Lineage, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes included in our Prospectus. In addition, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity, and capital resources, that involve risks, uncertainties, and assumptions that could cause actual results to differ materially from our expectations. Our actual results may differ materially from those contained in or implied by any forward-looking statements as a result of various factors, including those set forth below and those described under “Risk Factors,” in our Prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act. Management’s Overview We are the world’s largest global temperature-controlled warehouse REIT, with a modern and strategically located network of properties. Our business is competitively positioned to deliver a seamless end-to-end, technology-enabled experience for a well-diversified and stable customer base, each with their own unique requirements in the temperature-controlled supply chain. As of June 30, 2024, we operated an interconnected global temperature-controlled warehouse network, comprising over 84.0 million square feet and 2.9 billion cubic feet of capacity across 483 warehouses predominantly located in densely populated critical-distribution markets, with 312 in North America, 83 in Europe, and 88 in Asia-Pacific. We view, manage, and report on our business through two segments: • Global warehousing, which utilizes our high-quality industrial real estate properties to provide temperature-controlled warehousing storage and services to our customers; and • Global integrated solutions, which complements warehousing with supply chain services to facilitate the movement of products through the food supply chain to generate cost savings for customers and additional revenue streams for our company. Initial Public Offering On July 26, 2024, we closed our IPO of 56,882,051 shares of our common stock at a price of $78.00 per share, with a subsequent exercise in full by the underwriters of their option to purchase from us an additional 8,532,307 shares of common stock that closed on July 31, 2024. The net proceeds to us from the IPO were approximately $4,875 million. In connection with the IPO, we terminated the operating services agreement between our subsidiary, Lineage Holdings, and Bay Grove Management. Additionally, we entered into a transition services agreement with Bay Grove Management, pursuant to which Bay Grove Management is expected to provide certain transition services to support capital deployment, mergers, and acquisitions activities for the three years following our IPO. Refer to Note 20, Subsequent events in the condensed consolidated financial statements included in this Quarterly Report for more information regarding our IPO-related transactions. Components of Our Results of Operations Global Warehousing Segment . Our primary business is owning and operating temperature-controlled warehouses. Revenue . Our global warehousing segment revenues are generated from storing frozen and perishable food and other products and providing related warehouse services for our customers. Storage revenues relate to the act of storing products for our customers within our warehouses. Storage revenues can be in the form of storage fees we charge customers for utilization of space in a warehouse, blast freezing fees we charge customers for utilization of specific ultra-cold spaces within a warehouse designed to rapidly reduce product temperature, and rent we charge customers for the lease of warehouse space pursuant to a lease agreement. Warehouse services fees relate to handling and other services required to prepare and move customers’ pallets into, out of, and around the facilities. As part of our warehouse services, we offer handling, case-picking, order assembly and load consolidation, quality control, re-packaging, and government-approved storage and inspection, among other services. Cost of operations . Our global warehousing segment cost of operations consists primarily of labor, power, and other warehouse costs. Labor comprises the largest component of the cost of operations from our global warehousing segment and consists primarily of employee wages (both direct and indirect) and benefits. Changes in our labor expense are driven by, among other 42 things, changes in headcount, changes in compensation levels, and associated performance incentives, the use of third-party labor to support our operations, changes in terms of collective bargaining agreements, changes in customer requirements and associated work content, workforce productivity, labor availability, governmental policies and regulations, and variability in costs associated with employer-provided benefits. Our second-largest cost of operations of our global warehousing segment is electrical power utilized in the operation of our temperature-controlled warehouses. We may, from time to time, hedge our exposure to changes in power prices through fixed rate agreements. In addition, to the extent possible and appropriate, we may seek to mitigate or offset the impact of fluctuations in the price of power on our financial results through rate escalations or power surcharge provisions within our agreements with customers. We also look to implement energy saving alternatives to reduce energy consumption, including the installation of solar panels, state of the art refrigeration control systems, LED lighting, thermal energy storage, motion-sensor technology, variable frequency drives for our fans and compressors, and rapid open/close doors. Additionally, business mix impacts our power expense depending on the temperature zone and type and frequency of freezing required (e.g., blast freezing). Other warehouse costs include utilities other than power, insurance, real estate taxes, repairs and maintenance, rent under real property operating leases where applicable, equipment costs, warehouse consumables (e.g., pallets and shrink-wrap), personal protective equipment, warehouse administration, and other related facility and services costs. Global Integrated Solutions Segment . Our global integrated solutions segment provides our customers with a comprehensive approach to facilitate the movement of products along the supply chain. Revenues . Our integrated solutions revenues are primarily driven by transportation fees, which may also include fuel and capacity surcharges, to our customers for whom we arrange the transportation of their products. Within transportation, which is the largest component of our global integrated solutions segment, our core focus areas are multi-vendor less-than-full-truckload consolidation, drayage services to and from ports, transportation brokerage, and freight forwarding. We also provide rail transportation services and, in select markets, foodservice distribution and e-commerce fulfillment services. Cost of operations . Our global integrated solutions cost of operations consists primarily of third-party carrier charges, which are impacted by factors affecting those carriers, including truck and ocean liner capacity and driver and equipment availability in certain markets. Additionally, in certain markets we employ drivers and operate assets to serve our customers. Costs to operate these assets include wages, fuel, tolls, insurance, and maintenance. Other Consolidated Operating Expenses . Depreciation and amortization expenses. Our depreciation and amortization expenses result primarily from the capital-intensive nature of our business. The principal components of depreciation relate to our warehouses, both owned and leased, including buildings and improvements, refrigeration equipment, racking, leasehold improvements, material handling equipment, furniture and fixtures, and our computer hardware and software. We also incur depreciation related to owned transportation assets. Amortization relates primarily to intangible assets for customer relationships and finance lease right-of-use assets. General and administrative expenses. Our general and administrative expenses consist primarily of costs associated with administration of our global warehousing and global integrated solutions segments, including management wages and benefits, administrative, legal, business development, project management, sales, marketing, engineering, safety and compliance, food optimization, human resources, finance, accounting, network optimization, data science and information technology personnel, transformational information technology expenses, equity incentive plans, communications and data processing, travel, professional fees, credit loss, training, office equipment, supplies, and, prior to our IPO, management fees paid to Bay Grove in accordance with the terms of the operating services agreement. Trends in general and administrative expenses are influenced by changes in headcount and compensation levels and achievement of incentive compensation targets. In connection with our IPO, we terminated the operating services agreement in order to internalize certain operating, strategic development and financial services that were previously provided by Bay Grove under it, and entered into a transition services agreement with Bay Grove to provide certain of these services for a three-year term while we internalize such functions. Acquisition, transaction, and other expenses. Our acquisition, transaction, and other expenses consist of costs with a high level of variability from period-to-period and include professional fees associated with planned and completed business expansion activities, acquisition integration costs, and costs related to public company readiness efforts. These costs are expensed as incurred. It also includes employee-related expenses associated with acquisitions, such as acquisition-related severance and consulting agreements and certain cash-based incentive awards given to employees of legacy companies in acquisitions. Restructuring, impairment, and (gain) loss on disposals. Our restructuring, impairment, and (gain) loss on disposals include certain contractual and negotiated severance and separation costs from exited former executives, costs relating to reductions in 43 headcount to achieve operational efficiencies, and costs associated with exiting non-strategic operations. We record such costs when there is a substantive plan for employee severance or employees are otherwise entitled to benefits (e.g. in case of one-time terminations) and related costs are probable and estimable. It also includes gains (losses) on dispositions of property, plant, and equipment and impairments of long-lived assets, net of related gains on insurance