couple of times, this is our largest bucket of cost. That's 25% of our direct labor, and we see the ability to potentially reduce savings or to gain savings of about 20% to 25% over time. In the case pick area, which is 10% of our labor cost, we see 5% to 15% savings. Dock, both the inbound side and the outbound side represents about 20% of our costs. And likewise here, we see 5% to 15% savings as possible. And then finally, a large bucket of indirect costs, which includes the maintenance and other site management costs. This is large at 45%, and we see a slight improvement in several different categories. And ultimately, that we believe that category will have a cost savings of about 5%. So that's the cost elements.

On the revenue side, the elements of revenue enhancement is really around what this technology will allow us to do in terms of tracking activities that we perform on behalf of the customer and make sure that we're properly billing for those services rendered. There are some 300 billing codes for the accessorial services that we offer within the warehouse. And so our technology can catch errors or underbilling for these helpful services that don't always make it on to customer bills. So we see about a 5% uplift in that part of the equation. So again, that all sums to a base case estimate of $110 million of annualized EBITDA in the next three to five years.

You've mentioned that's 250 buildings.

That's right. If you go back to that slide, I think I mentioned on the bottom, that's going to be -- we see the most material opportunity to be in about 250 of our sites where we're going to see a rollout have a direct impact.

So there would be upside in the incremental sites.

Sure. Okay. To put that savings in context and try to give you a sense for what that costed to achieve that great outcome. Let me spend a minute on the ROIC of this project. So we invested about $250 million over the past decade to build out all the LinOS initiatives that we've been talking about, and we expect to complete that project with an incremental $200 million investment over the next five years.

Now to be clear, as I noted on the right-hand side of this chart, much of that initial investment went to standing up the automation capabilities for the dedicated automation sites, but we've leveraged that technology and expanded the flexibility to allow for conventional site deployment. And so it's those gains on the conventional site areas that form the basis of our business case, and we've excluded the full site automation -- the full automation sites and the benefits that we see, we've sort of put that off to the side.

Yes, I think that's important to point out that $200 million investment fueled the development of LinOS in all of our automated sites where we've deployed it. And we announced the largest cold storage deal in history with Tyson earlier this year, and we wouldn't have won that without LinOS. And none of those benefits are included in this ROIC.

Yes. Good point. So through that lens, again, we envision a base case target of $110 million of EBITDA uplift at our conventional sites, and that maps to a 24% ROIC as you see here. Now we hope we convinced you that, that underwritten base case is readily achievable given the early KPI readouts that we've been sharing with you today at the pilot sites. And we'll share in a couple of slides that we actually see even extra layers outside of site labor that provide what we call a halo and might ultimately drive upside to that $110 million estimate.

Now here's a view of how we see our past and future rollout of these key technology features. As Elliott and Sudarsan talked in their slides, we first had to develop the proprietary software products as we prepare for a full automation offering. You can see that on the top there. Next, we decided that we could yield much of those automation benefits insights by deploying those same technologies into digitizing our conventional warehouses. So we're now in that lower box where we're rolling out those features in a calculated manner across our conventional warehouses.

We'll first, as we're doing now, deploy HRO, outreach operations modules, then on to value-added activities, then the case pick and then across the dock. And over the next three to five years, we plan to finish the product development on all those areas and deploy it across, again, as Greg said, the 250 warehouses that are likely to benefit most from the digitization. And to be clear, we are already piloting the HRO features in those 11 sites, and we'll be judiciously moving out on other phases and with additional sites in a measured fashion to ensure that we walk before we run as we have found that addressing inevitable challenges, as Jeff talked about, in the early days of a rollout will ultimately allow us to go faster and have a cleaner ramp in the future. So we're right in the midst of trying to assess that time line.

We plan to regularly report out on how each phase is going over the next few quarters and years as we increase conviction in this time line, but wanted to give you a snapshot at this point.

Okay. As I referenced earlier, while we're certainly focused on that underwritten side and on day-to-day execution in the LinOS strategy, we do see several knock-on call options that will impact us potentially positively in future years. These outer layers are not part of the business case, again, that we presented a couple of slides ago, but could lend themselves to meaningful extra upside in the medium term.

Some examples in that non-blue halo layer outside the core underwritten layer that I'm most excited about is the reduced support costs around hiring and training and even admin and technology costs. I'm really excited to see what we can do with lower maintenance expenses, reduced CapEx of forklift equipment at the warehouse and better energy efficiency as we learn how to run our facilities more optimally. And then even further out, I would say, on the long-term halo and trying to talk you through what's exciting there, we really see opportunities to gain market share from the extra services and innovation we can bring to our customers. We see the opportunity to take -- to have more take-up of our integrated service or transportation offerings around our GIS, which is our Integrated Solutions business segment. And then finally, we even see on the lower right, a unique synergy and future M&A processes. Here, we can simply bring the technology we have uniquely been able to build given our scale and investment capabilities and apply it to more paper-based smaller tuck-in opportunities.

