Lineage - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 revenue rose 3.1% YoY to $1.377B and Adjusted EBITDA increased 2.4% to $341M; AFFO rose 6.3% to $221M (AFFO/share $0.85). Lineage exceeded its prior Q3 Adjusted EBITDA guide ($326–$336M) and Q3 AFFO/share guide ($0.75–$0.79) set last quarter.
• Against S&P Global consensus, revenue was essentially in line (slight miss), Primary EPS missed, and S&P’s EBITDA metric missed (note: S&P’s EBITDA differs from company-reported Adjusted EBITDA, which exceeded company guidance) [GetEstimates Q3 2025]*.
• FY25 guidance moved to the low end: Adjusted EBITDA to $1.290–$1.305B (from $1.290–$1.340B) and AFFO/share to $3.20–$3.30 (from $3.20–$3.40). Q4 guide: Adjusted EBITDA $319–$334M, AFFO/share $0.68–$0.78.
• Management cited tariff uncertainty (notably a ~20% drop in West Coast ocean containers) and slightly lower U.S. occupancy (offset by international strength) as primary drags; 2026 interest expense is preliminarily guided to $340–$360M (~$80M increase YoY), a key forward headwind.

What Went Well and What Went Wrong

• What Went Well

  • Exceeded internal guide: Q3 Adjusted EBITDA of $341M topped prior $326–$336M guidance; AFFO/share $0.85 exceeded $0.75–$0.79 guide.
  • GIS strength: Global Integrated Solutions NOI +16% YoY to $65M with margin up 250 bps to 17.9% on strong U.S. transportation and DTC.
  • Sequential operating improvements: Same-store physical occupancy rose ~50 bps sequentially; minimum storage guarantees increased to 46.7%, supporting price stability; LinOS deployments delivered double-digit productivity improvements.

• What Went Wrong

  • Macro/tariffs and U.S. mix pressured outlook: Management reduced Q4 NOI outlook due to tariff uncertainty (West Coast ocean containers down ~20% vs earlier trend) and slightly lower U.S. occupancy, driving FY guide to the low end.
  • Same-warehouse softness: Same-store NOI fell 3.6% YoY; same-store margins compressed 70 bps; global warehousing total margin down 150 bps YoY amid competitive U.S. markets.
  • GAAP earnings remain negative: Q3 diluted EPS was $(0.44) driven by depreciation, amortization, and non-operating items (including goodwill/intangibles impairments and other nonoperating expenses), despite stable Adjusted EBITDA margins.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Lineage Third Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. I would now like to turn the conference over to Ki Bin Kim, Head of Investor Relations. You may begin.

Ki Bin Kim (Head of Investor Relations)

Thank you, operator. Welcome to Lineage's discussion of its third quarter 2025 financial results. Joining me today are Greg Lehmkuhl, 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 two. Before we begin, I would like to remind everybody that our comments today will include forward-looking statements under federal securities law. 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 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.

Greg Lehmkuhl (President and CEO)

Good morning everyone. Thank you, Ki Bin, and welcome to the Lineage family. We're thrilled to have you. As many as 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 two 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'll 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 four, 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 pallet remains stable as expected, growing at 1%. Our global integrated solutions business saw 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 two primary factors. First, tariff uncertainty is 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 too. 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 LinOS, labor management, and energy efficiency initiatives accelerate.

Moving to slide five 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 pallet in the fourth quarter due to normal seasonal mix changes. Additionally, we saw a sequential 180 basis points increase in our minimum storage guarantees to 46.7% as our customers continue to want to secure space across our network. Turning to slide six, 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 accessible 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 labeled A shows from 2021 through 2025, public refrigerated warehouse supply grew at approximately 14.5% on a sq ft 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 labeled B is based on Nielsen and Circana data for fresh and frozen food volumes in both the retail and food service channels. The data shows demand for the food categories stored in our network grew cumulatively by 5% during the 2021 through 2025 time period. To be clear, in spite of continued pressure from tariffs, consumer price inflation and other headwinds, end-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 two concepts together to calculate estimated excess capacity of approximately 9.5% for the U.S. market over the last four years. Despite this nearly 10% imbalance, our 2025 total estimated average physical occupancy is 75%, down only three 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 will be handing over the reins 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 to lead us through the IPO process with a lot of passion and 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. Robb LeMasters, our incoming CFO, who we call BB because he spells his first name with two Bs, has been with us at an unofficial capacity over the last few weeks, shadowing our earnings process.

