Lineage - Q4 2025

Transcript

Operator (participant)

Hello, everyone. Thank you for joining us, and welcome to Lineage fourth quarter 2025 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw the question, press star one again. 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 financial information, can be found on our investor relations website at ir.onelineage.com. Following management 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 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 and supplemental package that was issued this morning. Unless otherwise noted, reported figures are rounded, and comparisons of the fourth quarter of 2025 are to the fourth quarter of 2024. Now, I would like to turn the call over to Greg.

Greg Lehmkuhl (President and CEO)

Thank you, Ki Bin, 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. 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. 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 LeMasters, 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 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. Robb 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 4th quarter. Same-store physical occupancy improved sequentially by 400 basis points to 79.3, further signaling that our business is returning to a more normalized seasonality, just as we anticipated when providing 2nd half guidance last year. Year-over-year physical occupancy was down only 50 basis points and improved cadence compared to the 1st 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. We expect to maintain a similar spread between the two 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. 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' multi-year 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%. Warehouse services per throughput pallet was down 70 basis points as a result of lower import/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 guide. 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 a 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 Bryan 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, 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 Lineage earnings base. We're not just growing to grow. We are constantly looking to manage our portfolio of assets. In December, we sold a non-core 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% applied 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 -4% to -1%, adjusted EBITDA of $1.25 billion-$1.3 billion, and AFFO per share of $2.75-$3.00 per share. Rob will provide future guidance details in a moment, but I'll share the macro assumptions that inform our guidance. In 2026, we expect 1%-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 track to 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 Circana and Nielsen data. 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. 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 and waiting for a stimulus.

Lineage remains focused on controlling the controllables and driving efficiencies wherever possible. Rob will discuss this more later, but he has helped accelerate our efforts, and we expect to remove $50 million annualized admin and indirect costs by the end of this year. These savings will not discourage our investments in our sales, our customer support team, nor 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 US 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 sq ft 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, hardworking 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 and 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 could serve as meaningful tailwinds to our business. Moving to slide six, using the latest CBRE data, we take a closer look at when the new supply has come online and its magnitude. As new supply is 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 one to two years after new supply comes online. 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 a half a billion dollars 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 four years. Many of these markets have high barriers to entry, constrained land, challenged 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, 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, 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. 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. 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 US NOI, and both groups have demonstrated improved NOI stability, something we expect to continue in 2026. 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. As this 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, and our commercial, energy, admin, and productivity initiatives, including LINOF, continue to accelerate. Now, let me turn it over to Robb LeMasters. Rob, welcome to Lineage.

Robb LeMasters (CFO)

Thanks, Greg, and good morning, everyone. I joined Lineage a little over three months ago, and it has been great meeting our talented team members and many of the investors on this call. These past three 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 segment. 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 pallet 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 Greg forecasted last summer. 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 -5.8%. 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 15% to $61 million in our fourth quarter and was up 9% to $251 million for the full year 2025, 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 food service businesses due to the value 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-$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 non-recurring tax benefits, we still came in above the high end of the guidance range. 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 do 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 focused on EBITDA and AFFO outperformance.

To that end, today, I want to announce that we have accelerated our internal efforts to drive efficiencies 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+ 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 and combine teams to drive immediate savings and speed up decision making. We see about half of this hitting 2026, and we'll describe how we layered 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 EUR 700 million of seven-year bonds at a 4.125% coupon and locked in a $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 $500 million U.S. dollar 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, 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 6.0 times at the end of the quarter.

Ronald Kamdem (Head of U.S. REITs and Commercial Real Estate Research)

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 5.2 times. Keep in mind that our development projects have been significantly de-risked, given most of these projects are anchored by customers with long-term commitments. Thanks to our new great leader of investor relations, Kevin Kim, who 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 -4% to -1%. Total warehouse NOI growth of -2% to +1%. GIS-... % to 2%, adjusted EBITDA of $1.25 billion-$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-$480 million, stock-based comp of $125 million, interest expense of $340 million-$360 million, current tax expense for AFFO calculations of $20 million-$30 million, and recurring CapEx of $170 million-$180 million. We expect our same-store NOI gains 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 purchase 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-$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 experienced in the first quarter of 2025.

Finally, AFFO in 2026 will experience a headwind from expiring interest rate hedges and from annualized interest expense from the US dollar and Eurobond 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.