I think one other thing to point out on that slide is we're right now focused on these 11 sites and learning everything that we can learn through this major transformation. This is a whole scale change with how we run our buildings, and that's where we'll be focused on for the next couple of years. But I grew up in ambient and dry warehousing for my first 15 years, and there's nothing about this technology that says that it shouldn't be applied to every other warehouse in the world long term. And so we're focused on the -- what's going to impact many today right now, but this has -- there's definitely an opportunity to expand beyond cold storage in the future.

Great. And in summary, while in early days of implementation, a significant upside awaits as we scale these investments across our portfolio. I think despite challenging times, we do have levers to support growth and deepen our customer relationships. We'll focus on warehouse productivity through people, process and technology, as Jeff described. Our scale and digital infrastructure is a distinct competitive advantage. We are the clear automation leader, and we'll use those same proprietary technologies to further streamline operations, lower our long-term cost structure and serve our customers even better than we are today at our conventional sites. And finally, this is only one aspect of our competitive differentiation, and we continue to invest in many areas that have proven to make us successful in the past.

And then just on a personal note, I joined Lineage not too long ago because I believe that challenging times pose an opportunity for great teams with clear competitive advantages to grow even stronger as we are able to focus on what we're good at, double down in focused areas, work as a united team and make the hard decisions together.

I believe we have the ability to turn this challenging supply and demand dynamic into a catalyst to accelerate our maturity as a very recently stood up public company and drive an even further lead over our peers. And so I expect you to hear a lot more and more about that message about methodical execution as we turn the page on 2025 and we look toward 2026, and we'll lay out those plans for you guys as well as the years ahead.

And so with that, I want to thank you for your time. This really concludes the formal remarks, and I'll hand it back to Ki Bin.

Thanks, Robb.

Ladies and gentlemen, thank you for standing by. My name is [indiscernible], and I will be your conference operator today. At this time, I would like to welcome everyone to the Line Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Ki Bin Kim, Head of Investor Relations. You may begin.

Thank you, operator. Welcome to the Lineage discussion of its third quarter 2021 financial results. Joining me today are Greg Lemke, 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 at ir.onelineage.com. Following management's prepared remarks, we'll be happy to take your questions.

Turning to Slide 2. Before we begin, I would like to remind everybody that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties and 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 third quarter 2025 are to those of third quarter 2024.

Now I'd like to turn the call over to Greg.

Good morning, everyone. Thank you, Ki Bin, and welcome to the Lineage family. We're thrilled to have you. As many of you know, Ki Bin joined us from a distinctive career at Truist, bringing 20 years of experience in the real estate industry, most recently as a leading sell-side analyst. He's now 2 weeks into his new role, and we are already feeling his positive impact. Let me start by walking you through our agenda for this morning.

First, I'll recap our third quarter performance, which came in slightly ahead of our expectations. Then we will review occupancy and price, followed by our latest view of supply and demand for our industry. We know this is an important topic that many of you are interested in. Following my remarks, I will turn it over to Rob Crisci, who will walk through the details of segment performance capital structure and our updated guidance. 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. Total revenue increased by 3% and adjusted EBITDA increased 2% to $341 million, which is a quarterly record for the company. Total AFFO grew 6% year-over-year, and we delivered AFFO per share of $0.85, which declined 6% year-over-year. As a reminder, our IPO occurred in the third quarter of last year, which impacts the comparability of these periods.

Looking at our business segments. Global warehousing performed in line with expectations consistent with the outlook we shared on last quarter's call. Same-store physical occupancy improved sequentially by 50 basis points to 75%, and we anticipate further occupancy gains in the fourth quarter. Consistent with the muted seasonal pattern we discussed last quarter.

Same-store NOI increased sequentially to $351 million from $340 million although it declined 3.6% year-over-year. Same warehouse storage revenue per physical occupied balance remained stable as expected, growing at 1%. Our Global Integrated Solutions business saw a year-over-year NOI growth of 16%, led by our U.S. transportation and direct-to-consumer businesses.

In the quarter, we invested $127 million of growth capital, primarily in our development projects. We're pleased with the continued progress on these projects. As a reminder, we have 25 facilities that are in process or ramping, we expect these assets to deliver $167 million of incremental EBITDA once stabilized.

In Q3, we delivered in-line same-store NOI and exceeded our adjusted EBITDA and AFFO per share guidance. However, we expect a lower fourth quarter than previously anticipated and are, therefore, moving to the lower end of our full year guidance range for both EBITDA and AFFO per share.

This is largely driven by a $20 million decline in our outlook for same warehouse NOI due to 2 primary factors. First, tariff uncertainties impacting import export container volumes, leading to softer year-end services revenue. Second, while our total occupancy outlook for the fourth quarter is unchanged versus our previous guidance, U.S. occupancy is slightly lower due to import export volumes and less-than-expected U.S. new business hitting in the quarter. This is being offset by higher occupancy outside the United States where we are in lower margins.

Despite these near-term headwinds, we remain focused on providing world-class service to our valued customers by leveraging our industry-leading network and cutting-edge technologies. I'm confident that we are well positioned to grow as the food industry normalizes, new capacity is absorbed and our Linus labor management and energy efficiency initiatives accelerate.