He has an exceptional background with two decades of finance and buy-side investing experience, including a very successful run as a public company CFO at BWX Technologies. He has a lot of great experience managing complex financial operations at asset intensive businesses. Robb's already been out to visit a bunch of our sites and I know he's very excited to officially get started next week. Welcome Robb. We're excited to work with you and expect great things. With that, I'll turn it over to Rob Crisci.

Rob Crisci (CFO)

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, Ki Bin, Adam and the team have built here. Robb LeMasters is a great fit for Lineage and I've really enjoyed getting to know him. The finance organization is an excellent agent.

I'm here to help as needed in my advisory role, but I doubt Robb will need much. I'd also like to add we are incredibly excited to add Ki Bin into the team. It's been great having you as part of our process 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 decline 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 3%-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 import and export activity. We have 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 levels. Turning to slide eight, 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 at $1.5 billion per year. On a same warehouse basis, we have 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 on incremental growth. Next slide. Shifting to slide nine and covering our Global Integrated Solutions segment. Revenue was flat and NOI grew 16% to $65 million. Our NOI margin was up 250 basis points to 17.9%. We are continuing to see strong momentum in our U.S. transportation 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%-15% growth.

Notably, we benefited in the third quarter from approximately $4 million of NOI that was previously expected for the fourth quarter. We now see full-year NOI growth of 8%-10% versus prior range of 8%-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 SOFR 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 model. At this time, we see approximately $340 million-$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 our customer-driven growth.

Turning to the guidance slide, we are initiating Q4 with EBITDA of $319 million-$334 million and AFFO per share of $0.68-$0.78. For the full year, EBITDA is $1,290 million-$1,305 million and AFFO per share is $3.20-$3.30. In short, we are going to the lower end of our 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.

Greg Lehmkuhl (President and CEO)

Rob has walked you through our Optavia 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 three key 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 LinOS, our proprietary warehouse execution system. As of today, we've deployed the platform in seven 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 webcasted investor forum on Monday afternoon. The presentation will focus on operational excellence and our LinOS technology.

Turning to slide 13 and its 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. 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. 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. When the industry does inflect, we will come out stronger than ever. Finally, 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 now.

Operator (participant)

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and request for any additional question. Thank you. Our first question comes from the line of Caitlin Burrows with Goldman Sachs, your line is open.

Caitlin Burrows (Analyst)

Hi, good morning everyone. 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? How has new business fared to date? Are you suggesting some change for 4Q or is it more of the same? Thanks.

Greg Lehmkuhl (President and CEO)

Good morning, Caitlin. Thanks for your question. Let me just provide a little more color on the lower on both the tariff and the new business front. I think we're all sick of hearing about tariffs at this point, but we're definitely seeing tariff uncertainty impact import export volumes more than we did earlier this year and certainly more than when we were guiding last quarter. 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.

This is lucrative business with substantial, that's the soil revenue like services for customs documentation, bonded fees, blast freezing, for example, in our seafood category, you know, many customers ordered back in the summer and are bleeding down their inventory right now awaiting tariff resolution. They're telling us that there's, you know, while there's a possibility they'll reorder by year-end, it's more likely going to be after the first of the year. That's what our guide is based on. We're also forecasting that this impact of container volume not only hits warehousing same-store NOI, but it also hits GIS in the fourth quarter as we provide a lot of drayage around the ports for our customers in our GIS segment.

To your question, more specifically on the new business side, you know, competition in certain U.S. markets is impacting new business. While we always 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. Obviously, the contribution margin on new business is very high given the fixed cost nature of our business. Therefore, a relatively small change in new business revenue has an outsized impact on NOI. That happens the other way when we land a lot of new business as we get the positive operating leverage.

Caitlin Burrows (Analyst)

Thanks.

Operator (participant)

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

Michael Goldsmith (Analyst)

Good morning. Thanks a lot for taking my question. Greg, can you provide an update on the pricing strategy during the quarter? Just given some of the demand headwinds that you talked about. Also, the suppliers are just trying to get an update on how you've approached pricing as a leverage to maintain occupancy. Thanks.

