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Lineage (NASDAQ: LINE)
Q3 2024 Earnings Call
Nov 06, 2024, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
We welcome everyone to the Lineage third-quarter 2024 earnings conference call [Operator instructions]. I will now pass the call to Evan Barbosa, vice president of investor relations. You may begin.
R. Evan Barbosa — Vice President, Investor Relations
Thank you for joining Lineage for our third-quarter 2024 financial results. Present with me are Greg Lehmkuhl, president and CEO, and Rob Crisci, CFO. Our earnings presentation, which contains additional financial information, is accessible on our investor relations website at ir@onelineage.com.
Before we begin, I need to remind everyone that our discussion today will involve forward-looking statements as defined by federal securities laws. These statements carry various risks and uncertainties, which you can read about in our SEC filings. Such risks may cause actual results to differ significantly from those we discuss today. The forward-looking statements in our earnings release and remarks are accurate only as of today and will not be revised as things change.
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Moreover, we will discuss non-GAAP financial metrics today. Details on these measures and their reconciliation to GAAP can be found in our press release from this morning. Unless otherwise stated, all reported figures are rounded; comparisons for the third quarter of 2024 are to the third quarter of 2023. Now, I will hand the call over to our president and CEO, Greg Lehmkuhl.
Greg Lehmkuhl — President and Chief Executive Officer
Thanks, Evan. Good morning, everyone, and thank you for being here today. I will begin by briefly introducing Lineage and then proceed to our third-quarter highlights and capital deployment updates. After that, Rob will present insights into our business segment performance and our financial structure, along with our outlook for the rest of the year.
Moving to Slide 4, for those who are not familiar with us, Lineage is the leading tech-enabled, temperature-controlled warehouse REIT globally. We have grown from a single warehouse to over 480 facilities, providing more than 3 billion cubic feet of capacity and achieving a last twelve months adjusted EBITDA of $1.3 billion. Our substantial market presence supports a diverse customer base, ensuring our relevance in the industry.
Our unique technological advancements, data science capabilities, and automation distinguish Lineage in our field. The past 16 years have seen us make over 115 acquisitions, capitalizing on the fragmented cold storage market for ongoing growth both organically and via strategic capital investments.
On Slide 5, similar to the renowned composers of our time, we boast strong, sustainable cash flows that fuel future growth, offering attractive long-term returns. The engine of our operations lies in our net operating income (NOI) and same warehouse growth, which provide us with further investment capacity.
Our robust cash flows, combined with a tax-efficient restructure, help us create a favorable cost of capital, which we utilize in development initiatives and smart acquisitions, enhancing our future NOI growth. Our IPO in July enhanced this momentum, reducing our leverage and capital costs while positioning us for long-term success.
As seen in the highlights on Slide 6, the completion of our IPO, which was the largest of the year and also the largest REIT IPO ever, is undoubtedly a key highlight. This achievement was crucial for our company, and I extend my heartfelt thanks to the Lineage team, the board, and our banks and advisors for their hard work that led to this outstanding success. We appreciate the trust placed in us by both current and new investors who recognize Lineage’s unique positioning within the industry and our substantial growth potential.
Financially, we recorded a remarkable 20% growth in AFFO per share in Q3, driven by our successful IPO and solid operational performance. We continue to navigate market challenges stemming from customer inventory adjustments, high interest rates, and inflation putting pressure on consumer demand. Despite these challenges, including limited seasonal increases with occupancy slightly lower than last year, we maintain our confidence. Certain markets are facing competitive pressures as speculative development and new supplies emerge.
Through these market dynamics, our top market position, technology investments, long-term customer relationships with over 13,000 clients, and strength in automation and global delivery services position us well to seize available opportunities. During the third quarter, we adeptly managed crucial factors and delivered a solid financial performance, further illustrating our capability to thrive in varied economic conditions. We also achieved significant safety performance during this quarter, which…
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Lineage Logistics Reports Steady Growth Amid Market Challenges
Strong Operations and Strategic Acquisitions Highlight Q3 Performance
The prioritization of customer experience remains central to our corporate values. In the latest quarter, we achieved record turn times, which is crucial for our customers. I commend Jeff Rivera, our COO, and the entire global operations team for their outstanding performance. This dedication is reflected in our exceptional customer service scores from daily pulse surveys.