Moving to Slide 5. As I mentioned, Q3 and Q4 total occupancy are in line with our prior forecast and pricing remains stable as expected. Note that we typically see a sequential decline in storage revenue per pound in the fourth quarter due to normal seasonal mix changes. Additionally, we saw a sequential 180 bps increase in our minimum storage guarantees to 46.7% as our customers continue to want to secure space across our network.

Turning to Slide 6. We understand that our industry is a specialized part of the real estate landscape with limited publicly available data. Accordingly, we continue to collaborate with CBRE to provide insights into new supply growth for the cold storage industry. At this point, our analysis is focused on the U.S. where we have the most successful data and in certain markets are seeing the most acute supply demand imbalance.

Let me quickly walk through this slide. The upper left-hand chart, Label Day, shows from 2021 through 2025, public refrigerated warehouse supply grew at approximately 14.5% on a square foot basis. which is weighing on occupancy and pricing in certain markets.

Importantly, CBRE's outlook for new capacity in 2026 is down substantially from recent levels to 1.5%. The upper right-hand chart, Label B, is based on Nielsen and Serkan data for fresh and frozen food volumes in both the retail and foodservice channels. The data shows demand for the food category stored in our network grew cumulatively by 5% during the 2021 through [indiscernible] time period.

To be clear, in spite of continued pressure from tariffs, consumer price inflation and other headwinds and consumer demand for the products that flow through our network has been and continues to grow.

On the bottom left-hand of the slide, we bring these 2 concepts together to calculate estimated excess capacity of approximately 9.5% for the U.S. market over the last 4 years. Despite this nearly 10% in balance, our 2025 total estimated average physical occupancy is 75%, down only 3 points from 78% in 2021. We are using our network size and the strength of our operations to perform relatively well in a very challenging environment.

Looking forward, CBRE is expecting less new supply, which we believe is logical as further speculative development is not supported by current industry dynamics. Before handing it over to our CFO, Rob Crisci, most of you are aware that he announced his retirement in June and we'll be handing over the rents to our new CFO on Monday. I just want to take this opportunity to sincerely thank Rob for his numerous contributions to Lineage over the last few years, helping you lead us through the IPO process with a lot of passion in building an excellent finance team here at Lineage.

It's been a pleasure getting to know you, both personally and professionally, also cannot thank you enough for all your help in making this a smooth transition. I look forward to getting together in Sarasota and wish you the very best in retirement.

Rob LeMasters, our incoming CFO, what we call BB because he sells his first staying with tubes has been with us in an unofficial capacity over the last few weeks shadowing our earnings process. He has an exceptional background with 2 decades of finance and buy-side investing experience, including a very successful [indiscernible] run as a public company CFO and BWX Technologies [indiscernible] sites, and I know is very excited to officially get started next week. Welcome, Rob. We're excited to work with you and expect great things.

With that, I'll turn it over to Rob Crisci.

Thanks, Greg, and good morning, everyone. I greatly appreciate the kind words. My colleagues at Lineage have also become great friends, which is a testament to the culture you, Kevin, Adam and the team have built here. Rob LeMasters is a great fit for Lineage and I've really enjoyed getting to know him. The finance organization is an excellent am. I'm here to help as needed my advisory role by debt Rob will be lunch. I'd also like to add, we are incredibly excited to add key into the team. It's been great having you expire our process the last couple of weeks.

Turning to our Global Warehousing segment. Total revenue grew 4% and total NOI grew slightly to $384 million, in line with our expectations. Same warehouse NOI declined 3.6%. We continue to focus on operating efficiency. And to that end, we saw our same warehouse cost of operations declined 1%. We will dive deeper into this on the next slide.

Looking to the fourth quarter, we now expect the same warehouse NOI decline of the 3% to 6%, a reduction of approximately $20 million at the midpoint versus our prior implied Q4 outlook. Greg already outlined the main drivers behind this reduction, including the impact of tariffs on the import and export activity. We've been monitoring the tariff situation closely and are cautiously optimistic about some of the recently announced trade agreements which should benefit both our customers and Lineage.

We continue to fight through the competitive environment, as Greg discussed earlier. We feel good about the positive trend in occupancy and the return to more normal seasonality this year albeit somewhat muted loss.

Turning to Slide 8. Diving deeper into warehouse efficiency. As we all know, the current inflationary environment has driven labor cost increase. As a reminder, labor is, by far, our largest controllable cost of $1.5 billion per year. On a same warehouse basis, we've been able to hold labor costs flat over the last couple of years.

This year, throughput has declined low single digits, making the progress our operations team has made on labor per throughput pallet even more impressive. You can see this on the right-hand chart. We remain hyper focused on lowering costs and increasing warehouse efficiency. This benefits us both in the short term and will drive strong operating leverage by the incremental growth.

Next slide. Shifting to Slide 9 and covering our Global Integrated Solutions segment. Revenue was flat and NOI grew 16% to $65 million. We're continuing to see strong momentum in our U.S. transportation and direct-to-consumer businesses due to the value these integrated solutions provide to our customers.

For the fourth quarter, we expect the strong momentum to continue with 10% to 15% growth. Notably, we benefited in the third quarter for approximately $4 million of NOI and that was previously expected for the fourth quarter. We now see full year NOI growth of 8% to 10% versus prior range of 8% to 12%. The slight reduction at the midpoint is due to less trade services also associated with lower import export activity. Really great year overall and solid execution by Greg, Brian and the global GIS team.