Greg Lehmkuhl (President and CEO)

Yeah, we've been so. You know, first of all, I want to start by saying in Q2 we provided for the first time a multi-year revenue per pallet chart both on, both on services and rent, storage and blast. 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, blast freezing volumes, commodity mix, exchange rate, seasonality all play into that metric and cause a little volatility in the short term. That is why we provide that multi-year view to show that our pricing is making progress over time. 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 will see a net price increase between 1% and 2% this year. You know, nothing changed in the quarter. We are not, you know, one of our core strategies is not to, you know, trade volume for price. We are talking to each customer uniquely. Again, in aggregate, we saw net price increases this year.

Operator (participant)

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

Steve Sakwa (Analyst)

Thanks. Good morning, Greg. I appreciate the added color you provided on the excess capacity. You know, it's nice to see that you guys didn't take as big of a hit on occupancy. You know, 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 2026, I guess, what are your expectations looking forward on that physical occupancy and how is that excess capacity being absorbed and priced in the marketplace against the existing stock?

Greg Lehmkuhl (President and CEO)

Yeah, great. Great question. At this point, the new supply is really just trickling in. You saw the CBRE forecast for next year's 1.5% new capacity.

You know, we think that will stay the same or go down over time as it just does not make sense to add more capacity speculatively in this market. When we look at our, you know, this is really a U.S. phenomenon. It is not really the same situation outside of the U.S. and some markets remain challenged. Like, you know, I have talked about Jacksonville and Miami in prior calls. Chicago has had a lot of new capacity. We are having to, you know, work through that new supply getting onboarded. We are actually more optimistic about some key markets that have had, you know, new capacity delivered in the last couple of years. Like, like New Jersey, Dallas and Houston. We basically absorbed that new capacity. We have worked through our book of business. We have kind of fought the fight, and now we are building back inventories in those markets.

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

Operator (participant)

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

Craig Mailman (Analyst)

Hey guys, just as we think about this, 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, you know, we're not going to be a couple 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 one to go sneak it in here.

Just have you guys thought about is, is a 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 you know, it might be beneficial for you to be able to retain capital and redeploy that. Just some thoughts there.

Greg Lehmkuhl (President and CEO)

Yeah, so certainly, you know, the last thing we want to be doing is sitting here lowering the fourth quarter. The fact is our industry has been challenged and with the new supply and very, very hard to predict given, you know, 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. You heard that from the producers in their quarterly releases.

It's, you know, we're the recipient of that short term volatility. Again, the underlying demand for our products is growing, not shrinking. 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. As I mentioned in the prepared remarks, we're not sure exactly when 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. We performed well versus our underwrites for many years and continue to do so. Those developments are generally customer-led developments. Many of them have strict volume guarantees and revenue guarantees.

We're not, you know, we're not out there building, you know, spec buildings where we don't have, you know, certainty that we're going to get other returns that our expecters expect. Is there pressure around, are things uncertain? Absolutely. That's why, you know, things performed pretty much exactly how we thought they would in the third quarter. 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. Those are the type of things that are very, very difficult or impossible to predict. All we can do is, you know, execute our plan, control our controllables, treat our customers great, treat our team members great and work through this challenging time.

Rob Crisci (CFO)

Yeah. I would say, you know, we do believe REIT is the right structure for us. We have an incredibly valuable real estate portfolio. We think the benefits outweigh the, you know, there really are not very many negatives of being a REIT. We are very, very happy to be a REIT.

Greg Lehmkuhl (President and CEO)

Yeah, I mean we, if you can choose to pay taxes or not, we are going to choose not.

Operator (participant)

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

Ronald Kamdem (Analyst)

Hey, just a lot of really helpful breadcrumbs 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. What have you sort of seen in this sort of environment?

Thanks.

Greg Lehmkuhl (President and CEO)

Sure. You know, on the pricing side, looking forward, we are, a lot of our volume guarantees, for example, got reset in 2025 earlier this year in the first and second quarter after the big destocking from COVID that I talked about the last several quarters. Now we're kind of at a new, we're at a new, we're kind of a more stable point. We are having conversations with customers already about 2026 pricing. Those conversations obviously have not been wrapped yet. 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 2026. We do not 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 we're not going to get 10%. Low single digit we think is very achievable even within supply.

Operator (participant)

Next question comes from the line of Michael Carroll with RBC. Yeah, line is open.