recoveries. Key Factors Affecting Our Business and Financial Results Recent Trends in Our Global Warehousing Segment The following are key trends emerging in our global warehousing segment: • Strategic engagement with customers . Our strategic account management team works with our top customers to create a joint roadmap and action plan to meet their strategic supply chain needs. We have seen increased customer engagement with this approach over the last several years, a trend we expect to continue as we expand strategic customer relationships. • Automation . We have industry-leading automation capabilities and believe our automated facilities can provide lower cost and more customized solutions to our high-case volume customers, thereby improving the customer experience and driving customer retention. Market Conditions Our business is impacted by general economic and market conditions, as well as by national and international political, environmental, and socio-economic events. Significant factors impacting our business have included: • Inflation and Customer Rate Increases . In response to significant inflationary impacts in recent years across wages, energy, and other operational costs, we implemented customer rate increases to offset such impacts to our operating results. We believe that higher food costs continue to impact end-consumers’ buying decisions for certain commodities. As inflation eases, we expect to see relief across operational cost pressures and volumes, both on-hand and throughput. • Occupancy and Throughput . Coming out of the global pandemic, we experienced higher physical occupancy levels through the first half of 2023, particularly in North America, significantly driven by customers increasing production and inventories in response to supply chain backlogs in recent years. Beginning in the second half of 2023, customers began rationalizing inventory levels in response to continued higher interest rates and inflation, which is driving changes in customer demand. As our customers adjust to these new demand levels, we have seen lower throughput volume across our network. Over the long-term, we believe that end-consumer demand will remain consistent with historic levels. • Labor . Following headwinds in recent years from wage inflation, labor shortages, and team member turnover, our team has focused on strategic initiatives to decrease turnover through higher wages, engagement best practices, and training to help retain talent. Retention has improved due to these internal efforts and macroeconomic factors. • Power Costs . Following increased power costs in prior years, particularly in our European operations, our power costs in 2023 and 2024 have stabilized. We have generally been able to pass increased power costs through to our customers, mitigating the impact of such cost increases on our operating results. Refer to Part II, Item 1A. “Risk Factors” for additional information. Foreign Currency Translation Impact on Our Operations Our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our operations outside the United States. Future fluctuations of foreign currency exchange rates and their impact on our consolidated financial statements are inherently uncertain. Our primary currency exposures are to the euro, Canadian dollar, British pound sterling and Australian dollar. Revenues and expenses are typically denominated in the local currency of the country in which they are derived or incurred, which partially mitigates the net impact of foreign currency fluctuations on our operating results and margins. 44 Focus on Our Operational Effectiveness and Cost Structure We are focused on further enhancing our operational effectiveness and cost structure. This includes the following: integrating acquired businesses and their assets onto common information technology systems; instituting key health, safety, leadership, and training programs; implementing standardized operational processes; developing and deploying proprietary and third-party operating systems; and capitalizing on the purchasing power of our network. We employ multiple strategies to maximize labor productivity, including the following: instituting lean operating principles, driving standard work processes, visual management, just-in-time management and quality processes; optimizing the mix of permanent and temporary team members; optimizing shifts relative to throughput; and focusing on increased engagement and retention. We seek to maximize energy efficiency in our warehouses including the latest technology and alternative energy generation practices. The technologies we deploy include variable frequency drives, refrigeration control systems, rapid close doors, motion sensor technology, LED lighting, and “flywheeling”— an innovative process that leverages machine learning and artificial intelligence to manage energy load based on predictions of peak demand. We also generate alternative sources of energy primarily through the deployment of solar, battery capacity, and linear generators. These initiatives have allowed us to reduce our consumption of kilowatt hours, optimize rates, and reduce overall energy costs. How We Assess the Performance of Our Business Segment Net Operating Income or “NOI” We evaluate the performance of our business segments based on their net operating income relative to our overall results of operations. We use the term “segment net operating income” or “segment NOI” to mean a segment’s revenues less its cost of operations (excluding any depreciation and amortization, impairment charges, general and administrative expenses, acquisition, transaction, and other expense and restructuring and impairment expenses). We use segment NOI to evaluate our segments for purposes of making operating decisions and assessing performance in accordance with Accounting Standards Codification (“ASC”) 280, Segment Reporting . We also analyze the “segment NOI margin” for each of our business segments, which we calculate as segment NOI divided by segment revenues. Same Warehouse Analysis We define our “same warehouse” population annually at the beginning of the current calendar year. Our same warehouse population includes properties that were owned, leased, or managed for the entirety of two comparable periods and that have reported at least twelve months of consecutive normalized operations prior to January 1 of the current calendar year. We define “normalized operations” as properties that have been open for operation or lease after development or significant modification, including the expansion of a warehouse footprint or a warehouse rehabilitation subsequent to an event, such as a natural disaster or similar event causing disruption to operations. In addition, our definition of “normalized operations” takes into account changes in the ownership structure (e.g., purchase of a previously leased warehouse would result in a change in the nature of expenditures in the compared periods), which would impact comparability in our global warehousing segment NOI. Acquired properties will be included in the “same warehouse” population if owned or leased by us as of the first business day of the prior calendar year and still owned by us as of the end of the current reporting period, unless the property is under development. The “same warehouse” pool can also be adjusted during the year to remove properties that were sold or entering development subsequent to the beginning of the current calendar year. As such, the “same warehouse” population for the period ended June 30, 2024 includes all properties that we owned at January 1, 2023 which had both been owned and had reached “normalized operations” by January 1, 2023. We calculate “same warehouse NOI” as revenues for the same warehouse population less its cost of operations (excluding any depreciation and amortization, general and administrative expenses, acquisition, transaction, and other expense, restructuring and impairment expenses and gain or loss on sale of assets). We evaluate the performance of the warehouses we own, lease, or manage using a “same warehouse” analysis, and we believe that same warehouse NOI is helpful to investors as a supplemental performance measure because it includes the operating performance from the population of properties that is consistent from period to period, thereby eliminating the effects of changes in the composition of our warehouse portfolio on performance measures. 45 The following table shows the composition of our warehouse portfolio as of June 30, 2024. Total warehouses (1) 464 Same warehouse facilities 412 Non-same warehouse facilities 52 __________________ (1) Excludes 19 warehouses in our global integrated solutions segment as of June 30, 2024. We categorize warehouses as part of our global integrated solutions segment if the primary business conducted in those warehouses is within our global integrated solutions segment. Same warehouse NOI is not a measurement of financial performance under GAAP. In addition, other companies providing temperature-controlled warehouse storage and handling and other warehouse services may not define same warehouse or calculate same warehouse NOI in a manner consistent with our definition or calculation. Same warehouse NOI should be considered as a supplement, but not as an alternative, to our results calculated in accordance with GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below. Economic Occupancy of Our Warehouses We define average economic occupancy as the aggregate number of physical pallets on hand and any additional pallet positions otherwise contractually committed and paid for by customers for a given period divided by the approximate number of average physical pallet positions in our warehouse for the applicable period. We estimate the number of contractually committed pallet positions by taking into account the actual pallet commitment specified in each customer’s warehouse agreement and subtracting the physical pallets on hand for that customer. We regard economic occupancy as an important driver of our financial results. We plan to expand our use of minimum storage guarantees that pay us minimum or fixed storage fees for pallet positions whether or not a minimum number of pallet positions are physically occupied. We actively seek to enter into minimum storage guarantees when establishing new customer agreements, renewing existing customer agreements or upon a change in the anticipated profile of our customer. We believe that transitioning certain customer contracts from on-demand, as-utilized structures to minimum storage guarantee structures will drive NOI growth and