Turning to Slide 10. We ended the quarter with total net debt of $7.55 billion. Total liquidity at the end of the quarter stood at $1.3 billion, including cash and revolving credit facility capacity. Our leverage ratio defined as net debt to adjusted EBITDA was 5.8x at the end of the quarter. We remain highly disciplined on future capital deployment.

We continue to actively manage our interest rate exposure in light of our existing sulfur hedges that expire at year-end. We have been opportunistically executing new hedges and working to further optimize our investment-grade balance sheet. Given these year-end expirations, we are providing a very early look for 2026 forecasted interest expense to help with your modeling.

At this time, we see approximately $340 million to $360 million of total interest expense in 2026, which is approximately $80 million higher than this year. A little more than half of the increase is due to the expiring hedges, and the remainder is due to our recent capital deployment which we anticipate will drive attractive risk-adjusted returns and further support for customer-driven growth.

Turning to the guidance slide. We are initiating Q4 with EBITDA of $319 million to $334 million, an AFFO per share of $0.68 to $0.78. For the full year, EBITDA is $12.90 to $13.05 and AFFO per share at $3.20 to $3.30. In short, we are going to the lower end of our of previous ranges on adjusted EBITDA and AFFO per share. We see total and same warehouse NOI about $20 million lower than previous guidance for the reasons mentioned earlier.

With that, I'll turn it back over to Greg to wrap up before opening up to your questions.

Rob has walked you through our updated guidance, and I want to reaffirm that while we are operating in a challenging environment, we believe Lineage remains positioned to win. As outlined in detail on our prior earnings call, we're focused on driving competitive differentiation across 3 key areas: delivering customer success, leveraging our network effects and enhancing warehouse productivity.

Before summarizing and turning it over for your questions, I'd like to provide a quick update on [indiscernible], our proprietary warehouse execution system. As of today, we've deployed the platform in 7 conventional sites and the results have exceeded our expectations. We're seeing double-digit productivity improvements in key metrics like units per hour, translating to higher output and lower unit costs.

We expect to complete 10 deployments by year-end, setting the stage for an accelerated rollout in 2026. We look forward to sharing more details at NAREIT, where we'll be hosting an in-person and webcast and investor forum on Monday afternoon to separate. The presentation will focus on operational excellence and our LIOS technology.

Turning to Slide 13 and in summary. It's obviously been a very bumpy road since our IPO last July for our external investors and for our Lineage team, who are also owners of our company. But when I take a step back and look at the company, I see the largest, best positioned player in a mission-critical business where underlying consumer demand has been growing even in the face of some of the worst food inflation in decades.

This is a great company in a resilient long-term industry that is clearly facing short-term challenges due to excess supply and macro headwinds like tariffs. The cash flow generation of our company remains strong our trading valuation is currently about half of the replacement cost of our assets, and we believe we have an unmatched portfolio of buildings in critical markets for our customers.

While Q4 will be challenged due to near-term headwinds, there are green shoots of optimism, including less new supply coming online, growing demand and potential global trade policy resolution. We grew this business successfully for 15 years leading up to the IPO. And while we can't predict the moment of inflection, we believe in this industry's fundamentals and that stability is on the horizon.

In the meantime, we will continue to focus on the areas of our business that are under our control, becoming a leaner, smarter company, investing in our people, processes and technology. And [indiscernible] the industry does inflect, we will come out stronger than ever. [indiscernible] I want to thank our global team members for their dedication and commitment to our customers.

[indiscernible]

[Operator Instructions] And our first question comes from the line of Caitlin Burrows with Goldman Sachs.

I was wondering if you could talk a little bit more about that expected lower U.S. new business in 4Q. I guess how important is new business versus existing business throughout the year and in 4Q specifically? And how has new business fared to date? And are you suggesting some change for 4Q? Or is it more of the same?

Thanks for your question. So let me just provide a little more color on the lower -- on both the tariff and the new business front.

So I think we're all sighing about tariffs at this point but we're definitely seeing the tariff uncertainty impact import export volumes more than we did earlier this year and certainly more than when we were guiding last quarter. So this has been specifically impactful in our West U.S. business unit, where the ocean import export container volumes are down about 20% from where they were trending most of the year through July and back when we gave guidance.

And this is lucrative business with substantial accessorial revenue like services for customs documentation, bonded fees, last reason. For example, in our seafood category, many customers ordered back in the summer and are bleeding down their inventory right now awaiting tariff resolution. And they're telling us that there's -- while there's a possibility they'll reorder by year-end, it's more likely going to be after the first of the year, and that's what our guidance is based on.

We're also forecasting that this impact of container volume, not only its warehousing same-store NOI, but also it's GIS in the fourth quarter as we provide a lot of drainage around the ports for our customers in our GIS segment.

To your question more specifically on the new business side, competition in certain U.S. markets that it is impacting new business, and while we continue to expect to have a record new business year overall, and we continue to have a very strong pipeline, we're just forecasting a little bit less than we were previously guiding to hit in the fourth quarter.