Michael Carroll (Analyst)

Yep, thanks, 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?

Greg Lehmkuhl (President and CEO)

It was the reason. 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, you know, in the first and second quarter this year. We've kind of been through that pain, if you will. Now on new business, our sales team is doing a phenomenal job broadening the customer base that are utilizing volume guarantees.

Our new business, despite the challenges and, you know, in certain parts of the U.S., we're seeing new business come in with higher volume guarantees than our average. Those are the two impacts.

Operator (participant)

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

Alexander Goldfarb (Analyst)

Hey, good morning. First, Robb with the double B, 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, you know, geopolitical things, you know, inflation, tension, whatever happening overseas. I'm just trying to isolate what the key difference is for why Global is performing well versus the U.S. I wonder if it's simply the supply or if there are other factors at work.

Greg Lehmkuhl (President and CEO)

Yeah. Hi, Alex. Good question. 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, you know, after Q2 and Europe is a little bit higher. That's the difference. The impacts, they really are exactly what I laid out, Alex. That's this container volume, which is mostly seafood, which I think everyone knows, we love that business. 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. That's impactful and just more broadly, certainly in the U.S. in certain markets like the ones I mentioned earlier, there is competitive pressure and those are the two, the two big impacts versus what we thought before. 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. We think in a very unpredictable and very challenged environment, the company is executing as well as possible.

Rob Crisci (CFO)

It is another benefit having a very diversified global footprint. Right. We can benefit from growth in other markets to help balance out our overall performance. I think it's a positive for Lineage in general.

Alexander Goldfarb (Analyst)

Thank you.

Rob Crisci (CFO)

Thanks, Alex.

Operator (participant)

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

Tayo Okusanya (Analyst)

Yes. Good morning, everyone. Ki Bin, welcome aboard. Robb with the double B also, welcome aboard. First quarter in a while. You guys really have not done much on the acquisition side. Just curious what you are seeing from that perspective. Also 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 are looking at acquisitions going forward?

Greg Lehmkuhl (President and CEO)

Yeah. You know, we are highly disciplined as always on capital deployment. You know, we are cognizant of developments that we are working on. We see our leverage ratios, they are in a really good spot. We do not, you know, obviously view our equity as a place that is anywhere but very, very undervalued. You know, we are not interested in issuing equity and we are managing the portfolio and we will be real smart on capital deployment.

You know, there's obviously a ton of opportunity out there and there's more things becoming available, you know, in the market. We will be opportunistic, but we're going to be, you know, very disciplined.

Tayo Okusanya (Analyst)

Gotcha.

Operator (participant)

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

Greg McGinniss (Analyst)

Hey, good morning, Greg. I was hoping to get some more insight into the earnings commentary regarding the improvement in fresh and frozen demand that Lineage is seeing. Is that in reference to the Q3 seasonality trend or is there something more broadly that you're seeing in the market?

Greg Lehmkuhl (President and CEO)

It's third-party data that. Yeah, that's going. Greg. It's not our view, it's third-party data.

Rob Crisci (CFO)

Yeah, this is third-party data from Nielsen, which is the retail data and then Circana is the rolled-up food service data. It's the full picture of food consumed in the United States from the two best sources that we purchased this last quarter because we, you know, we had our data showed that underlying demand was growing, but we didn't have third-party data. We want to provide that every quarter.

What that shows is continual growth in the categories that we supply in fresh and frozen. It's, you know, we very much believe it's accurate and it's what we thought. Despite the, again, despite the, you know, elevated food inflation, the underlying categories continue to grow.

Operator (participant)

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

Dan Guglielmo (Analyst)

Hi everyone. Thank you for taking my question. 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? Are there certain international markets where you see opportunities to lean in?

Rob Crisci (CFO)

Yeah. Overall, we're 70, 70, 30 sort of U.S. versus rest of the world.

Greg Lehmkuhl (President and CEO)

Yeah, I think Europe. Overall, our European team is crushing it and winning in a lot of different markets in Europe and excited about continued growth there, both in same-store and non same-store.

Operator (participant)

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

Vikram Malhotra (Analyst)

Morning. Thanks. Taking the questions and you know, congrats everyone on their new roles. I guess just two clarifications. One on just the numbers. Maybe you can share some color on what you've seen in October specifically to keep sort of the occupancy seasonal uptick. You know, your peers sort of assume the occupancy doesn't uptick. 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? That's just the first. Then second, do you mind sharing some specific examples like all the acquisitions you've done in the past five 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. Thanks.