Despite facing lower volumes, we also noted considerable productivity improvements in warehouse margin expansion. Our efforts to acquire new business have proven successful and help counter industry challenges. I want to extend my gratitude to our global sales and commercial finance teams for their hard work, as we rewarded our team members worldwide with equity or cash IPO bonuses, making most of them owners in the company.
Celebrating a significant milestone, we were pleased to secure our 100th patent, reinforcing our status as an innovation leader in the industry driven by technology and data science. Additionally, we declared our first quarterly dividend at an annualized rate of $2.11 per share. Looking forward, we have allocated over $350 million in growth capital, including the acquisition of ColdPoint Logistics which closed on November 1st, positioning us well to pursue a robust pipeline of opportunities.
New Cold Storage Facility Boosts Capabilities
On Slide 7, we highlight ongoing efforts in our greenfield and expansion projects. In September, we launched what we believe is the most cutting-edge cold storage facility in Hazleton, Pennsylvania. This new site features fully automated full-pallet layer pick and case pick capabilities powered by our patented LinOS technology. I want to express my appreciation to our network optimization, project management, operations, engineering, technology, and data science teams for their excellent execution on this complex project.
In terms of mergers and acquisitions, we restarted our acquisition endeavors post-IPO. Our initial acquisition was Luik Natie for $66 million, strategically tailored to our aim of acquiring mission-critical, hard-to-replace assets at key port locations. Situated in the Port of Antwerp, Europe’s second largest port, this acquisition supports our sustainability initiatives by generating 80% of its energy from onsite renewables. Moving to Slide 8, we are excited to announce our largest deal following the IPO — ColdPoint Logistics, acquired for $223 million on November 1st.
This acquisition enhances Lineage’s footprint in the strategic Kansas City area and strengthens our service efficiency, particularly in providing access to major U.S. ports through onsite rail. ColdPoint is anticipated to generate $16 million of EBITDA in 2024 and aligns well with our investment strategy due to its excellent management, prime location, and high-quality owned assets. I’d like to extend a warm welcome to both the Luik Natie and ColdPoint teams as part of the Lineage family.
Q3 Financial Highlights Reflect Strong Performance
Now, I’ll pass it over to our CFO, Rob Crisci, to discuss our financial details.
Robert Crisci — Chief Financial Officer
Thank you, Greg, and good morning to everyone. On Slide 9, let’s review our Q3 financial performance. Our total revenue reached $1.3 billion, representing a 0.5% increase compared to last year. Adjusted EBITDA saw a more significant boost, rising 5.4% to $333 million, while the adjusted EBITDA margin improved by 110 basis points to 24.9%. This reflects our team’s effective execution strategies, with strong labor productivity driving margin growth despite a flat revenue environment.
Our adjusted funds from operations (AFFO) also rose substantially, increasing by 52% to $208 million, primarily due to significant interest savings resulting from our debt reduction post-IPO. Notably, AFFO per share climbed to $0.90, marking a 20% increase from the previous year. Overall, this was a remarkable operational quarter for us. Next slide.
Focusing on our global warehousing segment, which contributed to 87% of our total net operating income (NOI) in the quarter, total revenue grew by 1.3%. We reported a 4.4% increase in segment NOI to $383 million, yielding a warehouse NOI margin of 39.4%, up 120 basis points. The same warehouse NOI saw a growth of 2.4% along with last year’s 11% Q3 increase, reflecting consistent strength.