And obviously, the contribution margin on new business is very high, given the fixed cost nature of our business. And therefore, a relatively small change in new business revenue has an outsized impact on NOI. And that happens the other way when we land a lot of new business, as we get the operating -- the positive operating leverage.

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

Craig, can you provide an update on the pricing strategy during the quarter, just given some of the demand headwinds that you talked about? And then also the supplies. So I'm just trying to get an update on how you've approached pricing as a lever to maintain occupancy.

Yes. We've been -- so first of all, I want to start by saying in Q2 we provided, for the first time, a multiyear revenue per pallet chart, both on services and [indiscernible] storage and blast, and I think it's really important that I reinforce this every quarter that the metric that we all look at externally is going to be volatile quarter-to-quarter, driven by a number of factors. Rate is certainly a piece of it. but volume guarantees, inventory turns last rising volumes, commodity mix exchange rate seasonality all play into that metric, and it caused a little volatility in the short term. That's why we provide that multiyear view to show that our pricing is making progress over time.

And so in the quarter, there was no change to our pricing strategy. We will achieve in some challenged markets, we did have to talk about volume versus price as the year progressed. But overall, we'll see a net price increase between 1% and 2% this year. And so we -- nothing changed in the quarter. We're not -- one of our core strategies is not to trade volume for price. We're talking to each customer uniquely. And again, in aggregate, we saw net price increases this year.

Next question comes from the line of Steve Sakwa with Evercore ISI.

Greg, I appreciate the added color you provided on the excess capacity. And it's nice to see that you guys didn't take as big of a hit on occupancy. But given that there's still a lot of excess capacity, I guess, in the market overall, and there's still some new supply to come on in '26.

I guess just sort of what are your expectations looking forward kind of on that physical occupancy? And how is that excess capacity kind of being absorbed and priced in the marketplace against the existing stock?

Yes. Great question. So -- at this point, the new supply is really just trickling in. You saw the CBRE forecast for next year is 1.5% new capacity. We think that will say the saver go down over time as it just doesn't make sense to add more capacity speculatively in this market.

And so when we look at our -- this is really a U.S. phenomenon, it's not really the same situation outside of the U.S. And some markets remain challenged, like I've talked about Jacksonville in Miami in prior calls. Chicago has had a lot of new capacity, and we're having to work through that new supply getting onboarded.

But we are actually more optimistic about some key markets that have had new capacity delivered in the last couple of years, like New Jersey, Dallas and Houston, we basically absorbed that new capacity. We worked through our book of business. We've kind of fought the fight and now we're building back inventories in those markets.

And so I think it's market-by-market. And once the supply gets delivered and we kind of have those discussions with our book of business in that market. And we think it's kind of a reset and we can build up from there, and that's what we're seeing in the markets that I just discussed.

Next question comes from the line of Craig Mailman with Citi.

Just as we think about the third consecutive guidance cut we've had, I'm just kind of curious if you guys are having this much trouble underwriting your own portfolio, like how do we get comfortable with yields on the capital you're deploying into development and potential acquisitions that we're not going to be a couple of hundred basis points kind of below pro forma here because looking at your schedule, you still have a lot to stabilize in terms of the portfolio, I think only about 15% kind of stabilized here?

And just a second 1 to go sneak it in here. Just [indiscernible] have you guys thought about -- is the REIT maybe the right structure for this company given the fact that you guys are more of a 3PL than you are a real estate company, and it might be beneficial for you to be able to retain capital and redeploy that. Just some thoughts there.

Yes. So certainly, the last thing we want to be doing is sitting here lowering the fourth quarter. And the fact is our industry has been challenged and with the new supply and very, very hard to predict given we talk to our 15,000 customers every month about them forecasting their volumes and what they're going to do. and it's very difficult for them to predict and you heard that from the producers in their quarterly releases.

So it's -- we're the recipient of that short-term volatility. Again, the underlying demand for our products is growing, not shrinking. And we think that's good for the long term as we absorb this new supply and get back to kind of equilibrium in the market. And as I mentioned in the prepared remarks, we're not sure exactly what that is, but we feel very good about our positioning about our technology about all the things that we can control are going well.

On the new developments, I mean, we track this every quarter. It's one of my KPIs for by bonus every single year. and we performed well versus our underwrites for many years and continue to do so. Those developments are very -- are generally customer-led developments. Many of them have strict volume guarantees and revenue guarantees, and we're not out there building spec buildings where we don't have certainty that we're going to get the returns that our inspectors expect. And so is there pressure around are things uncertain? Absolutely.

That's why we -- things performed pretty much exactly how we thought they would in the third quarter. And here, we are looking at the fourth quarter and our customers are telling us their container volumes are going to be down 20% in our largest business unit. And that's the -- those are the type of things that we -- that are very, very difficult or impossible to predict. And all we can do is execute our plan, control our controllables, treat our customers great, treat our team members great, and work through this challenging time.

Yes. And I would say we do believe REIT is the right structure for us. We have an incredibly valuable real estate portfolio. We think the benefits outweigh the -- there really aren't very many negatives to being a REIT. So we're very, very happy to hear.

Yes. I mean we -- if you can choose to pay taxes or not, we're going to choose that.