Greg Lehmkuhl (President and CEO)

Sure. On the occupancy front inter quarter, it's pretty much spot on what we thought it would be after last quarter. 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. For the first time in, I don't know, eight quarters maybe, the occupancy was higher than prior year total in the same-store. That was great to see. We are seeing that trend. It's a combination of, you know, the new supply kind of settling and us performing well in the marketplace.

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. We were able to get net increases in price. You know, the initial conversations with customers for next year are 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 five years. It's varied by region and facility. Overall, we're certainly happy with the acquisitions and the network we've built as we think it's irreplaceable and industry-leading. You know, we don't break down each individual past acquisitions.

We roll admin up into global admin and a lot of things change when we buy. We certainly make progress on cost productivity occupancy as we roll companies into the Lineage family.

Operator (participant)

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

Blaine Heck (Analyst)

Great, thanks. Good morning. Just following up on guidance with respect to the fourth quarter. It's a relatively wide range between $0.68 and $0.78. 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?

Rob Crisci (CFO)

Yeah, the biggest thing obviously we can manage is the recurring maintenance CapEx. 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 the most and you know, we're working hard to, as Greg mentioned, we, you know, so far October is looking okay, but that's embedded our guidance, you know, but certainly if we have more year-end activity, you know that that'll help because really services revenue and a lot of that relates to these tariffs and containers. As Greg mentioned, that could certainly get a lot better at the end of the year. You know, 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. That was our thought process on the guide.

Operator (participant)

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

Michael Lewis (Analyst)

Great, thank you. While we're welcoming people, I'll welcome Robb. I'll of course welcome my good buddy and pal Ki Bin and maybe welcome myself to covering this name as well. My question. Thank you. My question I wanted to ask, I don't think anybody asked about this lapse in SNAP benefits. Right. So it'll, it'll be a temporary thing. I just wonder if there could be any impact on 4Q from that. You know, surprisingly to me, I guess one out of every eight 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?

Greg Lehmkuhl (President and CEO)

Yeah. And Ki Bin's concerned because part of his comp package is food stamps.

So.

Let me start with the SNAP, but I'll talk more broadly about the government shutdown. Just a little context on SNAP in overall, in overall food consumption. In 2024 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. 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. You know, 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.

Even in the most dire case where SNAP benefits are completely eliminated, the impact on total food consumption would only be about 1%. We do not see this being a meaningful impact in the short, medium, or long-term, as we do not think it will totally go away. Even if it did, it is 1% of total consumption. More broadly on the government shutdown, we are seeing other impacts. For example, the USDA cold storage survey, the holdings report that you all report on every month, or most of you do, is not being issued during the shutdown. We are seeing import-export border delays. While customs is operational, the FDA, the EPA, and the USDA all have reduced staffing, leading to delays in inspections, certifications, and documentation. We are seeing, as a result of that, some increased dwell times at the ports and terminals.

We're also seeing delays in export license approvals. I think most importantly though, the USDA and the FDA, actual food inspections have been unaffected.

Operator (participant)

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

Samir Khanal (Analyst)

Yeah, good morning, everybody. I guess, Greg, you know, I was looking at this chart on page 30, which is the presentation you have up there where you show economic and physical and 80% economic today. I mean, do you have data going back prior to, let's say, 2021 and even 2020? Just trying to see if there was any other time before 2020 or 2021 where occupancy was below 80%. You know, it's clearly been a problem forecasting occupancy in this business is trying to figure out, you know, how today's levels compare to historically, you know, before 2020. Thanks.

Greg Lehmkuhl (President and CEO)

Yeah, good question. Hey, this second half, we did forecast occupancy accurately, to be clear. You're right, it is very, very challenging to forecast it in this environment.

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, so different. You know, I do think just, you know, from my memory, not supported by, by like-for-like, data. There was certainly times prior to 2021 where our occupancy was lower than it is today. I'm thinking about, you know, 2016, 2017, 2018, back when we were just kind of still a young company and much smaller, obviously different footprint. We weren't in Europe yet, we weren't in Asia yet. Yes, there was times in our core business where economic occupancy was lower.

Operator (participant)

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

Michael Mueller (Analyst)

Yeah. Hi, 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?