In terms of key performance indicators, our same warehouse economic occupancy was at 84.1%, which is down 190 basis points year-over-year, but remained flat compared to Q2. Physical occupancy ticked up slightly to 77.6%. The same warehouse throughput pallets saw a year-over-year decline of 1.7%, yet remained unchanged sequentially. Overall, demand appears stable, although slightly down from the previous year as the industry recalibrates after recent supply chain issues. We anticipate lower-than-normal seasonal occupancy increases continuing through Q4.
Operationally, we are focusing on labor efficiencies, and our energy operating expenses are being effectively managed, aligning with our commitment to sustainability. Labor and energy costs remain our largest expenses, but we continue to control what we can and are preparing for strong operational growth as volumes rise. We appreciate our dedicated operational and sales leaders, who are vital in serving both our customers and team members as Lineage works to transform the global food supply chain.
Challenges in Integrated Solutions Segment
Now, let’s examine the global integrated solutions segment on Slide 11, representing 13% of our total NOI for the quarter. We experienced a slight dip in total revenue, which came in at $363 million, down 1.6% year-over-year. Segment NOI decreased 11% to $56 million, with the segment margin falling by 170 basis points to 15.4%. This segment provides value-added solutions that enhance our warehousing operations. The challenges in the GIS segment largely stem from a difficult demand environment in transportation due to lower volumes and excess capacity.
Notably, for many of our customers, transportation costs are markedly higher than warehousing costs. Our farm-to-fork solutions create efficiencies throughout their supply chains, fostering deeper relationships and customer loyalty. Turning to Slide 12, regarding our capital structure, we utilized the proceeds from our IPO to repay our full $2.4 billion balance on the delayed draw term loan, retire five CMBS loans, and pay down $1.2 billion of our revolving credit facility.
This strategic repayment plan significantly improved our leverage profile, with our leverage ratio, defined as net debt to adjusted EBITDA, standing at 4.9 times at the end of the quarter. Our total liquidity at that time was $2.1 billion, inclusive of cash and available capacity on our revolving credit facility. After the quarter’s close and following Greg’s earlier comments, we completed the ColdPoint acquisition, funded through a mix of cash reserves and revolver draw. Our robust balance sheet and recent investment-grade credit ratings position us advantageously to explore our sizable pipeline of capital deployment opportunities.
Looking ahead to 2024, we expect full-year AFFO per share to be in the range of $3.16 to $3.20. This translates to a Q4 AFFO per share estimate between $0.70 and $0.74, amounting to a total Q4 AFFO of $180 million to $190 million. For Q4 guidance, we predict low single-digit same-store NOI growth compared to last year’s 9% increase, reflecting similar market conditions as Q3.
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Lineage Logistics Reports Strong Q4 Despite Setbacks
Financial Highlights Amid Inventory Challenges
Lineage Logistics faced some challenges recently, including a fire at its Los Angeles facility that caused significant disruptions. Fortunately, no injuries were reported. The incident, linked to third-party equipment, forced the closure of about half the facility and is expected to impact the fourth quarter by approximately $6 million.
As we plan for Q4, we anticipate an average share count of 257 million, reflecting a complete quarter of shares after our IPO. We estimate interest expenses at $60 million for the quarter, which also aligns with the top post-IPO figures. I will now hand it back to Greg for concluding remarks.
Greg Lehmkuhl — President and Chief Executive Officer
Thank you, Rob. Turning to Slide 14, our first quarter as a public company was a success, showcasing 5% adjusted EBITDA growth and a remarkable 20% increase in AFFO per share. We have significantly lowered our debt levels, enabling us to achieve investment-grade ratings, and we’re back to focusing on capital deployment.
Positioning for Future Growth
Looking ahead, Lineage Logistics is well-positioned within the global food supply chain, backed by strong long-term demand. We are effectively managing operations by enhancing productivity and controlling energy costs. Our expansive platform creates powerful network effects, offering diversified technology, automation, and data solutions across our more than 13,000 customer base.
Our global integrated solutions segment offers the most comprehensive range of services. Being leaders in operational excellence, we aim to remain the preferred acquirer in our industry. Our strong balance sheet supports strategic acquisitions and capital investments. Overall, we are confident in our ability to adapt to changing economic conditions while focusing on sustainable growth to enhance long-term shareholder value.