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

Just not really helpful, bedrooms on 2026 with the interest guidance and so forth. I just -- going back to the question of excess capacity. I was just wondering if you could sort of think about the next 12 to 18, and in this sort of environment, what can you control? And what do you think sort of the pricing versus occupancy impact can be and so forth? So what have you sort of seen in this sort of environment?

Sure. So on the pricing side, looking forward, we are -- a lot of our volume guarantees, for example, got reset in '25 earlier this year in the first and second quarter after the big destocking from COVID that I talked about in the last several quarters.

And now we're kind of in a new -- we're kind of a more stable point, we are having conversations with customers already about '26 pricing. Those conversations obviously haven't been wrapped yet. But despite the new supply we discussed, we were targeting inflationary-level increases, and we believe that we're going to be able to achieve net increases in the low single digits for '26.

And we don't think we'll have to give up occupancy to achieve those low single-digit price increases. Our customers do understand that we have to pay our people more, and there is inflation out there. And I don't -- we're not going to get 10%, but low single digit, we think is very achievable. Even now the supply.

Next question comes from the line of Michael Carroll with RBC.

Greg, can you give us some color on how Lineage was able to push their guarantee contracts up a little bit this quarter? I mean is it abnormal to do this in the third quarter? And is that the reason why economic occupancy was up bigger sequentially in 3Q versus fiscal occupancy?

It was the reason and the reason for the volume guarantee progress is some new customer-led developments include long-term contracts with higher volume guarantees than our average. Also, our sales team, I said that -- I mentioned on the last question, that our volume guarantees got reset at a lower level in the first and second quarter this year. We've kind of been through that pain, if you will.

And now on new business, our sales team is doing a phenomenal job broadening the customer base that are utilizing volume guarantees. So our new business, despite the challenges in certain parts of the U.S. we're seeing new business come in with higher volume guarantees than our average. And so those are the 2 impacts.

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

And first, Rob, with the BB, welcome aboard, Rob, with the single B. Congrats on retirement and Ki Bin.Welcome to the inside.

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 -- or are there other things at work? I mean, there are always trade disputes from country-to-country. There are always geopolitical things, inflation tension, whatever happening overseas.

So I'm just trying to isolate what the key difference is for why global is performing well versus the U.S., and I wonder if it's simply the supply or if there's other factors at work?

Alex, good question. So I don't want to overemphasize this. I mean the occupancy in the U.S. is a little bit lower than we were forecasting back in -- after Q2 and Europe is a little bit higher. That's the difference. And the impacts are -- really are exactly what I laid out, Alex, and that's is container volume, which is mostly seafood, which I think everyone knows we love that business. It's 13% of our book, we were trending at literally like our customers are telling us that we're seeing right now as the quarter progresses, a 20% reduction in import export volume, and that's impactful.

And just more broadly, certainly in the U.S., in certain markets, like the one I mentioned -- the ones I mentioned earlier, there is competitive pressure and those of the 2 big impacts versus what we thought before.

But again, I mean, it's isolated markets that we are absorbing this capacity. We are keeping our occupancy up despite the new supply and we're getting that price increases despite the new supply. So we think in a very unpredictable and very challenged environment. The company is executing as well as possible.

And it's another benefit of having a very diversified global footprint, right? So we can benefit from growth in other markets to help balance out our performance. So I think it's a positive for Lineage.

Next question comes from the line of Tayo Okusanya with Deutsche Bank.

Yes. Kind welcome aboard, Rob with the BB and also welcome aboard.

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. I know I kind of curious, again, is it just really more tied to your overall cost of equity right now that you slowed down or kind of how you're kind of looking at acquisitions going forward?

Yes. So we're highly disciplined as always on capital deployment. We're cognitive developments that we're working on. We see our leverage ratios. They're in a really good spot. We don't obviously view our equity as a place anywhere but very, very undervalued. So we're not interested in issuing equity, and so we're managing the portfolio, and we'll be really smart on capital deployment.

There's obviously a ton of opportunity out there, and there's 4 things becoming available in the market. So we'll be opportunistic, but we're going to be very disciplined.

Next question comes from the line of Greg McGinniss with Scotiabank.

Greg, 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, or is there something more broadly that you're seeing in the market?

So it's third-party data that -- yes, that's going retour view, it's third party.

Yes, this is third-party data from Nielsen, which is the retail data, and then Surana is the rolled up food service data. So it's the full picture of food consumed in the United States from the 2 best sources that we purchased this last quarter, because we had -- our data showed that underlying demand was growing, but we didn't have third-party data.

So we want to provide that every quarter. And what that shows is continued growth in the categories that we supply in fresh and frozen. It's we very much believe it's accurate, and that's what we thought. Despite the -- again, despite the elevated food inflation, the underlying categories continue to grow.

Next question comes from the line of Dan Guglielmo with Capital One.

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? And then are there certain international markets where you see opportunities to lean in?

Yes. So overall, we're 70-30 sort of U.S. versus Rest of the World. Yes. I think Europe overall, our European team is crushing it and winning it in a lot of different markets in Europe, and we're excited about continued growth there, both in same-store and nonsame-store.