consistency by maintaining our storage revenues during periods of lower inventories. Physical Occupancy of Our Warehouses We define average physical occupancy as the average number of physical pallets on hand divided by the estimated number of average physical pallet positions in our warehouses for the applicable period. We estimate the number of physical pallet positions by taking into account actual racked space and by estimating unracked space on an as-if-racked basis. We base this estimate on a formula utilizing the total cubic feet of each room within the warehouse that is unracked divided by the volume of an assumed rack space that is consistent with the characteristics of the relevant warehouse. The number of our pallet positions is reviewed and updated quarterly, taking into account changes in racking configurations and other warehouse attributes. We regard physical occupancy as an important driver of our financial results. Throughput at Our Warehouses The level and nature of throughput at our warehouses is an important factor impacting our warehouse services revenues. Throughput refers to the volume of inbound pallets that enter our warehouses plus the volume of outbound pallets that exit our warehouses, divided by two. Higher levels of throughput drive warehouse services revenues in our global warehousing segment, as customers are typically billed transactionally for these services. The nature of throughput may be driven by the expected inventory turns of the underlying product or commodity. Throughput pallets can be influenced by both customers’ production as well as shifts in demand preferences. Customers’ production levels, which respond to market conditions, labor availability, supply chain dynamics and consumer preferences, may impact inbound pallets. Similarly, a change in inventory turnover due to shift in consumer demand may impact outbound pallets. 46 Results of Operations Comparison of Results for the Three Months Ended June 30, 2024 and 2023 Global Warehousing Segment The following table presents the operating results of our global warehousing segment for the three months ended June 30, 2024 and 2023. Three Months Ended June 30, 2024 2023 Change (in millions except revenue per pallet) Warehouse storage $ 510 $ 517 (1.4) % Warehouse services 456 447 2.0 % Total global warehousing segment revenues $ 966 $ 964 0.2 % Power $ 50 $ 50 — % Labor 356 348 2.3 % Other warehouse costs (1) 176 185 (4.9) % Total global warehousing segment cost of operations $ 582 $ 583 (0.2) % Global warehousing segment NOI $ 384 $ 381 0.8 % Total global warehousing segment margin 39.8 % 39.5 % 30 bps Number of warehouse sites 464 458 Warehouse storage (2) Average economic occupancy Average occupied economic pallets 8,098 8,184 (1.1) % Economic occupancy percentage 82.9 % 85.1 % (220) bps Storage revenue per economic occupied pallet $ 63.01 $ 63.02 — % Average physical occupancy Average physical occupied pallets 7,479 7,675 (2.6) % Average physical pallet positions 9,764 9,617 1.5 % Physical occupancy percentage 76.6 % 79.8 % (320) bps Storage revenue per physical occupied pallet $ 68.26 $ 67.20 1.6 % Warehouse services (2) Throughput pallets (in thousands) 13,177 12,816 2.8 % Warehouse services revenue per throughput pallet $ 31.63 $ 32.10 (1.5) % __________________ (1) Includes real estate rent expense of $25 million for the three months ended June 30, 2024 and $25 million for the three months ended June 30, 2023, and non-real estate rent expense (equipment lease and rentals) of $4 million for the three months ended June 30, 2024 and $4 million for the three months ended June 30, 2023. (2) Warehouse storage and warehouse services metrics exclude managed sites. Global warehousing segment revenues were $966 million for the three months ended June 30, 2024, an increase of $2 million, or 0.2%, compared to $964 million for the three months ended June 30, 2023. Revenues were driven by an approximate $16 million increase from our recently completed and in-progress expansion and development projects and an approximate $14 million increase from acquisitions. This growth was offset by a $21 million decrease in our same warehouse pool and an $8 million decrease from closed facilities. In addition, the foreign currency translation of revenues earned by our foreign operations had a $3 million unfavorable impact compared to the three months ended June 30, 2023. 47 Global warehousing segment cost of operations was $582 million for the three months ended June 30, 2024, a decrease of $1 million, or 0.2%, compared to $583 million for the three months ended June 30, 2023. The cost of operations for our same warehouse pool decreased $13 million, representing decreases across power and other warehouse costs. In addition, there was a $6 million decrease in cost of operations from closed facilities. These cost decreases were offset by increases of approximately $8 million from the additional facilities we acquired in connection with the above-mentioned acquisitions and approximately $7 million related to our recently completed and in-progress expansion and development projects. In addition, the foreign currency translation of cost of operations from our foreign operations had a $2 million favorable impact compared to the three months ended June 30, 2023. Global warehousing segment NOI was $384 million for the three months ended June 30, 2024, an increase of $3 million, or 0.8%, compared to $381 million for the three months ended June 30, 2023. The NOI for our same warehouse pool decreased $8 million or 2.3%, attributable to revenue and cost of operations factors previously described. In addition, there was a $2 million net decrease in NOI from closed facilities. Global warehousing segment NOI was positively impacted by approximately $9 million related to our recently completed and in-process expansion and development projects as they continue to ramp up prior to stabilization and approximately $6 million related to the above mentioned acquisitions. Foreign currency translation had a $1 million unfavorable impact to the global warehousing segment NOI period-over-period. 48 Same Warehouse Result The following table presents revenues, cost of operations, NOI, and margins for our same warehouses for the three months ended June 30, 2024 and June 30, 2023. Three Months Ended June 30, 2024 2023 Change (in millions except revenue per pallet) Warehouse storage $ 449 $ 466 (3.6) % Warehouse services 399 403 (1.0) % Total same warehouse revenues $ 848 $ 869 (2.4) % Power $ 43 $ 44 (2.3) % Labor 311 310 0.3 % Other warehouse costs 149 162 (8.0) % Total same warehouse cost of operations $ 503 $ 516 (2.5) % Same warehouse NOI $ 345 $ 353 (2.3) % Total same warehouse margin 40.7 % 40.6 % 10 bps Number of same warehouse sites 412 412 Warehouse storage (1) Economic occupancy Average occupied economic pallets 7,106 7,352 (3.3) % Economic occupancy percentage 84.1 % 87.1 % (300) bps Storage revenue per economic occupied pallet $ 63.22 $ 63.43 (0.3) % Physical occupancy Average physical occupied pallets 6,549 6,871 (4.7) % Average physical pallet positions 8,451 8,437 0.2 % Physical occupancy percentage 77.5 % 81.4 % (390) bps Storage revenue per physical occupied pallet $ 68.55 $ 67.87 1.0 % Warehouse services (1) Throughput pallets (in thousands) 11,382 11,532 (1.3) % Warehouse services revenue per throughput pallet $ 32.02 $ 32.08 (0.2) % __________________ (1) Warehouse storage and warehouse services metrics exclude managed sites. Economic occupancy at our same warehouses was 84.1% for the three months ended June 30, 2024, a decrease of 300 basis points compared to 87.1% for the three months ended June 30, 2023. Our economic occupancy at our same warehouses was 660 basis points higher than our corresponding average physical occupancy of 77.5%. Economic occupancy was lower than the prior year due to lower physical utilization as customers rationalized their inventory during continued economic pressures driven by higher interest rates. Same warehouse storage revenues per economic occupied pallet decreased 0.3% period-over-period, primarily driven by a change in our business profile due to customer rationalization of inventory. Throughput pallets at our same warehouses were 11.4 million pallets for the three months ended June 30, 2024, a decrease of 1.3% from 11.5 million pallets for the three months ended June 30, 2023. This decrease was the result of lower turns due to continued economic pressures driven by higher interest rates. Same warehouse services revenue per throughput pallet decreased 0.2% compared to the prior year, primarily driven by a change in our business profile due to customer rationalization of inventory. 49 Non-Same Warehouse Results The following tables present revenues, cost of operations, NOI, and margins for our non-same warehouses for the three months ended June 30, 2024 and 2023. Three Months Ended June 30, 2024 2023 Change (in millions except revenue per pallet) Warehouse storage $ 62 $ 49 26.5 % Warehouse services 56 46 21.7 % Total non-same warehouse revenues $ 118 $ 95 24.2 % Power $ 7 $ 6 16.7 % Labor 44 37 18.9 % Other warehouse costs 28 24 16.7 % Total non-same warehouse cost of operations $ 79 $ 67 17.9 % Non-same warehouse NOI $ 39 $ 28 39.3 % Total non-same warehouse margin 33.1 % 29.5 % 360 bps Number of non-same warehouse sites (1) 52 46 Warehouse storage (2) Economic occupancy Average occupied economic pallets 992 832 19.2 % Economic occupancy percentage 75.6 % 70.5 % 510 bps Storage revenue per economic occupied pallet $ 61.53 $ 59.36 3.7 % Physical occupancy Average physical occupied pallets 930 804 15.7 % Average physical pallet positions 1,313 1,180 11.3 % Physical occupancy percentage 70.8 % 68.1 % 270 bps Storage revenue per physical occupied pallet $ 66.20 $ 61.48 7.7 % Warehouse services (2) Throughput pallets (in thousands) 1,795 1,284 39.8 % Warehouse services revenue per throughput pallet $ 29.16 $ 32.35 (9.9) % __________________ (1) Refer to our “Same Warehouse Analysis,” which describes the composition of our non-same warehouse pool. (2) Warehouse storage and warehouse services metrics exclude managed sites. 