Greg Lehmkuhl (President and CEO)

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 four 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 initiatives, 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, 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 before accelerating even further in 2027. We remain confident and on track to deliver the savings we outlined at Nareit in December of a $110 million run rate savings over 3-5 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. 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 (participant)

We will now begin the question and answer session. In the interest of time, please limit yourself to one question. If you have a follow-up question, please rejoin the queue. To ask a question, press star one on your telephone keypad. To withdraw the question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from Ronald Kamdem with Morgan Stanley. Your line is open. Please go ahead.

Ronald Kamdem (Head of U.S. REITs and Commercial Real Estate Research)

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

Robb LeMasters (CFO)

... that Greg and I talked about. 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. You can see that we're gonna ultimately have that as a little bit of a headwind as we go in. This is just a minor headwind as we go into 2026. The second element of how we thought about our guidance is that while we're seeing great net price put out to the market, we have the same factors that impacted us in 2025 in terms of mix, in terms of import/export, just as we look out. 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%-2%. That blends just slightly lower. The final factor, as we thought about it, is just, you know, we are fighting inflation overall. As, as a company, we're doing a lot on the productivity side, and so we're really striving to keep NOI margin, if you will, flat. That, of course, you have just minor pressure there. We saw a little bit of that in 2025. Those three 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.

Operator (participant)

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

Michael Goldsmith (Analyst)

Good morning. Thanks, Rob. Good morning. Thanks for taking my question. Can you talk through the impact of idling assets? You know, how many assets did you idle during the quarter? Did that have a positive impact on occupancy, and if you can quantify that? Then also, you know, if you're idling assets, what are the add backs to earnings, 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 financial specs?

Greg Lehmkuhl (President and CEO)

Sure. Thanks, Michael, and good morning. Last year we idled 10 sites, and the benefits are obvious. We can, you know, move labor, move the customers to adjacent sites and lower overall cost and increase our occupancy in the receiving sites. This, you know, for 2026, because our physical occupancy is relatively strong, we don't think we'll see quite as many opportunities in 2026 as 2025. The overall impact on the, you know, on the NOI and the occupancy was pretty negligible. We took out less than 1%, or around 1% of our supply. As far as how we treat these, you know, we don't add back any of these costs. They roll into our non-same store pool and roll up to AFFO and EBITDA accordingly.

Operator (participant)

Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Your line is open. Please go ahead.

Caitlin Burrows (VP)

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

Greg Lehmkuhl (President and CEO)

Hi. Good morning, Caitlin. The SoCal asset, I would say, was a 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. The user wanted to purchase it. It was a reasonable price for us, reasonable valuation, so we decided to go ahead and, you know, achieve a little bit of liquidity there. As far as other dispositions, you know, Rob will probably talk about this on other questions, but we're looking at, you know, the entire portfolio to optimize and certainly analyzing the public versus private disconnect in valuations and kind of more to come on that as the year progresses. Nothing to announce today.

Robb LeMasters (CFO)

Yeah, I guess I would just comment, I had the group, as a new kind of look at the overall environment, 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, you know, we've seen over $1 billion, at least of transactions that we, that we've been tracking, whether it's DHL or Pull Link or otherwise. Of course, we're familiar with the multiple we saw on our, on our property. We're really seeing, you know, strong mid-teen EBITDA multiples. Now, sometimes these are in certain geographies, but that ultimately translates into those low, you know, 6%, to mid-6% cap rates. 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, as are we the best owner of that asset or not? We'll be going through an evaluation just of our whole portfolio, as we always do. We'll be looking very unemotionally at that, and frankly, we see the opportunity to create capacity, you know, 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 as this industry turns, really having the firepower to do whatever we want to do.

Operator (participant)

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

Alexander Goldfarb (Managing Director and Senior Research Analyst)

Hey, good morning. Just going back to the topic of customers switching. You mentioned sort of 1 to 2 years after, you know, a tenant takes a new facility that they may end up switching. We've been hearing about this for quite some time. 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, you know, people moving out of new entrants into, you know, your facilities? Just trying to see, as the supply ebbs, how much this is it really a tailwind versus just something that, you know, is a talking point, as I say.

Greg Lehmkuhl (President and CEO)

Yeah. thanks, Alex, and happy birthday to you. as we talked about in the prepared materials, you know, we are seeing a clear trend. In the US, where we're seeing really the only region in the world where we're seeing, you know, the excess supply, 60-plus% of our markets have not seen, you know, excess new supply. We had to work through the destocking, but those have been on stable ground for some time, we expect them to be on stable ground in 2026.