Next question comes from the line of Vikram Malhotra with Mizuho.

Congrats to everyone on their new roles. I guess just 2 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. I mean if there's still supply volumes are muted, like what gives you confidence on pricing? So that's just the first.

And then second, do you mind sharing some specific examples like all the acquisitions you've done in the past 5 years. Maybe just give us some overall sense of how underwriting -- how actual performance has trended versus underwriting in terms of whether it's NOI growth or yields or anything else, just to give the sense of what those properties recently acquired are doing?

Sure. So on the occupancy front, inter quarter, it's pretty much spot on what we thought it would be after last quarter. So our total occupancy guide and the seasonality that we predicted is happening in our network. In fact, on Monday, I get the occupancy report every week and for the first time in, I don't know, 8 quarters maybe, the occupancy was higher than prior year. total in the same store. So that was great to see.

And so we're seeing that trend. It's a combination of the new supply kind of settling and us performing well in the marketplace. And again, on the pricing front, what gives us confidence that we can get price next year is we got it this year. And there was probably no harder year in our industry's history than this year. given the new supply that's been delivered over the last couple, and we were able to get net increases in price.

And the initial conversations with customers are for next year that they're open to very modest price increases, and we think we'll get that price. On the M&A front, we bought 70 companies in the last 5 years. It's varied by region and facility. Overall, we're certainly happy with the acquisitions of the network we built as we think it's irreplaceable and industry-leading, we don't break down each individual past acquisitions, we roll that in up into global Avnet and a lot of things change when we buy, but we certainly made progress on cost productivity, occupancy as we roll companies into Lineage family.

Next question comes from the line of Blaine Heck with Wells Fargo.

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?

Yes. So the bigger thing, obviously we can manage is the recurring maintenance CapEx and -- and for the fourth quarter, it's always typically our seasonally highest quarter. We expect that again that certainly can move $5 million or $10 million based on spending.

Obviously, same-store NOI is the thing we care about the most, and we're working hard to, as Greg mentioned, we -- so far, October is looking okay, but that's embedded in our guidance. But certainly, if we have more year-end activity that will help because really services revenue and a lot of that is related to these tariffs and containers.

And so as Greg mentioned, that could certainly get a lot better at the end of the year. But we're just being very, very cautious based on what we see right now, and it's hard to predict November, December end-of-year activity. And so that was our thought process on the guidance.

Next question comes from the line of Michael Lewis with Truist Securities.

SP-7 Great. Thank you. Well, we're welcoming people. I'll welcome Rob. I'll, of course, welcome my good buddy and Pawel Kevin and maybe welcome myself to covering this name as well. My question, 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 surprisingly to me, I guess, 1 out of every 8 Americans is on food stamps. Is there any potential for that to cause anything in the numbers in 4Q if this drags on? Or is that not really a concern?

Yes. And Ki Bin concerned because part of this comp package is food stamps.

So let me start with the Snap, but I'll talk more broadly about the government shutdown. So just a little context on Snap in overall food consumption. So in '24 U.S. consumers spent roughly $2.7 trillion on food and the SNAP benefits from the federal government were about $100 billion or about 4% of total food expenditures.

But the data shows that for every dollar in change in SNAP benefits, the total food spending only changes about $0.30 because consumers just change their budgets and they're going to continue to eat. And so who knows what's going to happen here if the courts are going to step in or the states are going to pick up the tab or it just goes back to normal. But even in the most dire case, where SNAP benefits are completely eliminated, the impact on total food consumption would only be about 1%.

And so we do not see this being a meaningful impact in the short, medium or long-term. As we don't think it will totally go away. And even if it did, it's 1% of total consumption. More broadly, on the government shutdown, we are seeing other impacts -- for example, the USDA cold cooler survey, the Holdings report that you all report on every month or most of you do isn't being issued during the shutdown. We are seeing import export order delays.

So while customs is operational, the FDA, the EPA, the USDA all have reduced staffing, leading to delays in inspections and certifications and documentation. So we are seeing, as a result of that, some increased dwell times in the ports and terminals. We're also seeing delays in export license approvals. But I think most importantly, though, the USDA and the FDA actual food inspections have been unaffected.

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

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% ]. It's clearly been a problem forecasting occupancy in this business. So I was trying to figure out how today's levels compare to historically before 2020.

Yes, good question. And the second half, we are -- we did forecast occupancy accurately to be clear. But you're right, it is very, very challenging to forecast it in this environment.

And the answer is it's very challenging to go back prior to 2020 because we bought so many new companies in that time frame and the same-store pool is so different. And so I do think just from my memory, not supported by like-for-like data. There were certainly times prior to 2021 where our occupancy was lower than it is today.

I'm thinking about 2016, '17, '18 back when we were just kind of still a young company and much smaller, obviously, different footprint or in Europe yet. But yes, there was times in our core business where economic occupancy was lower.

Next question comes from the line of Michael Mueller with JPMorgan.

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?

So 2026 is very difficult to predict. And I think that's what our customers are telling us. We're just in the midst of our -- we don't even have October numbers finally yet. We're just in the midst of our business unit presidents are working on their '26 budgets right now and -- with the finance team next week, and I'll see a roll up in a couple of weeks.