Lastly, I’d like to recognize our dedicated team of over 26,000 employees worldwide for their commitment to serving our customers safely and effectively. We now welcome your questions.
Questions & Answers:
Operator
Thank you for that overview. We will now start the question-and-answer session. [Operator instructions] Our first question comes from Ronald Kamden of Morgan Stanley. Please go ahead.
Ronald Kamden — Morgan Stanley — Analyst
Thank you, and congratulations on a solid quarter. I noticed you described demand as stable, with pressure from customer inventory rationalization. Considering this, can you explain your pricing power as we look toward next year?
Greg Lehmkuhl — President and Chief Executive Officer
Good morning, Ronald. Overall food volumes have been down this year, especially in retail and food service. Customers seem hesitant, watching closely as they navigate high food prices, which, while increasing more slowly, are still significant. They expect demand to slowly rebound but are uncertain about the timing. At Lineage, we concentrate on the aspects we can control such as costs and productivity while remaining prepared for operational enhancements as market conditions improve. Despite current market softness, we’re confident in our ability to implement price increases reflecting inflationary pressures.
Ronald Kamden — Morgan Stanley — Analyst
Great, thank you for the insight.
Greg Lehmkuhl — President and Chief Executive Officer
Of course.
Operator
Next, we have Caitlin Burrows from Goldman Sachs on the line. Please proceed.
Caitlin Burrows — Goldman Sachs — Analyst
Hello and good morning. Congratulations on your first quarter as a public entity. I’d like to discuss automation. What are the margin comparisons between fully automated facilities, such as the one in Hazleton, and traditional locations?
Greg Lehmkuhl — President and Chief Executive Officer
Good morning, Caitlin. Each project we undertake is unique, tailored to meet customer needs, whether they are automated or conventional. We focus on evaluating returns on capital rather than just margins. We’ve reported yields on new projects ranging from 9% to 11%, regardless of their automation level.
Caitlin Burrows — Goldman Sachs — Analyst
Thank you. I appreciate that clarification.
Greg Lehmkuhl — President and Chief Executive Officer
Glad to help. Just to add, automation varies widely in implementation. In our Hazleton facility, we aim for substantial labor savings—over 50%—given the level of automation there.
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Lineage Logistics Sets the Stage for Growth Post-IPO
Overview of Acquisition Strategy
In a recent earnings call, Lineage Logistics highlighted its strategy for pursuing acquisitions and managing its pipeline effectively. The company, which recently celebrated a successful IPO, is keen on growth through strategic acquisitions rather than waiting for broader sale processes to unfold.
Caitlin Burrows — Goldman Sachs — Analyst
Got it. Thanks. Thank you.
Operator
Your next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander Goldfarb — Analyst
Hey, good morning, and congrats on the successful IPO. I would like to know about the acquisition market—specifically, the current pipeline. Did you experience any slowdown during the IPO process? Given the focus required, it’s understandable if due diligence took a hit. How should we view acquisition volumes moving forward?
Greg Lehmkuhl — President and Chief Executive Officer
Good morning, Alex. Absolutely, we indeed slowed down for a full year leading up to and through the IPO to ensure its success. However, we view ourselves as a preferred acquirer in the industry because of our people-centric culture. Notably, our recent $223 million acquisition of ColdPoint exemplifies our commitment to strategic growth. We negotiated directly with the sellers to streamline the process, avoiding a lengthy sale cycle. We are eager to resume our acquisition strategy and have an extensive pipeline of opportunities worldwide.
Each opportunity is assessed against our investment criteria, and we meet weekly with our investment committee, which includes Rob and me, along with other key leaders. We are incentivized to increase AFFO per share and focus on ventures that promise the best risk-adjusted returns for our shareholders.
While we have billions in acquisition prospects, we will remain disciplined and only pursue deals that offer the most favorable outcomes.