Where we're seeing, you know, 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, you know, we did take a hit there, and now we're seeing, this isn't anecdotal, we're seeing a lot of customers come back to us because of all the structural advantages we have, especially our service excellence. We can, you know, we can group those into a very large pool and say, the NOI went down, and now the NOI is up or stabilizing. When we look at our 2026 plan, we can see, you know, late cycle markets like Allentown and Miami, where we're still facing pressure.

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 26 and beyond is minimal. Even without, you know, supply absorption, which we think there's lots of reason to believe that will happen, you know, faster than some may fear, we think we can win in this existing environment.

Operator (participant)

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

Blaine Heck (Analyst)

Great, thanks. Good morning. 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 sides already, but in general, you know, how do you see your business being impacted by AI, whether that be on the warehouse or GIS side?

Greg Lehmkuhl (President and CEO)

I'm glad you asked that. We've been thinking a whole lot about this. I mean, certainly, you know, AI promises to make supply chains more efficient, and that could potentially reduce storage needs over time. 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, you know, a couple of years of destocking after COVID, high interest rates, food inflation, international trade chaos driven by the tariffs. For all these reasons, our customers' inventories are very low.

When you take a step back and you think about our industry and AI, you know, 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 by AI. Think about the industry first. Fundamentally, cold storage infrastructure is necessary to bridge the duration between when food is produced and when it's consumed. AI cannot change when food is produced or when it's consumed, so cold storage is durable and essential in the long term, even in a world of AI. There's millions of examples of this, but think about a frozen chicken, frozen French fries, a steak. We don't think those will ever, you know, ship directly from a processing plant directly to somebody's home.

AI 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 eat. We're pretty sure that's a durable trend. You know, our industry has hard, expensive assets required to operate our industry, and AI cannot create nor replicate those. If AI does change how consumers behave, so if there's more online shopping, more multi-channel, that just generally increases the need for warehousing because of more SKUs and more nodes of distribution. I think, you know, as our 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.

Plug-ins for electric vehicles and using our excess power to fuel, you know, small to mid-size data centers. But if you double-click on the industry to a Lineage perspective, you know, 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 LinOS, where our AI, our patented AI, is deciding which operator performs which task and 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 showed over many years to offset energy inflation. We're also using AI in our computer vision in a technology we call the Lineage Eye in our most tech forward warehouses, and that's technology that basically identifies what the pallet is and its contents and streamlines the inbound process and makes our receiving more accurate and efficient. We're also best positioned. 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 LinOS. LinOS is built to tell robots the next task or the next best task, just like it tells people the next best task today.

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, you know, I think we prove we're effective acquirers and developers and can apply AI tools to the acquired companies and developments better than any other company. Lastly, you know, we have far and away the largest data set of warehousing data and probably the biggest data set of temperature controlled transportation data other than arguably C.H. Robinson. We can harvest that data to provide our customers with insights and help them optimize their supply chain overall. Overall, you know, yes, could this help customers, you know, optimize their supply chains over 10 years?

Sure. We think we're very much insulated from disruption as an industry, and we see upside across the business here at Vantage.

Operator (participant)

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

Michael Carroll (Managing Director)

Yeah, thanks. Greg, can you provide us some color on the seasonal pickup that was delivered this past quarter? I mean, how would you qualify that pickup? Was it more muted than normal seasonal patterns, or was it in line with the historical patterns? If it's more in line, I mean, can we assume that the inventory destocking is probably behind most of these customers? I guess, how should we think about this occupancy being higher than expected, probably in the fourth quarter at least, versus consensus estimates?

Greg Lehmkuhl (President and CEO)

Yeah, Michael, good question. I mean, we kind of called the bottom of inventory stocking in the first quarter of 2025, and I think, you know, history is proving us right there. In mid 2025, we said that the seasonal pattern was very much, you know, back to a normal seasonal pattern. The uptick happened a little bit later in the, you know, it happened in July versus June, and then it hit as normal. I think two things that are really important takeaways here: We believe inventory destocking is behind us. We believe our customers' inventories are at very, very low and lean levels, given all the macro factors.