50 Global Integrated Solutions Segment The following table presents the operating results of our global integrated solutions segment for the three months ended June 30, 2024 and 2023. Three Months Ended June 30, 2024 2023 Change (in millions) Global Integrated Solutions segment revenues $ 372 $ 382 (2.6) % Global Integrated Solutions segment cost of operations 309 322 (4.0) % Global Integrated Solutions segment NOI $ 63 $ 60 5.0 % Global Integrated Solutions margin 16.9 % 15.7 % 120 bps Global integrated solutions segment revenues were $372 million for the three months ended June 30, 2024, a decrease of $10 million, or 2.6%, compared to $382 million for the three months ended June 30, 2023. The decrease was due to lower volumes and fuel surcharges and the sale of a European subsidiary which occurred in September 2023, offset by increases from acquisitions which closed in the fourth quarter of 2023. Global integrated solutions segment cost of operations was $309 million for the three months ended June 30, 2024, a decrease of $13 million, or 4.0%, compared to $322 million for the three months ended June 30, 2023. The decrease was due to lower volumes, cost controls, and the above-mentioned sale of a European subsidiary, offset by increases from the above-mentioned 2023 acquisitions. Global integrated solutions segment NOI was $63 million for the three months ended June 30, 2024, an increase of $3 million, or 5.0%, compared to $60 million for the three months ended June 30, 2023. Other Consolidated Operating Expenses Three Months Ended June 30, Change 2024 2023 % (in millions) Other consolidated operating expense: Depreciation and amortization expense $ 219 $ 188 16.5 % General and administrative expense $ 127 $ 124 2.4 % Acquisition, transaction, and other expense $ 12 $ 15 (20.0) % Restructuring, impairment, and (gain) loss on disposals $ 15 $ 3 400.0 % Depreciation and amortization expense . Depreciation and amortization expense was $219 million for the three months ended June 30, 2024, an increase of $31 million, or 16.5%, compared to $188 million for the three months ended June 30, 2023. The increase was primarily due to information technology investments, acquisitions, and greenfield and expansion projects. General and administrative expense. General and administrative expenses were $127 million for the three months ended June 30, 2024, an increase of $3 million, or 2.4%, compared to $124 million for the three months ended June 30, 2023. The increase in general and administrative expense was primarily due to growing our global platform in support of our expanding operations. We expect our general and administrative expenses to stabilize and generate operating leverage. For the three months ended June 30, 2024 and 2023, general and administrative expenses were 9.5% and 9.2% of total revenues, respectively. Acquisition, transaction, and other expense . Acquisition, transaction and other expenses were $12 million for the three months ended June 30, 2024, a decrease of $3 million compared to $15 million for the three months ended June 30, 2023, primarily related to fewer acquisition-related costs in 2024 compared to 2023. Restructuring, impairment, and (gain) loss on disposals . Restructuring, impairment, and (gain) loss on disposals were net expenses of $15 million for the three months ended June 30, 2024, an increase of $12 million compared to net expenses of $3 million for the three months ended June 30, 2023. The increase was related to impairment charges primarily resulting from 51 losses on properties classified as held for sale and higher severance expenses. The three months ended June 30, 2024 also included a net loss of $1 million related to a fire which occurred at the Company’s warehouse in Kennewick, Washington (see Note 16, Commitments and contingencies in our condensed consolidated financial statements included in this Quarterly Report for details). Other Income (Expense) The following table presents other items of income and expense for the three months ended June 30, 2024 and 2023. Three Months Ended June 30, Change 2024 2023 % (in millions) Other income (expense): Interest (expense), net $ (148) $ (116) 27.6 % Gain (loss) on foreign currency transactions, net $ 2 $ (3) (166.7) % Equity income (loss), net of tax $ (1) $ — — % Interest (expense), net . Interest (expense), net was $148 million for the three months ended June 30, 2024, an increase of $32 million, or 27.6%, compared to $116 million for the three months ended June 30, 2023. The average effective interest rate of our outstanding debt increased from 5.6% for the three months ended June 30, 2023 to 6.3% for the three months ended June 30, 2024, due to higher average borrowings paired with rising interest rates associated primarily with our credit facilities and CMBS loans. When taking into account income (expense) generated from those hedging instruments, the average effective interest rate of our outstanding debt increased from 4.3% for the three months ended June 30, 2023 to 5.2% for the three months ended June 30, 2024. Gain (loss) on foreign currency transactions, net. We reported a net foreign currency exchange gain of $2 million for the three months ended June 30, 2024, compared to a net loss of $3 million for the three months ended June 30, 2023. The increase in foreign currency exchange gain was due to more favorable foreign currency exchange rates driven by the relative strength of the foreign currencies we transact in, primarily the Australian dollar, against the US dollar. Equity income (loss), net of tax. We reported a net loss from equity method investments of $1 million for the three months ended June 30, 2024, compared to no net income (loss) for the three months ended June 30, 2023, primarily related to our investments in Emergent Cold LatAm Holdings, LLC and Ndustrial.io. Income Tax Expense (Benefit) Income tax benefit for the three months ended June 30, 2024 was $7 million, compared to no net expense (benefit) for the three months ended June 30, 2023. The tax benefit in 2024 was principally created by the tax-effect of pre-tax earnings in various jurisdictions, tax adjustments related to REIT activity, and withholding taxes paid in various jurisdictions. Our income taxes are discussed in more detail in Note 8, Income taxes to the condensed consolidated financial statements included in this Quarterly Report. The Organization for Economic Co-operation and Development (“OECD”) has issued Pillar Two Model Rules introducing a new global minimum tax of 15% intended to be effective on January 1, 2024. While the U.S. has not yet adopted the Pillar Two rules, various other governments around the world are enacting legislation. In 2024, we expect to incur insignificant tax expenses in connection with Pillar Two and are continuing to evaluate the potential impact on our business in future periods. 52 Comparison of Results for the Six Months Ended June 30, 2024 and 2023 Global Warehousing Segment The following table presents the operating results of our warehouse segment for the six months ended June 30, 2024 and 2023. Six Months Ended June 30, 2024 2023 Change (in millions except revenue per pallet) Warehouse storage $ 1,026 $ 1,030 (0.4) % Warehouse services 909 892 1.9 % Total global warehousing segment revenues $ 1,935 $ 1,922 0.7 % Power $ 97 $ 98 (1.0) % Labor 710 690 2.9 % Other warehouse costs (1) 359 367 (2.2) % Total global warehousing segment cost of operations $ 1,166 $ 1,155 1.0 % Global warehousing segment NOI $ 769 $ 767 0.3 % Total global warehousing segment margin 39.7 % 39.9 % (20) bps Number of warehouse sites 464 458 Warehouse storage (2) Average economic occupancy Average occupied economic pallets 8,143 8,258 (1.4) % Economic occupancy percentage 83.3 % 86.2 % (290) bps Storage revenue per economic occupied pallet $ 125.97 $ 124.52 1.2 % Average physical occupancy Average physical occupied pallets 7,541 7,742 (2.6) % Average physical pallet positions 9,780 9,578 2.1 % Physical occupancy percentage 77.1 % 80.8 % (370) bps Storage revenue per physical occupied pallet $ 136.07 $ 132.82 2.4 % Warehouse services (2) Throughput pallets (in thousands) 26,051 25,489 2.2 % Warehouse services revenue per throughput pallet $ 32.01 $ 32.25 (0.7) % _______________ (1) Includes real estate rent expense of $50 million and $47 million for the six months ended June 30, 2024 and 2023, respectively; non-real estate rent expense (equipment lease and rentals) of $9 million and $11 million for the six months ended June 30, 2024 and 2023, respectively. (2) Warehouse storage and warehouse services metrics exclude managed sites. Global warehousing segment revenues were $1,935 million for the six months ended June 30, 2024, an increase of $13 million, or 0.7%, compared to $1,922 million for the six months ended June 30, 2023. Revenues were driven by an approximate $32 million increase from our recently completed and in-progress expansion and development projects and $28 million from acquisitions. This growth was offset by a $36 million decrease in our same warehouse pool and a $9 million decrease from close facilities. In addition, the foreign currency translation of revenues earned by our foreign operations had a $2 million unfavorable impact compared to the six months ended June 30, 2023. Global warehousing segment cost of operations was $1,166 million for the six months ended June 30, 2024, an increase of $11 million, or 1.0%, compared to $1,155 million for the six months ended June 30, 2023. Approximately $18 million of the increase 53 was driven by the additional facilities we acquired in connection with the above-mentioned acquisitions. We also incurred higher costs of approximately $16 million related to our recently completed and in-progress expansion and development projects. These were offset by a decrease from our same warehouse pool of $18 million, representing decreases across power and other services costs. In addition, there was a $4 million decrease in cost of operations from closed facilities. The foreign currency translation of cost of operations from our foreign operations had a $1 million favorable impact compared to the six months ended June 30, 2023. Global warehousing segment NOI was $769 million for the six months ended June 30, 2024, an increase of $2 million, or 0.3%, compared to $767 million for the six months ended June 30, 2023. Global warehousing segment NOI was positively impacted by approximately $16 million related to our recently completed and in-process expansion and development projects as they continue to ramp up prior to stabilization and approximately $10 million related to the above mentioned acquisitions. These were offset by a decrease from our same warehouse pool of $18 million or 2.5%, attributable the to revenue and cost of operations factors previously described. In addition, there was a $5 million net decrease in NOI from closed facilities. Foreign currency translation had a $1 million unfavorable impact compared to the six months ended June 30, 2023. Same Warehouse Results Six Months Ended June 30, 2024 2023 Change (in millions except revenue per pallet) Warehouse storage $ 902 $ 930 (3.0) % Warehouse services 797 805 (1.0) % Total same warehouse revenues $ 1,699 $ 1,735 (2.1) % Power $ 84 $ 86 (2.3) % Labor 622 618 0.6 % Other warehouse costs 302 322 (6.2) % Total same warehouse cost of operations $ 1,008 $ 1,026 (1.8) % Same warehouse NOI $ 691 $ 709 (2.5) % Total same warehouse margin 40.7 % 40.9 % (20) bps Number of same warehouse sites 412 412 Warehouse storage (1) Economic occupancy Average occupied economic pallets 7,131 7,424 (3.9) % Economic occupancy percentage 84.4 % 88.0 % (360) bps Storage revenue per economic occupied pallet $ 126.53 $ 125.33 1.0 % Physical occupancy Average physical occupied pallets 6,592 6,934 (4.9) % Average physical pallet positions 8,448 8,432 0.2 % Physical occupancy percentage 78.0 % 82.2 % (420) bps Storage revenue per physical occupied pallet $ 136.76 $ 134.18 1.9 % Warehouse services (1) Throughput pallets (in thousands) 22,529 22,968 (1.9) % Warehouse services revenue per throughput pallet $ 32.39 $ 32.24 0.5 % __________________ (1) Warehouse storage and warehouse services metrics exclude managed sites. 