And certainly, puts and calls as I sit here today, but hard to predict and that hard to predict is driven by all the conversations we're having with our customers worldwide who see their business is hard to predict. And so it's -- we'll see -- we'll be continuing to have those conversations through the budget cycle.

And -- but as far as the volume guarantees, as I mentioned, Michael, a lot of them got reset in the first half of this year, and we think that we're at a very healthy level of volume guarantees now. We're actually kind of -- we kind of reset the bar and now we're making a little bit of progress. I wouldn't see those dropping a bunch more. I don't think we have kind of an overhang of incremental resets and new business that we're earning, as I mentioned, is coming in with slightly higher volume guarantees than our average.

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

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?

Yes. The answer is yes. I mean we were seeing consistent container volumes through July, [indiscernible] month-to-month, but it was pretty consistent. And then we saw a drop through September and that lower level is being as of this point. And again, 20% in our Western business unit is not small, and it is not driven by new business. It is driven by predominantly our seafood customers that are holding off to reorder. And that's the impact. So yes, are they going to reorder some point for Latin Easter? Absolutely. We're just not predicting that's going to be in the fourth quarter at this point.

Next question comes from the line of Nick Tillman with Baird.

Good morning, everyone. 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.

Yes. Great question. So there's kind of 2 things going on with customers. The first big one, the huge impact over the last couple of years was the destocking from COVID. We think that's behind us. That's really good. They're at plan. On a back to normal inventory levels or bouncing across the bottom, but certainly, there's not more excess inventory that's being depleted at this point broadly.

There's customers who have been optimizing their supply chains across my 30-year career, and we are their partners in helping them position inventory properly to satisfy their customers' requirements, and help them determine how much to store where and how to transport those products into our facilities and out to their customers.

And so Tyson is a great example of that. We were right in the middle of their optimization and we're the recipient of core business given that optimization -- we're having those conversations with customers all the time.

On the new supply as far as kind of how it could come out, it's an excellent question. We've idled 8 buildings so far this year. We know some of our competition has as well. And we do that for obvious reasons. We take out the labor, we lower or eliminate the energy costs, and we're able to move that business into the adjacent facilities, and that's part of what's so great about having such a large debt network is that we have the opportunity to do this where much of our competition doesn't.

And so if you look at other ways that capacity is going to come out, we're idling -- others are idling old buildings that have higher maintenance CapEx where -- that are not needed where we can move that product elsewhere. We also feel that some of the new operators are really struggling as they have a high basis in their properties if they own the assets, and they're paying very high leases if they lease them.

And because they built it peak construction cost timing. And so we believe that some of these companies are going to not succeed and we plan to assess these opportunities for consolidation and bring those facilities into our network as they present themselves. I think an important caveat to that is that not all warehouses are created equal, and we're pretty good at making strategic acquisitions for the capacity only when it makes sense for our network.

We also believe that some of the inventory that's been added was just added in the wrong locations or it was built in a way the actual development itself and the configuration of the building makes it fundamentally disadvantaged and we think it will just fail in the medium term.

And so we think capacity will come out that way as well. And we did see we are hearing directly from some competitors that they're struggling in a big way and there is instances where companies and close our doors as well.

Next question comes from the line of Tayo Okusanya with Deutsche Bank.

Yes. Could you talk a little bit about sort of labor on your same-store pool, kind of pretty well managed, but on the non-same-store pool, some kind of large year-over-year increases kind of understanding, you've added kind of new assets over time. But just kind of curious are these new rule assets have, again, lower occupancy assets but already fully staffed or kind of what's kind of happening on the nonsame-store side to kind of have these really large jobs with the increased number of facilities.

Yes. Good question. Obviously, on the non-same-store pool, frankly, I wouldn't focus on it because there's so much going on there. We have buildings either ramping or in development. And we have to -- for example, in that labor line is our General Manager and our assistant manager and our supervisors, and we hire them before a pallet even hits the building.

And so all these are in different phases of the J-curve. And so you'll see kind of abnormalities in that labor line until they move into the same-store pool.

And our last question comes from the line of Caitlin Burrows with Goldman Sachs.

I had a question on the pricing side. So 1 of the concerns I've heard from investors is that I think it's like half of your portfolio 1-year agreements. So those were recently reset in '25, but the other half, that means there on leases from a few years ago. Maybe you could tell us how far back they go. But what's the risk of rent roll outs from those older contracts that were established a few years ago in '26? And is that incorporated into your view of low single-digit rate increase in '26, or is that '26 low single-digit price increase only related to those 1-year agreements and the rest could be an incremental headwind?

Great question. We don't see an overhang from long-term agreements that are going to get reset at lower levels. And definitely, all those are included in our projections of low single-digit net price increase.

That concludes the question-and-answer session. I would like to turn the call back over to Mr. Ki Bin Kim for closing remarks.

Thank you. On behalf of the entire Lineage team, thank you for joining us today. We hope you will be able to attend our are Investor Forum on Monday, December 8. where we will highlight our operational and excellence and unique little list platform. We look forward to speaking with you again. Thank you, everyone.

Thanks, everybody.

Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.