We believe normal seasonality has returned, and we think that's the evidence, You know, 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. It varies a little bit each year to year, but we would expect a similar pattern in 2026, and that's what our guidance is based on.

Operator (participant)

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

Greg McGinniss (Vice President and Equity Research Analyst)

Hey, good morning. I just wanna talk on the Integrated Solutions. You know, 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?

Robb LeMasters (CFO)

Yeah, I'll take that. It's Robb. 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. Overall, the reason the margin really ticked up was just as you shedded that European business, which frankly did not have comparable margin to the overall base, you take that out, you take the revenue out, really, as you start looking at the fourth quarter, that's the way to start thinking of the underlying business. We still see opportunity overall. We see good growth in that business, of course, we'll leverage the cost there.

I think that's a good run rate to kind of be thinking about margins and the profile going forward.

Operator (participant)

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

Craig Mailman (Director, Equity Research Analyst - Real Estate and Lodging Team)

Hey, good morning, guys. I just wanna circle back on the asset sales and 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? What do you think that would have been on a, kind of a true, you know, sale to an investor rather than a user? You know, also, Robb, I think you said pricing may be in the mid-teens EV to 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 as you guys can? Thanks.

Robb LeMasters (CFO)

Overall, it was a triple net lease, so that was the property. It's always hard to say, you know, with the buyer and so forth, how would they pay relative. We can't really go there. We think it was a good sale price overall. As I mentioned, we're seeing, you know, mid-teens EBITDA multiples and low to mid 6% cap rates. Ultimately, I mean, it depends on the region they're sold, it depends on the mix, depends on the buyer, as you say. 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.

Operator (participant)

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

Michael Carroll (Managing Director)

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

Greg Lehmkuhl (President and CEO)

Sure, Michael. Let me take that question and broaden it a little bit just to our thoughts on overall supply. We think there's a bunch of reasons why supply could get absorbed over time, you know, 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, is just the, you know, the alternative uses. I think we are seeing that. There was, you know, in the last couple of quarters, there was a facility in Atlanta that was quite large, I believe it was about 1 million sq ft, 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. We believe we have the ability to dial up power with the utilities over time. I think this is a really real opportunity. You know, it's not going to dramatically change the supply picture in itself in 2026, but we're evaluating our global portfolio. We've 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, you know, we believe that some of the new entrants into our industry over the last four years, based on our channel checks and direct conversations with some of these companies, we think that they'll exit the industry. We think some of those assets, especially in kind of the most oversupply markets, will not be, you know, will not continue to be cold storage, and that will take out some supply. Where they're in good markets, you know, if a competitor that is failing has four buildings, you know, we want to be in the position to absorb two 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 obsolescence. You know, 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 still cash flow them. Despite the kind of structural advantages of a little less productivity, a little more higher, you know, ongoing maintenance, it made sense to keep those open. The average age of cold storage facilities here in the U.S. is 42 years, and given that there is oversupply, that we think we'll start to see, you know, some of these buildings being shuttered and repurposed to residential or various other applications.

We, you know, we don't have perfect estimates here, but we think that number could approach, you know, up to 1% a year in the coming years. You know, we talked about this already, but the large operators have the advantage. Americold basically have the advantage to idle facilities and take supply out that way. You know, between us and Americold, we took out 20 buildings last year. I think they said they're 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. That will lead to some supply being absorbed.

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 customer relationships, are going to win, and even in this environment, we can be successful.

Operator (participant)

Your next question comes from the line of Sameer Kanal with Bank of America.

Sameer Kanal (Analyst)

Good morning, everybody. I guess, Greg, I'm sorry if I missed this, when I look at the GIS segment and your guidance for the year, 0%-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? Thanks.

Greg Lehmkuhl (President and CEO)

Yeah, it's, I mean, we had a great year this year, so there are tougher comps, but there's a couple things I'd highlight that are weighing on our guidance there. The first one's fuel. You know, fuel is down, and we actually, you know, we mark up fuel like we do everything else. When fuel declines, especially, you know, as is happening right now and is forecast to happen in the first half year, that weighs on our results. As, you know, trucks, as fuel's down and trucking continues to be relatively inexpensive, our rail business doesn't do as well. You know, modal shifting happens for economic reasons, and when truck is strong, rail is weak.

For those two reasons, we're a little bit more cautious on our guide in GIS for 2026.