54 Economic occupancy at our same warehouses was 84.4% for the six months ended June 30, 2024, a decrease of 360 basis points compared to 88.0% for the six months ended June 30, 2023. Our economic occupancy at our same warehouses was 640 basis points higher than our corresponding average physical occupancy of 78.0%. Economic occupancy was lower than the prior year due to lower physical utilization as customers rationalize their inventory during continued economic pressures driven by higher interest rates. Same warehouse storage revenues per economic occupied pallet increased 1.0% period-over-period, primarily driven by a change in our business profile due to customer rationalization of inventory. Throughput pallets at our same warehouses were 22.5 million pallets for the six months ended June 30, 2024, a decrease of 1.9% from 23.0 million pallets for the six months ended June 30, 2023. This decrease was the result of lower turns due to continued economic pressures driven by higher interest rates. Same warehouse services revenue per throughput pallet increased 0.5% compared to the prior year, primarily driven by a change in our business profile due to customer rationalization of inventory. Non-Same Warehouse Results Six Months Ended June 30, 2024 2023 Change (in millions except revenue per pallet) Warehouse storage $ 124 $ 100 24.0 % Warehouse services 112 87 28.7 % Total non-same warehouse revenues $ 236 $ 187 26.2 % Power $ 13 $ 12 8.3 % Labor 88 72 22.2 % Other warehouse costs 57 45 26.7 % Total non-same warehouse cost of operations $ 158 $ 129 22.5 % Non-same warehouse NOI $ 78 $ 58 34.5 % Total non-same warehouse margin 33.1 % 31.0 % 210 bps Number of non-same warehouse sites (1) 52 46 Warehouse storage (2) Economic occupancy Average occupied economic pallets 1,012 834 21.3 % Economic occupancy percentage 76.0 % 72.8 % 320 bps Storage revenue per economic occupied pallet $ 123.06 $ 117.30 4.9 % Physical occupancy Average physical occupied pallets 949 808 17.5 % Average physical pallet positions 1,332 1,146 16.2 % Physical occupancy percentage 71.2 % 70.5 % 70 bps Storage revenue per physical occupied pallet $ 131.26 $ 121.14 8.4 % Warehouse services (2) Throughput pallets (in thousands) 3,522 2,521 39.7 % Warehouse services revenue per throughput pallet $ 29.55 $ 32.31 (8.5) % __________________ (1) Refer to our “Same Warehouse Analysis,” which describes the composition of our non-same warehouse pool. (2) Warehouse storage and warehouse services metrics exclude managed sites. 55 Global Integrated Solutions Segment The following table presents the operating results of our global integrated solutions segment for the six months ended June 30, 2024 and 2023. Six Months Ended June 30, 2024 2023 Change (in millions) Global Integrated Solutions segment revenues $ 731 $ 757 (3.4) % Global Integrated Solutions segment cost of operations 609 640 (4.8) % Global Integrated Solutions segment NOI $ 122 $ 117 4.3 % Global Integrated Solutions margin 16.7 % 15.5 % 120 bps Global integrated solutions segment revenues were $731 million for the six months ended June 30, 2024, a decrease of $26 million, or 3.4%, compared to $757 million for the six months ended June 30, 2023. The decrease was due to lower volumes and fuel surcharges and the sale of a European subsidiary which occurred in September 2023, offset by increases from acquisitions which closed in the fourth quarter of 2023. Global integrated solutions segment cost of operations was $609 million for the six months ended June 30, 2024, a decrease of $31 million, or 4.8%, compared to $640 million for the six months ended June 30, 2023. The decrease was due to lower volumes, cost controls, and the above-mentioned sale of a European subsidiary, offset by increases from the above-mentioned 2023 acquisitions. Global integrated solutions segment NOI was $122 million for the six months ended June 30, 2024, an increase of $5 million, or 4.3%, compared to $117 million for the six months ended June 30, 2023. Other Consolidated Operating Expenses Six Months Ended June 30, Change 2024 2023 % (in millions) Other consolidated operating expense: Depreciation and amortization expense $ 430 $ 369 16.5 % General and administrative expense $ 251 $ 239 5.0 % Acquisition, transaction, and other expense $ 20 $ 26 (23.1) % Restructuring, impairment, and (gain) loss on disposals $ 15 $ 7 114.3 % Depreciation and amortization expense . Depreciation and amortization expense was $430 million for the six months ended June 30, 2024, an increase of $61 million, or 16.5%, compared to $369 million for the six months ended June 30, 2023. The increase was primarily due to information technology investments, acquisitions, and greenfield and expansions projects. General and administrative expense . General and administrative expenses were $251 million for the six months ended June 30, 2024, an increase of $12 million, or 5.0%, compared to $239 million for the six months ended June 30, 2023. The increase in general and administrative expense was primarily due to growing our global platform in support of our expanding operations. We expect our general and administrative expenses to stabilize and generate operating leverage. For the six months ended June 30, 2024 and 2023, general and administrative expenses were 9.4% and 8.9% of total revenues, respectively. Acquisition, transaction, and other expense . Acquisition, transaction, and other expenses were $20 million for the six months ended June 30, 2024, a decrease of $6 million compared to $26 million for the six months ended June 30, 2023, primarily related to fewer acquisition and transaction related costs in 2024 compared to 2023. Restructuring, impairment, and (gain) loss on disposals . Restructuring, impairment, and (gain) loss on disposals were a net expense of $15 million for the six months ended June 30, 2024, an increase of $8 million compared to a net expense of $7 million for the six months ended June 30, 2023. The increase was related to impairment charges primarily resulting from losses on 56 properties classified as held for sale and higher severance expenses. The six months ended June 30, 2024 included a net loss of $1 million related to a fire which occurred at the Company’s warehouse in Kennewick, Washington (see Note 16, Commitments and contingencies in our condensed consolidated financial statements included in this Quarterly Report for details). Other Income (Expense) The following table presents other items of income and expense for the six months ended June 30, 2024 and 2023. Six Months Ended June 30, Change 2024 2023 % (in millions) Other income (expense): Interest (expense), net $ (287) $ (231) 24.2 % Gain (loss) on extinguishment of debt $ (7) $ — — % Gain (loss) on foreign currency transactions, net $ (9) $ (4) 125.0 % Equity income (loss), net of tax $ (3) $ — — % Interest (expense), net . Interest (expense), net was $287 million for the six months ended June 30, 2024, an increase of $56 million, or 24.2%, compared to $231 million for the six months ended June 30, 2023. The average effective interest rate of our outstanding debt increased from 5.6% for the six months ended June 30, 2023 to 6.4% for the six months ended June 30, 2024, due to higher average borrowings paired with rising interest rates associated primarily with our credit facilities and CMBS loans. When taking into account income (expense) generated from those hedging instruments, the average effective interest rate of our outstanding debt increased from 4.3% for the six months ended June 30, 2023 to 5.3% for the six months ended June 30, 2024. Gain (loss) on extinguishment of debt. Gain (loss) on debt extinguishment was a loss of $7 million for the six months ended June 30, 2024, as the result of various debt refinancing arrangements. There was no gain (loss) on debt extinguishment recognized for the six months ended June 30, 2023. For additional information regarding our debt, see Note 9, Debt to the condensed consolidated financial statements included in this Quarterly Report. Gain (loss) on foreign currency transactions, net. We reported a net foreign currency exchange loss of $9 million for the six months ended June 30, 2024 compared to a net loss of $4 million for the six months ended June 30, 2023. The increase in foreign currency exchange loss was due to less favorable foreign currency exchange rates driven by the relative strength of the foreign currencies we transact in, primarily the euro and the Australian dollar, against the US dollar. Equity income (loss), net of tax. We reported a net loss from equity method investments of $3 million for the six months ended June 30, 2024, as compared to no net income (loss) for the six months ended June 30, 2023, primarily related to our investments in Emergent Cold LatAm Holdings, LLC. Income Tax Expense (Benefit) Income tax benefit for the six months ended June 30, 2024 was $3 million, which was consistent with the income tax benefit of $3 million for the six months ended June 30, 2023. The tax benefit in 2024 was principally created by tax-effect of pre-tax earnings in various jurisdictions, tax adjustments related to REIT activity, and withholding taxes paid in various jurisdictions. The tax benefit in 2023 was principally created by tax-effect of pre-tax earnings and losses in various jurisdictions, tax adjustments related to REIT activity, and changes to uncertain tax positions. Our income taxes are discussed in more detail in Note 8, Income taxes to the condensed consolidated financial statements