Alexander Goldfarb — Analyst
Thank you.
Greg Lehmkuhl — President and Chief Executive Officer
Thank you.
Operator
Your next question comes from Michael Carroll with RBC. Please go ahead.
Michael Carroll — Analyst
Hi, I want to ask about the fire incident at Big Bear, mentioned in Rob’s remarks. When did this happen, and what’s the status of repairs? Can we expect any impact on Q4 results to carry into Q1 ’25? Or will this be confined to Q4?
Greg Lehmkuhl — President and Chief Executive Officer
I’ll start, then hand it to Rob. First and foremost, safety remains our top priority. Fortunately, there were no injuries among our team or first responders due to the fire. It seems to have originated in the solar arrays on the roof, which are leased to us by a third party. We initiated inspections of all our solar arrays and do not anticipate a recurrence of this incident.
I’ll let Rob provide additional details on the financial impact.
Robert Crisci — Chief Financial Officer
The fire occurred in mid-August, and we are making every effort to bring operations back to normal. We have removed the site from the same-store pool and will have updates for you in February on our progress. Restoring the facility is critical, and many of you have seen its significance during your tours.
Michael Carroll — Analyst
Is there an expected insurance payout?
Robert Crisci — Chief Financial Officer
Yes, we are insured and anticipate recovering our losses over time.
Michael Carroll — Analyst
Okay, great, thanks.
Robert Crisci — Chief Financial Officer
Thank you.
Operator
Your next question comes from Mike Mueller with J.P. Morgan. Please go ahead.
Mike Mueller — Analyst
Hello, how indicative is the ColdPoint acquisition of market pricing? How much potential do you see for EBITDA growth in the coming years from this transaction?
Greg Lehmkuhl — President and Chief Executive Officer
This was a deal we managed to source through our strong relationships, and we’re excited to welcome ColdPoint into our portfolio. As mentioned during the call, it was a deal with a 14-times multiple—typical for our acquisitions. We always aim to improve on what we acquire over time. Since we secured it at a favorable multiple, the expected growth in EBITDA will benefit both us and our shareholders.
Mike Mueller — Analyst
Understood, thank you.
Greg Lehmkuhl — President and Chief Executive Officer
Thanks, Mike.
Operator
Your next question comes from Joshua Dennerlein of Bank of America. Please go ahead.
Joshua Dennerlein — Analyst
Hey, thanks for taking my question. A key aspect of your IPO pitch was your technological edge. How will your tech platform rollout benefit the business, particularly regarding EBITDA margins? Are there any upcoming developments in the next 12 months we should know about?
Greg Lehmkuhl — President and Chief Executive Officer
The major focus is our LinOS system, which is our proprietary warehouse execution software already implemented in several automated facilities. This system utilizes algorithms to optimize warehouse operations, targeting our significant labor costs, which total around $1.4 billion globally. Current efforts are centered on…
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Lineage Logistics Embraces Technology to Boost Operational Efficiency
Lineage Logistics has begun piloting its new software, LinOS, in conventional buildings. During the initial launch at the first site, the company identified significant opportunities for improving task interweaving and reducing waste, aligning closely with LinOS’s intended goals. The outlook remains positive for LinOS and their ongoing technology investments.
Early results have proven encouraging, and Lineage anticipates sharing more details as the pilot program expands next year.
Robert Crisci — Chief Financial Officer
We’re particularly focused on enhancing labor efficiency. Our goal is to reduce the time employees spend in freezers and decrease the number of empty forklift trips. For labor expenses, we are managing a budget of a billion dollars. Although we are only just starting the rollout, any significant benefits would likely emerge in 2026 and beyond.
Operator
Your next question comes from Samir Khanal of Evercore ISI. Please go ahead.
Samir Khanal — Analyst
Good morning. Greg or Rob, you mentioned that occupancy is still under pressure, with limited seasonal growth in Q4. How do you reconcile that with the mid-single digit NOI growth you projected for next year, which I recall from your road show?
