Lineage Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ronald Kamden - Morgan Stanley - Analyst : Great. Congrats on a strong operational and cash flow quarter. I guess my question is, you 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?

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : 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.

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : Sorry. I wasn't necessarily wondering on the development side, but that's all helpful. I was more wondering on like a best-in-class Hazelton type location versus a traditional type property you have and trying to figure out more from like how much labor cost savings there could be from automation and maybe margin is not the right KPI. But is there some way that you could compare like the productivity or margin or whatever it

Question: Alexander Goldfarb - Piper Sandler & Co. - Analyst : 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? Presumably, 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.

Question: Michael Carroll - RBC Capital Markets - Analyst : Yes. I want to circle back to what Rob said in the prepared remarks regarding the fire, I believe, at Big Bear. I guess when did this fire happen? And did the repairs already take place? And basically, should we expect the weakness in 4Q, is that any of that going to flow into 1Q '25? Or is it just going to be contained in the fourth quarter, and we won't have any of those issues going into 2025?

Question: Michael Carroll - RBC Capital Markets - Analyst : Okay. Great. And just is there insurance proceeds that we can expect from this?

Question: Mike Mueller - JPMorgan Chase & Co. - Analyst : How indicative of market pricing would you say the Cold Point acquisition is? And on that transaction, how much higher do you think you can drive EBITDA, say, over the next couple of years?

Question: Joshua Dennerlein - BofA Global Research - Analyst : So a big part of your pitch at the IPO is the technology advantage you guys have built out and are continuing to build out. I guess how should we think about the benefits of your tech platform rollout on the business? And I guess I'm most interested in just maybe how it will impact EBITDA margin. And then is there anything that's rolling out in the next, say, 12 months that we should be aware of that might kind of benefit you guys in any way?

Question: Samir Khanal - Evercore ISI - Analyst : I guess, Greg or Rob, I know you talked about occupancy still under pressure and the muted seasonal pickup in 4Q. I guess how does that translate into mid-single-digit NOI growth for next year, which I know you've talked about in the past, I think, in the road show.

Question: Ami Probandt - UBS - Analyst : I was hoping that we could dig into the acquisition market just a little bit more, understanding that you have a unique position where you are the acquirer of choice. But if you were going to look at deals that are just on the market, what's the competitive landscape look like? Are there a lot of bidders for these products? And what sort of pricing would you expect?

Question: Ami Probandt - UBS - Analyst : And any details that you can provide on pricing, understanding that there's a wide range?

Question: Greg McGinniss - Bank of Nova Scotia - Analyst : Rob, I just wanted to touch on the mid-single-digit same-store target again. So Lineage appears to be operating well in a somewhat challenging environment. But from our view, the key driver of future same-store NOI growth is a recovery in consumer demand. Are you seeing anything from your customers or more broadly economically that give you confidence in an improving market?

Question: Blaine Heck - Wells Fargo & Co. - Analyst : Given that it's the morning after the election, I wanted to ask whether there are any Trump policies that you guys find particularly encouraging or concerning with respect to the business? And in particular, what impact increased tariffs might have on your business given your exposure to port locations? And maybe you can also remind us how much of your portfolio is in or adjacent to port markets? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 1:00PM, LINE.OQ - Q3 2024 Lineage Inc Earnings Call

Question: Omotayo Okusanya - Deutsche Bank AG - Analyst : I also wanted to add my congratulations on your first reporting quarter. Question around expenses. Again, you guys did an amazing job on controlling the controllables, as you mentioned earlier on in the call. And I guess when I kind of think about 4Q and some of the industry headwinds you're still kind of mentioning, how much more kind of operating leverage do you have in that regard to really kind of flex labor up and down as you kind of see kind of changes in demand going forward?

Question: Daniel Guglielmo - Capital One Securities - Analyst : We think the LEAN operations are a big piece of the story. So how many warehouses do you all have certified now? And then as you continue to roll this out, are there specific learnings or improvements you've made to the program that you'd be willing to share?

Question: Nick Thillman - Robert W. Baird & Co. Inc. - Analyst : Down year-on-year in 3Q. And I guess maybe part of that could be power-related savings that you could pass through the customer can achieve some goal on that. But just overall, taking a step back, like what leverage do customers have in pricing discussions today? Do larger customers have more advantage there? And then maybe geographically speaking, you guys touched on spec construction. We know like markets like Texas and like Jacksonville are a little bit more hampered by that, but maybe touching a little bit on some of the soft spots you're seeing there.

Question: Nick Thillman - Robert W. Baird & Co. Inc. - Analyst : Yes. So the first part was just on kind of rent per occupied pallet was down year-on-year. Maybe the leverage like customers have in pricing discussions today? Do larger customers have a little bit more advantage there, a little bit of commentary there and then on the geographic mix.

Question: Nick Thillman - Robert W. Baird & Co. Inc. - Analyst : Great. That's helpful. So just following up on just geographically, any markets where you're seeing a little bit more strength when it comes to kind of market conditions? Or is it more broad softness?

Question: Vince Tibone - Green Street Advisors, LLC - Analyst : I wanted to follow up on an earlier comment that you're facing pressure from new supply in certain markets. Could you share what those markets are and also just discuss high-level industry-wide supply trends in the cold storage sector? And if you're able to kind of frame that in terms of percentage of stock, I think that would be helpful and just your general views about supply pressures going forward. Are you seeing a slowdown or acceleration in development starts today from your competitors? Any commentary on the supply side of things would be very helpful.

Question: Vince Tibone - Green Street Advisors, LLC - Analyst : That's really helpful. Maybe just one quick follow-up. How do you view like net lease cold storage spec product as competitive where someone is trying to lease to a single user? Or is it really more of the operating multi-tenant model that is more competitive with your exact portfolio?

Question: Todd Thomas - KeyBanc Capital Markets - Analyst : Greg, I just wanted to follow up on the customer rationalization that you discussed a little bit that's contributing to the weaker demand environment. Are there other underlying trends impacting that rationalization that your customers are experiencing? Or is it solely related to some weaker REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 1:00PM, LINE.OQ - Q3 2024 Lineage Inc Earnings Call consumer and end-user demand? And along those lines, should we assume that the challenging environment continues to impact the Global Integrated Solutions segment of the portfolio? Or can GIS stabilize without a recovery in demand? What's the interplay look like there as we think about '25? Rob Crisci I'll start briefly. So what's great about our market is long-term demand trends are very good. People are always eating, that's growing. The more markets they're developing, the more markets that want access to what we do, which is be able to get the best food to people all throughout the world. So that's a great place to be. So the demand trend is up and to the right. And so it's a matter of getting back to sort of what's normal. I think in terms of the GIS segment, that is largely transportation, right? I'm sure people follow transportation companies. This is very consistent with what everyone else is seeing, right? There's more cyclicality there. Importantly, as we mentioned in the prepared remarks, the reason why this is so important for us is the farm to fork and driving more business into our warehouses. And so moving forward, yes, there will be a rebound there. That's going to be a little bit more cyclical, but it's always going to be benefiting our warehousing business, which should allow the warehousing business to grow faster over time.

Question: Todd Thomas - KeyBanc Capital Markets - Analyst : Okay. But is there a specific maintenance CapEx range that's embedded in the fourth quarter guide, the 70 to 74?