Operator (participant)

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

Daniel Guglielmo (Consumer Equity Research Analyst)

Hi, everyone. Thank you for taking my question. Can you just give us a quick update on the Lean journey? On 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?

Greg Lehmkuhl (President and CEO)

Yeah, I mean, we're up to, you know, call it a third of our revenue base being directly supported by a Lean manager. We are taking those resources now and elevating them from a single building or two buildings to regional support. We're also kind of joining their efforts with our LinOS deployment team. We're deploying technology and process at the same time and seeing, you know, good results there, even since the Nareit conference in December. 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.

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

Operator (participant)

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

Todd Thomas (Managing Director and Senior Equity Research Analyst)

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

Greg Lehmkuhl (President and CEO)

Sure. January is come in line with our forecast. you know, for modeling purposes, keep in mind that the first quarter is a seasonally soft quarter. Historically, if you just look at kinda pre-COVID USDA data, the first quarter would be down, you know, 3-ish% in occupancy from Q4. Again, we think the seasonal pattern this year will reflect more normal times. There, we would expect a step down from Q4 to Q1. Also, you know, weighing on our Q1 is the ongoing, you know, 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, you know, be a headwind for us. With regard to the volume guarantees and the spread between physical and economic occupancy, you know, 400-600 basis points, these are normal. We would expect to hold that trend through the year. I think, you know, as we've discussed in prior calls, you know, we effectively mark to market the majority of our business each year. There's no big, you know, resetting coming here in January. We've already worked through 65% of our revenue base as we sit here today on our contract negotiations.

That just gives us more confidence that the volume guarantee spread will be or the economic physical spread will be consistent, and we'll be able to achieve that net new pricing increases of 1%-2%.

Robb LeMasters (CFO)

Yeah, I might just comment that it's, you know, the one 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. Greg had made comments earlier last year about working through sort of that disparity that we had within economic and physical. We sort of tried to address that as early as we could. As we look at other players having to address that is a painful factor, that just trying to work through your economic versus physical. I think the team has done a great job as I come in here, of working that through and not having that as a headwind that others maybe have to contend with in the future.

Operator (participant)

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

Brendan Lynch (Director)

Good morning. Thanks for taking my question. Wanted to ask on the evolving tariff situation and how it's going to impact your business. I think post-Liberation Day, there was some concerns around seafood in particular. 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?

Greg Lehmkuhl (President and CEO)

Yeah, great question. I mean, our seafood customers are very opportunistic, I would say. When they order and it you know, the tariffs drive that, the ocean rates drive that, the sales prices here in the US drive that. You know, we'll see what happens with the Supreme Court hearing. Obviously, it's being challenged multiple ways. I think the bear or the bull case there is that tariffs could be lowered on China and Brazil, which could be, you know, meaningfully, you know, increasing trading partners with us, given where they've sat in the last couple of years and the tariff rates they've been experiencing. It's just really hard...

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

Operator (participant)

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

Omotayo Okusanya (Senior Research Analyst)

Yes, good morning, everyone. The $50 million of savings that was discussed, just wanted to kind of get some clarification around that. Is that mostly SG&A type expenses? Is it more of a focus on kind of cost of operations in terms of labor and power? Hello?

Robb LeMasters (CFO)

Go ahead, Kyle. We can hear you.

Omotayo Okusanya (Senior Research Analyst)

Okay, perfect. I also want to kind of get a sense of, in terms of, timing as well. You know, I think you kind of mentioned half of it kind of coming on in 2026, but how do you kind of think of beyond 2026?

Robb LeMasters (CFO)

Thanks for the question. The $50 million of annualized savings that we hope to essentially get our hands around during 2026, to see the full impact of that in 2027, is both an admin thing as well as an indirect, if you will. We are seeing opportunities at the indirect side, at the sites. You know, these are exercises 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 can we optimize? Where can we bring some productivity? Are there overlapping functions that are frankly happening at the sites versus in admin?

We're also looking to deploy different technologies in AI and just frankly, figure out how to make do more with less. These are never easy decisions. The timing of how we actually see that playing out in 2026, we're roughly think about half of that, but, you know, we'll see how the year goes, and we need to progress through all those initiatives. Again, it's about $50 million. You know, 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 tried 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. 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, you know, 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 into admin.

Operator (participant)

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.

Robb LeMasters (CFO)

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

Greg Lehmkuhl (President and CEO)

Thanks, everybody.

Operator (participant)

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