Robert Crisci — Chief Financial Officer
We are concentrating on what we can control, focusing heavily on labor efficiency and energy costs. This strategy will provide leverage as the market improves. For Q4, we forecast low single-digit growth against a 9% comparison from last year.
This year, we’ve seen double-digit comps, for example, we logged 2.4% in Q3 versus an 11% comparison. Over two years, this places us within the mid-single digit target we mentioned earlier. Moving into next year, we expect to have more favorable comparisons and will provide updated insights in February.
Our comprehensive budgeting process has begun, and we will meet with our teams next week to refine our strategy and share updates with investors in February.
We are committed to maintaining momentum and are confident we will achieve our targets.
Samir Khanal — Analyst
Thank you.
Operator
Your next question comes from Ami Probandt from UBS. Please go ahead.
Ami Probandt — UBS — Analyst
I’d like to discuss the acquisition landscape. Given that you hold a competitive edge as an acquirer, what does the current market look like? Are there numerous bidders, and how do you see pricing trends?
Robert Crisci — Chief Financial Officer
Competition exists, as these are valuable assets in a robust market. Our position in the food sector, which typically expands over long periods, provides advantages. Nevertheless, these assets demand high operational expertise. Our recent IPO has positioned us with an improved cost of capital.
This quarter, we successfully completed a deal with a multiple of 14. Each transaction varies; some see lower multiples, while others are higher. We have numerous investment opportunities in both Australia and Europe, where our well-established management teams can maximize risk-adjusted returns. We’re particularly focused on increasing AFFO per share, ensuring investments contribute positively.
As someone still relatively new to the company, it’s exciting to explore deployment opportunities.
Ami Probandt — UBS — Analyst
Can you provide any specifics on pricing, even acknowledging variability?
Robert Crisci — Chief Financial Officer
In terms of pricing, we anticipate individual deal multiples will vary. Our primary objective remains to secure financially beneficial acquisitions that will enhance our AFFO per share.
Ami Probandt — UBS — Analyst
Thanks.
Operator
Your next question comes from Greg McGinniss with Scotia. Please go ahead.
Greg McGinniss — Analyst
Good morning. Rob, I’d like to return to the mid-single digit same-store growth target. Lineage seems to be performing well, despite challenging circumstances. However, a recovery in consumer demand seems crucial. Are there any indicators from your customers or the economy that suggest improvement?
Robert Crisci — Chief Financial Officer
Greg, you bring up excellent points. As customers lean toward supply chain optimization due to rising interest rates, we’ve seen inventory levels drop significantly this year. Our global reach allows us to engage with executive teams, assisting them in refining their supply chains and optimizing inventory.
We prioritize long-term relationships, which we believe will encourage customer growth over time. Recently, many customers report increased demand and discounting strategies to accelerate product movement. We are currently at relatively low inventory levels and anticipate restocking in the future. When that occurs, our technology investments and overall productivity will position us well to leverage operational capacity.
Greg McGinniss — Analyst
Great. Thank you.
Operator
Your next question comes from Blaine Heck with Wells Fargo. Please go ahead.
Blaine Heck — Analyst
Thank you. Good morning.
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Discussion on Policy Impacts
Morning after the election, attention turns to potential impacts of Trump’s policies on businesses, particularly regarding tariffs and their effects on port exposure.
Robert Crisci — Chief Financial Officer
We had several election-related jokes prepared, but let’s skip those and focus on your question.
Greg Lehmkuhl — President and Chief Executive Officer
We’ve been in the business for over 15 years and have weathered different administrations and numerous economic challenges. Our confidence in our future plan remains strong. Tariffs, for instance, affect global food business dynamics.
The Need for Food Remains Constant
Regardless of government policy or tariff changes, the global demand for food persists. We are strategically positioned to support the food supply chain effectively. Recently, I spoke with a seafood executive who noted that higher tariffs on imports from China could prompt businesses to source from Vietnam, Malaysia, or Thailand instead. With operations in 250 ports worldwide, we are well-equipped to facilitate the movement of goods from various origins.