included in this Quarterly Report. Non-GAAP Financial Measures We use the following non-GAAP financial measures as supplemental performance measures of our business: NOI, segment NOI, FFO, Core FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA. We calculate NOI as our total revenues less our cost of operations (excluding any depreciation and amortization, impairment charges, general and administrative expense, acquisition, transaction, and other expense, and restructuring and impairment 57 expense). We calculate segment NOI as a segment’s revenues less its cost of operations (excluding any depreciation and amortization, impairment charges, general and administrative expense, acquisition, transaction, and other expense, and restructuring and impairment expense). We use segment NOI to evaluate our segments for purposes of making operating decisions and assessing performance in accordance with ASC 280, Segment Reporting . We believe NOI and segment NOI are helpful to investors as a supplemental performance measure to net income because they assist both investors and management in understanding the core operations of our business. There is no industry definition of NOI or segment NOI and, as a result, other REITs may calculate NOI or segment NOI, or other similarly-captioned metrics, in a manner different than we do. The table below reconciles NOI to net income (loss), which is the most directly comparable financial measure calculated in accordance with GAAP, in each case for the the three and six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in millions) (in millions) Net income (loss) $ (80) $ (8) $ (128) $ 11 General and administrative expense 127 124 251 239 Depreciation expense 164 136 322 265 Amortization expense 55 52 108 104 Acquisition, transaction, and other expense 12 15 20 26 Restructuring, impairment, and (gain) loss on disposals 15 3 15 7 Equity (income) loss, net of tax 1 — 3 — (Gain) loss on foreign currency transactions, net (2) 3 9 4 Interest expense, net 148 116 287 231 (Gain) loss on extinguishment of debt — — 7 — Income tax expense (benefit) 7 — (3) (3) NOI $ 447 $ 441 $ 891 $ 884 We calculate EBITDA for Real Estate, or EBITDAre, in accordance with the standards established by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, defined as earnings before interest income or expense, taxes, depreciation and amortization, net loss or gain on sale of real estate, net of withholding taxes, impairment write-downs on real estate property, and adjustment to reflect share of EBITDAre of partially owned entities. EBITDAre is a measure commonly used in our industry, and we present EBITDAre to enhance investor understanding of our operating performance. We believe that EBITDAre provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and useful life of related assets among otherwise comparable companies. We also calculate our Adjusted EBITDA as EBITDAre further adjusted for the effects of gain or loss on the sale of non-real estate assets, gain or loss on the destruction of property (net of insurance proceeds), other nonoperating income or expense, acquisition, restructuring, and other expense, foreign currency exchange gain or loss, stock-based compensation expense, loss or gain on debt extinguishment and modification, impairment of investments in non-real estate, technology transformation, and reduction in EBITDAre from partially owned entities. We believe that the presentation of Adjusted EBITDA provides a measurement of our operations that is meaningful to investors because it excludes the effects of certain items that are otherwise included in EBITDAre but which we do not believe are indicative of our core business operations. EBITDAre and Adjusted EBITDA are not measurements of financial performance under GAAP, and our EBITDAre and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. You should not consider our EBITDAre and Adjusted EBITDA as alternatives to net income or cash flows from operating activities determined in accordance with GAAP. Our calculations of EBITDAre and Adjusted EBITDA have limitations as analytical tools, including the following: • these measures do not reflect our historical or future cash requirements for maintenance capital expenditures or growth and expansion capital expenditures; • these measures do not reflect changes in, or cash requirements for, our working capital needs; 58 • these measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness; • these measures do not reflect our tax expense or the cash requirements to pay our taxes; and • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and these measures do not reflect any cash requirements for such replacements. We use EBITDA, EBITDAre, and Adjusted EBITDA as measures of our operating performance and not as measures of liquidity. The table below reconciles EBITDA, EBITDAre, and Adjusted EBITDA to net income (loss), which is the most directly comparable financial measure calculated in accordance with GAAP, in each case for the the three and six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Net income (loss) $ (80) $ (8) $ (128) $ 11 Adjustments: Depreciation and amortization expense 219 188 430 369 Interest expense, net 148 116 287 231 Income tax expense (benefit) 7 — (3) (3) EBITDA $ 294 $ 296 $ 586 $ 608 Adjustments: Net loss (gain) on sale of real estate assets 3 1 3 2 Impairment write-downs on real estate property 5 1 5 1 Allocation of EBITDAre of noncontrolling interests — (2) (1) (2) EBITDAre $ 302 $ 296 $ 593 $ 609 Adjustments: Net (gain) loss on sale of non-real estate assets (1) (1) (2) (2) Acquisition, restructuring, and other 17 16 26 30 Technology transformation 7 — 10 — Loss from property destruction 1 — 1 — Interest expense and tax expense from unconsolidated JVs 2 1 2 2 Depreciation and amortization expense from unconsolidated JVs 2 2 3 3 (Gain) loss on foreign currency exchange transactions, net (2) 3 9 4 Stock-based compensation expense 6 6 11 11 (Gain) loss on extinguishment of debt — — 7 — Allocation adjustments of noncontrolling interests — — 1 — Adjusted EBITDA $ 334 $ 323 $ 661 $ 657 59 We calculate funds from operations, or FFO, in accordance with the standards established by the Board of Governors of the NAREIT. NAREIT defines FFO as net income or loss determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, in-place lease intangible amortization, real estate asset impairment, and our share of reconciling items for partially owned entities. We believe that FFO is helpful to investors as a supplemental performance measure because it excludes the effect of depreciation, amortization, and gains or losses from sales of real estate, all of which are based on historical costs, which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. We calculate core funds from operations, or Core FFO, as FFO adjusted for the effects of gain or loss on the sale of non-real estate assets, gain or loss on the destruction of property (net of insurance proceeds), finance lease ROU asset amortization -real estate, non-real estate impairments, acquisition, restructuring and other, other income or expense, loss on debt extinguishment and modifications and the effects of gain or loss on foreign currency exchange. We also adjust for the impact attributable to non-real estate impairments on unconsolidated joint ventures and natural disaster. We believe that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to our core business operations. We believe Core FFO can facilitate comparisons of operating performance between periods, while also providing a more meaningful predictor of future earnings potential. However, because FFO and Core FFO add back real estate depreciation and amortization and do not capture the level of maintenance capital expenditures necessary to maintain the operating performance of our properties, both of which have material economic impacts on our results from operations, we believe the utility of FFO and Core FFO as a measure of our performance may be limited. We calculate adjusted funds from operations, or Adjusted FFO, as Core FFO adjusted for the effects of amortization of deferred financing costs, amortization of debt discount/premium amortization of above or below market leases, straight-line net operating rent, provision or benefit from deferred income taxes, stock-based compensation expense from grants under our equity incentive plans, non-real estate depreciation and amortization, non-real estate finance lease ROU asset amortization, and maintenance capital expenditures. We also adjust for Adjusted FFO attributable to our share of reconciling items of partially owned entities. We believe that Adjusted FFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments in our business and to assess our ability to fund distribution requirements from our operating activities. FFO, Core FFO, and Adjusted FFO are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs. FFO, Core FFO and Adjusted FFO should be evaluated along with GAAP net income and net income per diluted share (the most directly comparable GAAP measures) in evaluating our operating performance. FFO, Core FFO, and Adjusted FFO do not represent net income or cash flows from operating activities in accordance with GAAP and are not indicative of our results of operations or cash flows from operating activities as disclosed in our condensed consolidated financial statements included elsewhere in this Quarterly Report. FFO, Core FFO, and Adjusted FFO should be considered as supplements, but not alternatives, to our net income or cash flows from operating activities as indicators of our operating performance. Moreover, other REITs may not calculate FFO in accordance with the NAREIT definition or may interpret the NAREIT definition differently than we do. Accordingly, our FFO may not be comparable to FFO as calculated by other REITs. In addition, there is no industry definition of Core FFO or Adjusted FFO and, as a result, other REITs may also calculate Core FFO or Adjusted FFO, or other similarly-captioned metrics, in a manner different than we do. 60 The table below reconciles FFO, Core FFO, and Adjusted FFO to net income (loss), which is the most directly comparable financial measure calculated in accordance with GAAP, in each case for the three and six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Net income (loss) $ (80) $ (8) $ (128) $ 11 Adjustments: Real Estate depreciation 91 76 176 156 In-place lease intangible amortization 3 2 5 4 Net loss (gain) on sale of real estate assets 3 1 3 3 Impairment write-downs on real estate property 5 1 5 2 Real estate depreciation, (gain) loss on sale of