Greg Lehmkuhl (President and CEO)

2026 is, you know, very difficult to predict. I think that's what our customers are telling us. You know, we're just in the midst of our, you know, we don't even have October numbers final yet. We're just in the midst of our business. Unit presidents are working on their 2026 budgets right now and work with finance team next week and I'll see a roll up in a couple of weeks and, you know, certainly puts and calls as I sit here today, but hard to predict.

That hard to predict is driven by all the conversations we're having with our customers worldwide who see their business as hard to predict. You know, we'll see, you know, we'll be continuing to have those conversations through the budget cycle, and, you know, 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 actually 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.

Operator (participant)

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

Todd Thomas (Analyst)

Yeah, hi, thanks. Just in terms of the tariff uncertainty that you cited and the decrease in container traffic, you know, 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, you know, tariffs here, how could this sort of play out in the quarters ahead?

Greg Lehmkuhl (President and CEO)

Yeah, the answer is yes. I mean, we were seeing consistent container volumes through July, bounced around month-to-month, but it was pretty consistent. You know, we saw it drop through September.

That lower level is being steep 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. That is the impact. Yes, are they going to reorder at some point for Lent and Easter? Absolutely. We are just not predicting that is going to be in the fourth quarter at this point.

Operator (participant)

Next question comes from the line of Nick Thillman with Baird. Your line is open.

Nick Thillman (Analyst)

Hey, 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 has 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.

Greg Lehmkuhl (President and CEO)

Yeah, great, great question. There's kind of two things going on with customers. The first big one, the huge impact over the last couple years was the destocking from COVID. We think that's behind us. That's really good, like kind of back to normal inventory levels or bouncing across the bottom. Certainly there's not more excess inventory that's being depleted at this point.

Broadly, customers have been optimizing their supply chains across my 30-year career, and we are, you know, we're their partners in helping them position inventory properly to satisfy their customers' requirements and help them determine, you know, how much to store where and how to transport those products into our facilities and out to their customers. You know, Tyson's a great example of that. You know, 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. You know, we've idled eight 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 are able to move that business into adjacent facilities. That is part of what is so great about having such a large, dense network, because we have the opportunity to do this where much of our competition does not. If you look at other ways that capacity is going to come out, we are idling, others are idling old buildings that have higher maintenance CapEx, that are not needed, where we can move that product elsewhere. We also, you know, 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 are paying very high leases if they lease them, and because they built it, you know, peak construction cost timing.

We believe that some of these companies are going to succeed and we plan to assess these opportunities for consolidation, you know, and bring those facilities into our network as they present themselves. You know, I think an important caveat to that is that not all warehouses are created equal. And we're, you know, 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, you know, 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. You know, we think capacity will come out that way as well.

We did see, you know, we are hearing directly from some competitors that they're struggling in a big way and there are instances where companies have closed their doors as well.

Operator (participant)

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

Tayo Okusanya (Analyst)

Yes, thanks again. 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. Just kind of curious, are these newer assets, again, lower occupancy assets but already fully staffed or kind of what's kind of happening on the non same-store side to kind of have these really large jumps even with the increased number of facilities?

Greg Lehmkuhl (President and CEO)

Yeah, yeah, 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, you know, 25 buildings either ramping or in development.

We have to, you know, 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. All these are in different phases of the J-curve. You will see kind of abnormalities in that labor line until they move into the same-store pool.

Operator (participant)

Our last question comes from the line of Caitlin Burrows with Goldman Sachs. Your line is open.

Caitlin Burrows (Analyst)

Oh, hi again. I did have a question on the pricing side. One of the concerns I have heard from investors is that I think it is like half your portfolio is on one-year agreements. Those were recently reset in 2025, but the other half, that means they are on leases from a few years ago. Maybe you could tell us how far back they go. What is the risk of rent rollouts from those older contracts that were established a few years ago in 2026? Is that incorporated into your view of low single-digit rate increase in 2026, or is that 2026 low single-digit price increase only related to those one-year agreements and the rest could be an incremental headwind?

Greg Lehmkuhl (President and CEO)

No, great question. We do not see, you know, 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.

Operator (participant)

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

Ki Bin Kim (Head of Investor Relations)

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

Greg Lehmkuhl (President and CEO)

Thanks everybody.

Operator (participant)

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