Blaine Heck — Analyst
Thank you for the insights.
Operator
Next, we have Omotayo Okusanya from Deutsche Bank. Please proceed.
Omotayo Okusanya — Analyst
Good morning, and congratulations on your first reporting quarter. I’m interested in your expenses as you have effectively managed your controllable costs. Looking ahead to Q4, how flexible is your operating leverage in terms of labor adjustments as demand fluctuates?
Robert Crisci — Chief Financial Officer
Over the long term, we have significant improvement potential. Our initiatives, including LinOS, should enhance operating leverage. In Q4, seasonally high admin and maintenance capital expenditures typically arise due to year-end expenses, which are factored into our AFFO per share guidance.
This company’s historical approach has focused on full-year operations rather than quarterly forecasting. We’re working to adjust this. While many maintenance costs presently hit in Q4, we aim to distribute these more evenly throughout the year in the future.
Logical Flow and Future Plans
Our goal is to enhance both labor efficiency and administrative costs. This company is designed for growth, and we will strive to leverage our cost structure further moving forward.
Omotayo Okusanya — Analyst
That’s insightful, thank you.
Operator
Our next question comes from Daniel Guglielmo from Capital One Securities. Go ahead.
Daniel Guglielmo — Analyst
Hello, and thank you for taking my question. Lean operations play a vital role in your success. How many warehouses are currently certified, and can you discuss any new insights or improvements from your lean initiatives?
Greg Lehmkuhl — President and Chief Executive Officer
We have over 40 certified lean buildings, with more in the pipeline.
Robert Crisci — Chief Financial Officer
Approximately 10% of our total portfolio features these certifications.
Greg Lehmkuhl — President and Chief Executive Officer
In terms of Net Operating Income (NOI), it’s even more significant. We gain valuable insights with each lean implementation, and these best practices are accessible via our network. Lean methodology is about consistently improving efficiency and eliminating waste across all functions within the company.
Daniel Guglielmo — Analyst
Thank you for sharing that.
Operator
The next question is from Nick Thillman with Baird. Please go ahead.
Nick Thillman — Robert W. Baird and Company — Analyst
There seems to be a year-over-year decline in rent per occupied pallet. Could you comment on customer leverage in pricing discussions today? Do larger customers hold more power? Also, what geographical differences are you observing?
Greg Lehmkuhl — President and Chief Executive Officer
Customers generally possess more leverage now than in recent years. Our corporate clients have indeed gained an upper hand during pricing discussions.
Cold Storage Industry Faces Challenges Amid Soft Market Conditions
The cold storage sector is currently navigating a difficult market landscape. As companies grapple with pricing and competitive pressures, leaders in the industry are actively forming partnerships to devise effective solutions.
Emerging Excitement and Competition in Cold Storage
Cold storage is gaining traction, a trend linked to the institutional growth of the industry, partly propelled by the success of Lineage Logistics. This enthusiasm reinforces the significance of cold storage as a critical part of the industrial real estate market and the global food supply chain, similar to the roles of data centers and public storage in their respective sectors. As a result, more capital is being funneled into cold storage, leading to increased competition and the emergence of speculative developers.
Advantages of Established Industry Leaders
Despite the influx of competition, established companies maintain several advantages. With a network of more than 480 warehouses around the globe, they benefit from scale and have the largest number of port locations and distribution centers. Their strong balance sheet and access to capital enhance their ability to grow through mergers, acquisitions, and development efforts. Established relationships with over 13,000 customers present a significant barrier for newer entrants looking to penetrate the market.
Geographical Performance Variations
While overall market conditions may seem challenging, certain regions are enjoying solid performance. According to Greg Lehmkuhl, President and CEO, markets like the Pacific Northwest and Canada are thriving. Australia’s operations, led by President Brooke Miller, are also showing impressive results.