real estate and real estate impairments on unconsolidated JVs — 1 1 2 Allocation of noncontrolling interests — — (1) — FFO $ 22 $ 73 $ 61 $ 178 Adjustments: Net (gain) loss on sale of non-real estate assets (1) — (2) (2) Finance lease ROU asset amortization - real estate related 18 18 36 35 Acquisition, restructuring, and other 18 16 27 31 Technology transformation 7 — 10 — Loss on property destruction 1 — 1 — (Gain) loss on foreign currency transactions, net (2) 3 9 4 (Gain) loss on extinguishment of debt — — 7 — Core FFO $ 63 $ 110 $ 149 $ 246 Adjustments: Non-real estate depreciation and amortization 101 87 201 162 Finance lease ROU asset amortization - non-real estate 6 5 13 11 Amortization of deferred financing costs 5 5 11 10 Amortization of debt discount / premium — — — 1 Deferred income taxes expense (benefit) (1) (17) (24) (32) Straight line net operating rent — 1 (2) 2 Amortization of above market leases — — — 1 Amortization of below market leases (1) — (1) (1) Stock-based compensation expense 6 6 11 10 Recurring maintenance capital expenditures (48) (41) (78) (71) Allocation related to unconsolidated JVs 2 1 3 1 Allocation of noncontrolling interests 3 — 1 (1) Adjusted FFO $ 136 $ 157 $ 284 $ 339 Liquidity and Capital Resources As of June 30, 2024, we had $73 million of cash and cash equivalents and $1.0 billion available under our Revolving Credit Facility (net of outstanding standby letters of credit in the amount of $67 million, which reduce availability). We currently expect that our principal sources of funding will include: • current cash balances; 61 • cash flows from operations; • our credit facilities; and • other forms of debt financings and equity offerings. Our liquidity requirements and capital commitments primarily consist of: • operating activities and overall working capital; • capital expenditures; • development and acquisition activities; • capital contributions; • debt service obligations; and • stockholder distributions. On July 26, 2024, we closed our IPO of 56,882,051 shares of our common stock at a price of $78.00 per share, with a subsequent exercise in full by the underwriters of their option to purchase from us an additional 8,532,307 shares of common stock that closed on July 31, 2024. The net proceeds to us from the IPO were approximately $4,875 million. As of June 30, 2024, we expect that our funding sources as noted above will be adequate to meet our short-term liquidity requirements and capital commitments for the next 12 months. On February 15, 2024, we closed on our $2,400 million Delayed Draw Term Loan, the proceeds from which we used to repay our CMBS 4 loan on April 9, 2024, prior to maturity. Subsequently to June 30, 2024, we used a portion of the net proceeds from our IPO to repay the Delayed Draw Term Loan, our CMBS 5 loan, and a portion of our outstanding borrowings under the Revolving Credit Facility, investing the remaining cash into money market funds. For more information regarding these debt facilities refer to Note 9, Debt and Note 20, Subsequent events in the condensed consolidated financial statements included in this Quarterly Report. We expect to utilize the same sources of capital we will rely on to meet our short-term liquidity requirements to also meet our long-term liquidity requirements, which include funding our operating activities, our debt service obligations and stockholder distributions, and our future development and acquisition activities. Dividends and Distributions We are required to distribute at least 90% of our taxable income (excluding capital gains) on an annual basis in order to continue to qualify as a REIT for federal income tax purposes. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly distributions to stockholders from cash flows from our operating activities. All such distributions are at the discretion of our board of directors. We consider market factors and our performance in addition to REIT requirements in determining distribution levels. Amounts accumulated for distribution to stockholders are primarily invested in interest-bearing accounts, which are consistent with our intention to maintain REIT status. As a result of this distribution requirement, we cannot rely on retained earnings to fund our ongoing operations to the same extent that other companies which are not REITs can. We may need to continue to raise capital in the debt and equity markets to fund our working capital needs, as well as potential developments in new or existing properties or acquisitions. In addition, we may be required to use borrowings under our Revolving Credit Facility, if necessary, to meet REIT distribution requirements and maintain our REIT status. 62 Outstanding Indebtedness The following table summarizes our outstanding indebtedness as of June 30, 2024 (in millions): As of June 30, 2024 Fixed rate $ 2,167 Variable rate—unhedged (includes ICE 5—6% interest rate cap not triggered) 4,696 Variable rate—hedged 2,500 Total debt $ 9,363 Percent of total debt: Fixed rate 23.1 % Variable rate—unhedged 50.2 % Variable rate—hedged 26.7 % The variable rate debt shown above bears interest at interest rates based on various one-month rates of which SOFR, EURIBOR, and CDOR are the most significant, depending on the respective agreement governing the debt, including our Revolving Credit Facility and Term Loan A. As of June 30, 2024, our debt had a weighted average term to maturity of approximately 3 years, assuming exercise of extension options. For further information regarding outstanding indebtedness, please see Note 9, Debt and Note 20, Subsequent events in the condensed consolidated financial statements included in this Quarterly Report. Senior Unsecured Notes The following table provides details of outstanding Senior Unsecured Notes (balances in millions): Aggregate Principal Amount at Issuance Maturity Date Stated Interest Rate (1) June 30, 2024 December 31, 2023 Borrowing Currency USD Series A Senior Notes $300 $300 August 20, 2026 2.22 % $ 300 $ 300 Series B Senior Notes $375 375 August 20, 2028 2.52 % 375 375 Series C Senior Notes €128 137 August 20, 2026 0.89 % 137 141 Series D Senior Notes €251 269 August 20, 2031 1.26 % 269 277 Series E Senior Notes £145 183 August 20, 2026 1.98 % 183 185 Series F Senior Notes £130 164 August 20, 2028 2.13 % 164 166 Series G Senior Notes €80 86 August 20, 2027 3.33 % 86 88 Series H Senior Notes €110 118 August 20, 2029 3.54 % 118 121 Series I Senior Notes €50 54 August 20, 2032 3.74 % 54 55 Total Senior Unsecured Notes $ 1,686 $ 1,708 __________________ (1) Interest on our Senior Unsecured Notes is payable semi-annually in arrears. The Senior Unsecured Notes are the joint and several obligations of Lineage Logistics Holdings, LLC, Lineage Logistics, LLC, certain U.S. subsidiaries that guarantee or otherwise becomes liable, as a borrower or a co-borrower or otherwise, under any of our material debt facilities and, in the case of Senior Unsecured Notes denominated in currencies other than the U.S. dollar, Lineage Treasury Europe B.V. and certain non-U.S. subsidiaries that guarantee or otherwise becomes liable, as a borrower or a co-borrower or otherwise, under any of our material debt facilities. The Senior Unsecured Notes rank pari passu with our other 63 senior unsecured indebtedness, including the Revolving Credit Facility and Term Loan A, and are subordinated to any of the obligors’ existing and future secured debt, including indebtedness incurred under the CMBS loans. We may prepay the Senior Unsecured Notes in full or in part, at any time, subject to notice requirements and minimum principal amount requirements, at 100% of the principal amount so prepaid, and the make-whole amount determined for the prepayment date with respect to such principal amount, and accrued interest to the date of prepayment. In the event of certain changes in tax law, Lineage Logistics, LLC or Lineage Treasury Europe B.V. may prepay the Senior Unsecured Notes at 100% of the principal amount so prepaid, and a modified make-whole amount and accrued interest to the date of prepayment. Upon a change of control or becoming subject to sanctions, Lineage Logistics, LLC must offer to prepay the entire unpaid principal amount of the Senior Unsecured Notes and accrued interest to the date of prepayment. The note purchase agreements governing the Senior Unsecured Notes contain covenants that, among other things, limit our ability to incur additional debt, create liens against our assets, make acquisitions, pay dividends or distributions on our stock, repurchase our stock, merge or consolidate with another entity, transfer or sell assets, enter into transactions with affiliates, change our line of business, enter into negative pledges, and conduct activities that would result in us being subject to sanctions or violating sanctions. The note purchase agreements also require us to maintain a total leverage ratio, unsecured leverage ratio, secured leverage ratio, and fixed charge coverage ratio each quarter at the same levels as those set forth in the Revolving Credit and Term Loan Agreement. As of June 30, 2024, we were in compliance with our covenants under the note purchase agreements. The note purchase agreements governing the Senior Unsecured Notes also contain customary events of default, including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the note purchase agreements, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. Security Interests in Customers’ Products By operation of law and in accordance with our warehouse customer contracts (other than leases), we typically receive warehouseman’s liens on products held in our warehouses to secure customer payments. Such liens typically permit us to take control of the products and sell them to third parties in order to recover any monies receivable on a delinquent account, but such products may be perishable or otherwise not available to us for re-sale. Our credit loss expense relating to customer receivables was $2 million and $2 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, we maintained allowances for uncollectible balances of $7 million and $7 million, respectively, which we believed to be adequate. Maintenance Capital Expenditures and Repair and Maintenance Expenses Lineage prides itself on maintaining its facilities, fleet and railcars at a high standard. We regularly update long-range maintenance plans by asset to ensure that our assets maintain the high quality and operational efficiency that our customers expect from us. Maintenance Capital Expenditures Maintenance capital expenditures are capitalized funds used to maintain assets that will result in an extended useful life. This includes the cost to purchase and install, repair, or construct assets when it results in a useful life longer than one year and the installed cost per asset is over a de minimis threshold. Maintenance capital expenditures are related to both our global warehousing segment and global integrated solutions segment, including information technology, and are all, in management’s judgment, recurring in nature. These expenditures include maintenance performed multiple times over the lifetime of the facility or asset, such as replacing or repairing roofs, refrigeration systems, racking, material handling equipment, and fleet. These expenditures also include information technology maintenance to existing servers, equipment, and software. 