Lineage, Inc. Q3 FY2024 earnings call

• Successfully executed the largest IPO of the year and largest REIT IPO ever, reducing leverage and obtaining investment grade ratings. • Q3 financial results: Total revenue $1.3 billion (+0.5% vs prior year), adjusted EBITDA $333 million (+5.4%), adjusted EBITDA margin 24.9% (+110 basis points). Adjusted funds from operations (AFFO) $208 million (+52%), AFFO per share $0.90 (+20% vs prior year). • Operational highlights: Controlled market headwinds, achieved outstanding safety performance, all-time best turn times, all-time high customer service scores, strong productivity and warehouse margin expansion despite lower volumes, won new business, awarded equity/cash IPO bonuses, awarded 100th patent, declared first quarterly dividend, deployed over $350 million in growth capital including acquisitions of Luik Natie and ColdPoint Logistics. • Opened state-of-the-art cold store in Hazelton, Pennsylvania with automated capabilities driven by LinOS technology.

The global warehousing segment represented 87% of total NOI in Q3. Total segment revenue grew 1.3% and total segment NOI increased by 4.4% to $383 million, with a warehouse NOI margin of 39.4% and a 120 basis point increase. Same warehouse NOI grew 2.4% on top of last year’s 11% Q3 growth. Same warehouse economic occupancy was 84.1% (down 190 basis points vs prior year, flat sequentially), physical occupancy was 77.6% (ticked up slightly sequentially), and same warehouse throughput pallets decreased by 1.7% vs prior year but were flat sequentially. The global integrated solutions segment represented 13% of total NOI in Q3. Total segment revenue was $363 million, down 1.6% year-over-year. Total segment NOI was down 11% to $56 million, and segment margin decreased 170 basis points to 15.4%.

• Full year AFFO per share expected to be $3.16 to $3.20, implying Q4 AFFO per share of $0.70 to $0.74 and total Q4 AFFO of $180 million to $190 million. • Q4 same-store NOI growth expected to be low single-digit against last year’s 9% comp, impacted by a fire at the Los Angeles Big Bear facility creating ~$6 million headwind.

• Industry headwinds including customer inventory rationalization, high interest rates, inflation limiting consumer demand, and competitive pressures from speculative development and new supplies in select markets. • Fire at the Los Angeles Big Bear facility causing damage and impacting Q4 results.

Q: Congrats on a strong operational and cash flow quarter. Characterized demand as occupancy being stable, but still under pressure from customer inventory rationalization. As the market sort of is thinking about next year and you take a step back on the Lineage platform, can you talk about your ability to have pricing power in an environment where again demand is maybe stable and customers are still rationalizing inventory?

A: Greg Lehmkuhl mentioned focusing on controlling controllables, managing costs, labor productivity, firing up M&A engine, and that customers' warehousing costs are a small percent of their revenue, so price is important but not the only thing; they can get inflationary level increases as costs go up.

Q: Hi, good morning everyone. Congrats on your first quarter as a public company. I guess, maybe as we think about automation, how would you compare the margin of a fully automated facility like the one in Hazelton versus maybe one that’s been converted versus a traditional location realizing that wide ranges could be possible. But just trying to get some sort of sense of how impactful automation can be.

A: Greg Lehmkuhl said they look at each development project uniquely, focus on return on capital, and expect yields on projects between 9% and 11% regardless of automation type, with automation in Hazelton expected to have substantial labor savings over 50%.

Q: Hey, good morning. And, yes, congrats on the successful IPO. Just looking at the acquisition market, clearly you guys have been strong in that, especially, synthesizing individual assets to your platform. How is that pipeline looking and was there any slowdown, during the IPO process? You know, presumably, you know, what would be understandable if deal volume slowed, due diligence just given all the focus on the IPO. So just trying to get a sense of how we should think about acquisition volumes and if there was any sort of IPO pause that we should plan for.

A: Greg Lehmkuhl said they intentionally slowed acquisitions before and through the IPO to focus on executing it successfully, but have a huge pipeline of M&A opportunities, evaluate deals against investment criteria, and are excited to fire up the acquisition engine.