Supply Pressures and Market Dynamics
The cold storage industry is currently experiencing an influx of new capital, yet this could lead to some fallout as new entrants underestimate the scale advantages held by established firms. Upward trends in construction costs may curb speculative development in the coming years. While some markets, such as Florida, face oversupply and new competition, the overall industry growth trend suggests that excess capacity will gradually be absorbed.
Competitive Landscape of Leasing Models
In terms of leasing strategies, multi-tenant models are viewed as more competitive compared to single-user models. Although the company engages in net lease deals, the focus remains on operational excellence and being the preferred choice for prospective tenants. The market dynamics are complex, with various factors determining the demand and capacity in each region, but established leaders possess the best insights and data to navigate these challenges.
Understanding Customer Needs Amid Demand Challenges
The ongoing rationalization of customers reflects broader challenges within the market, with weaker consumer demand impacting operations. The question remains whether the global Integrated Solutions segment can stabilize in the face of these pressures or if it requires an overall market recovery. As leaders in the field continue to evaluate their strategies, their capacity and insights put them in a fortuitous position to weather these market conditions.
Demand Trends Remain Strong
Greg Lehmkuhl — President and Chief Executive Officer
To start, the long-term prospects for our market look favorable. People will always need to eat, and as more markets around the world develop, they increasingly seek access to quality food. This upward demand trend sets a solid foundation for our business as we strive to deliver food globally.
Returning to a state of normalcy is crucial. In the GIS segment, which focuses heavily on transportation, we follow a pattern consistent with industry trends. Some cycles fluctuate here, as mentioned during our call. Importantly, the farm-to-fork approach is essential for bringing more business into our warehouses. Moving forward, we expect to see a rebound in this area, although it will likely remain more cyclical.
Despite this, the warehousing segment is projected to grow at a faster rate over time due to these positive dynamics.
Capital Expenditure Insight
Todd Thomas — Analyst
Thank you for that insight. As for the fourth quarter, I appreciate your comments on the higher seasonal capital expenditures. Could you provide a range for the maintenance capex included in your guidance for this quarter? Additionally, could you clarify on DNA?
Greg Lehmkuhl — President and Chief Executive Officer
As mentioned earlier, our focus is on AFFO per share, which remains central to our guidance. There are many variables we can adjust within a quarter; for instance, as market conditions improve, we might increase spending. Should the market turn soft, we have strategies in place to ensure we meet our targets. Our emphasis on AFFO per share continues to guide our financial outlook and provides solid metrics for stakeholders.
Todd Thomas — Analyst
Understood. But do you have a specific maintenance capex range embedded in the guidance for the fourth quarter, like the 70 to 74?
Greg Lehmkuhl — President and Chief Executive Officer
No, we do not.
Todd Thomas — Analyst
Thank you for clarifying.
Greg Lehmkuhl — President and Chief Executive Officer
Thank you.
Operator
There are no more questions. I will now turn the conference back over to Evan Barbosa for closing remarks.
R. Evan Barbosa — Vice President, Investor Relations
Thank you for joining us today on behalf of the entire Lineage team. We appreciate your interest and look forward to our next quarterly earnings call. Thank you.
Duration: 0 minutes
Call Participants:
R. Evan Barbosa — Vice President, Investor Relations
Greg Lehmkuhl — President and Chief Executive Officer
Robert Crisci — Chief Financial Officer
Ronald Kamden — Morgan Stanley — Analyst
Caitlin Burrows — Goldman Sachs — Analyst
Alexander Goldfarb — Analyst
Michael Carroll — Analyst
Mike Mueller — Analyst
Joshua Dennerlein — Analyst
Samir Khanal — Analyst
Ami Probandt — UBS — Analyst
Greg McGinniss — Analyst
Blaine Heck — Analyst
Omotayo Okusanya — Analyst
Daniel Guglielmo — Analyst
Nick Thillman — Robert W. Baird and Company — Analyst
Vince Tibone — Green Street Advisors — Analyst
Todd Thomas — Analyst
Evan Barbosa — Vice President, Investor Relations
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