64 The following table sets forth our recurring maintenance capital expenditures for the three and six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in millions) Global warehousing $ 34 $ 30 $ 54 $ 53 Global integrated solutions 4 4 9 9 Information technology and other 10 5 15 8 Maintenance capital expenditures $ 48 $ 39 $ 78 $ 70 Repair and Maintenance Expenses Repair and maintenance expenses are incurred when assets need repair or replacement and do not qualify as capital expenditures. If the work does not materially extend the useful life of the asset or the asset value is less than a de minimis threshold, it would be recorded as an operating expense under repair and maintenance expenses. Examples include ordinary repairs on roofs, racking, refrigeration, and material handling equipment. Project related expenses are excluded. The following table sets forth our repair and maintenance expenses for the three and six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in millions) Global warehousing $ 36 $ 34 $ 69 $ 67 Global integrated solutions 13 15 27 28 Repair and maintenance expenses $ 49 $ 49 $ 96 $ 95 Integration Capital Expenditures Integration capital expenditures are capitalized funds related to integrating acquired assets and businesses. Integration capital expenditures are one-time expenditures. These are typically acquisition-related costs, including maintenance on acquired assets that are beyond their useful life at the time of acquisition, rebranding expenditures, and information technology expenditures to standardize system usage across our business, and also include certain non-acquisition related costs, including safety and compliance projects to comply with any applicable policies, laws, or codes, such as installation of site security or a new fire suppression system, as well as freon to ammonia conversions. The following table sets forth our integration capital expenditures for the three and six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in millions) Global warehousing $ 10 $ 10 $ 18 $ 14 Global integrated solutions 1 12 1 17 Information technology and other 4 4 13 11 Integration capital expenditures $ 15 $ 26 $ 32 $ 42 65 External Growth Capital Investments External growth capital investments include acquisitions, greenfield projects and expansion initiatives, information technology platform enhancements, and other capital projects which result in an economic return. We divide growth projects into the following categories: • Acquisitions: The purchase of an external company or facility. Also includes the purchase of the real estate of facilities we currently lease. • Greenfields and Expansions: Projects either to build a new facility, including the purchase of land, or to increase the size of an existing warehouse (as measured by cubic feet). The costs associated with construction and materials are included. • Energy and Economic Return: Energy return projects are intended to increase energy efficiency by decreasing the amount of kWh or fossil fuels consumed or reducing the cost to procure energy. Common examples include installing new LED technology, installing solar panels at a warehouse, and electrification of transportation fleet. Economic return projects require an investment of capital for a future cash flow and/or NOI benefit that is not an acquisition, greenfield, expansion, or energy project. Examples include addition of blast cells, racking replacement, re-rack for additional pallet positions, replacing freezer doors, purchasing compressors, buying out leased equipment, and purchasing new rail cars. • Information Technology Transformation and Growth: Capital investments focused on (a) warehouse operations efficiency – deploying technology that leverages advanced algorithms and artificial intelligence to increase labor productivity and higher utilization; (b) customer experience and service – building and implementing technology solutions to improve response times, automate common tasks, and offer seamless multi-channel support elevating both customer and employee experience; and (c) sales management, pricing and billing – creating and integrating IT systems to streamline sales processes, optimize pricing, and enhance billing accuracy and efficiency. The following table sets forth our external growth capital investments for the three and six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in millions) Acquisitions, including equity issued and net of cash acquired and adjustments $ 14 $ 3 $ 73 $ 16 Greenfield and expansion expenditures 95 70 131 164 Energy and economic return initiatives 25 28 47 68 Information technology transformation and growth initiatives 15 18 27 35 External growth capital investments $ 149 $ 119 $ 278 $ 283 We completed one acquisition in each of the three months ended June 30, 2024 and 2023, and two acquisitions in each of the six months ended June 30, 2024 and 2023. Refer to Note 4, Business combinations and asset acquisitions of the condensed consolidated financial statements included in this Quarterly Report for more information regarding business combinations and asset acquisitions. The greenfield and expansion expenditures of $95 million and $131 million during the three months and six months ended June 30, 2024 relate primarily to projects that remain under construction as of June 30, 2024. The greenfield and expansion expenditures of $70 million and $164 during the three months and six months ended June 30, 2023 related primarily to projects that were completed in 2023 or are expected to be completed in 2024. Energy and economic return initiatives include $25 million and $28 million of corporate initiatives and smaller customer driven growth projects incurred during the three months ended June 30, 2024 and 2023, respectively. Energy and economic return initiatives include $47 million and $68 million of corporate initiatives and smaller customer-driven growth projects incurred during the six months ended June 30, 2024 and 2023, respectively. 66 In implementing and developing new IT systems globally, we invested $15 million and $18 million during the three months ended June 30, 2024 and 2023, respectively and $27 million and $35 million during the six months ended June 30, 2024 and 2023, respectively. Historical Cash Flows The following summary discussion of our cash flows is based on the condensed consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below. Six Months Ended June 30, 2024 2023 (in millions) Net cash provided by operating activities $ 260 $ 336 Net cash used in investing activities $ (398) $ (454) Net cash provided by financing activities $ 144 $ 54 Operating Activities For the six months ended June 30, 2024, our net cash provided by operating activities was $260 million, compared to $336 million for the six months ended June 30, 2023. The decrease was primarily due to a reduction in net income (loss) adjusted for non-cash items and unfavorable changes in working capital, most significantly in accounts payable and accrued liabilities and deferred revenue and accounts receivable. Investing Activities For the six months ended June 30, 2024, cash used for investing activities was $398 million. This was driven by $333 million in additions to property, plant, and equipment, primarily for growth capital expenditures. In addition, we invested $73 million in the acquisitions of Entrepôt du Nord Inc and Eurofrigor. For the six months ended June 30, 2023, cash used for investing activities was $454 million. This was driven by $428 million in additions to property, plant, and equipment, primarily for growth capital expenditures. In addition, we invested $21 million in our investment in Emergent Cold LatAm Holdings, LLC and $13 million in an acquisition in Christchurch, New Zealand. Refer to Note 4, Business combinations and asset acquisitions in the condensed consolidated financial statements included in this Quarterly Report for more information regarding business combinations and asset acquisitions. Financing Activities Our net cash provided by financing activities was $144 million for the six months ended June 30, 2024. Cash provided by financing activities during 2024 was primarily driven by $1,231 million of net borrowings on revolving credit lines, partially offset by net outflows of $860 million for net repayments of long-term debt and finance leases, $123 million for distributions, $44 million for financing fees, $25 million for redemption of common stock, and $16 million for payment of deferred consideration liabilities. Our net cash provided by financing activities was $54 million for the six months ended June 30, 2023. Cash provided by financing activities during 2023 was primarily driven by $145 million of capital contributions and $37 million of net borrowings on revolving credit lines. This was partially offset by outflows of $48 million for repayments of long-term debt and finance leases, $33 million for payment of deferred and contingent consideration liabilities, $23 million for distributions, $10 million for redemption of units issued as stock compensation, $8 million for equity raise costs, and $3 million for redemption of common stock. Off-Balance Sheet Arrangements As of June 30, 2024 and December 31, 2023, we had no material off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. 67 Critical Accounting Policies and Estimates The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates, assumptions, and judgments in certain circumstances that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be most appropriate and reasonable. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates as described in our Prospectus. New Accounting Pronouncements Refer to Note 1 to our condensed consolidated financial statements included elsewhere in this Form 10-Q for more information regarding applicable new accounting pronouncements. 68