Greetings and welcome to the Americold Realty Trust Fourth Quarter and Full Year 2021 Earnings Call. At this time, all participants are in a listen only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Henderson, Investor Relations. Thank you, Scott, you may begin.

Good afternoon. Thank you for joining us today for Americold Realty Trust fourth quarter 2021 earnings conference call. In addition to the press release distributed this afternoon, we have filed a supplemental package with additional detail on our results, which is available in the Investor Relations section on our website @www.americold.com. This afternoon's conference call is hosted by Americold’s Chief Executive Officer, George Chappelle; Chief Commercial Officer, Rob Chambers; Chief Financial Officer, Marc Smernoff. Management will make some prepared remarks. After which we will open up the call to your questions. On today's call management's prepared remarks may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. A number of factors could cause actual results to differ materially from those anticipated. Forward-looking statements are based on current expectations, assumptions and beliefs, as well as information available to us at this time and speak only as of the date they are made. And management undertakes no obligation to update publicly any of them in light of new information or future events. During this call, we will discuss certain non-GAAP financial measures, including core EBITDA and NFFO. Full definitions of these non-GAAP financial measures and reconciliations to comparable GAAP financial measures is contained in the supplemental information package available on the company's website. Now, I will turn the call over to George Chappelle.

Thank you, Scott, and welcome to our fourth quarter 2021 earnings conference call. This afternoon I will summarize our 2021 results and then discuss current market conditions that are impacting our full year 2022 guidance. Rob will then provide an update on our recent pricing initiatives and Marc will review results in more detail providing commentary on full year guidance. But before I begin, I would like to take a moment to comment on my appointment as permanent CEO that was announced this afternoon. Having spent decades in operational roles in the food industry, I've been responsible for many cold storage operations, including providers like Americold and many of its competitors. I've always considered Americold the industry leader in quality and customer service. As I've worked with the team over the past few months, I have been impressed by their commitment to delivering operational excellence and discipline growth. I am very excited to be here and look forward to getting to know more of you in the future. Onto our results. While in consumer demand for temperature control food remain strong COVID related supply chain and labor disruptions continue to impact the global food supply chain. At the time of our last earnings call in early November, Delta was the dominant COVID variant and it seemed to be peaking in various regions of the world. Businesses including us and our customers were making progress and adapting to Delta. However, by late November, the Omicron variant began to rapidly spread worldwide. This highly contagious variant introduced more uncertainty and disruption into an already strained supply chain, the impact of Omicron can be seen in our results. For the full year, our global warehouse same store pool generated total revenue growth of 0.3% while we experienced an NOI decline of 5.8% on…

Thank you, George. I'll provide a brief update on our pricing initiatives related to our warehouse business, and comment on our commercialization efforts. We discussed on our last call beginning in the third quarter, we raised hourly wages in many of our locations, to retain our associates and recruit top talent. The impact of these wage increases is reflected in our fourth quarter results. In order to offset these and other inflationary pressures, we have taken action by increasing the pricing of our warehouse business. Please remember, our pricing for our customers is very prescriptive. And we do not take a one size fits all approach. As you can see, on page 37 of our IR supplemental, we were able to increase our service revenue per throughput pallet in our same store on a constant currency basis by 3.8% with this improvement accelerating through the quarter, the most meaningful increases occurred in December, up 5.9% versus prior year's month of December. As a reminder, our customer mix is made up of the following. Approximately 30% of our warehouse revenue is with smaller customers, where our pricing can be adjusted at any time with a 30 to 45 day notice. We took action on this customer group, and almost all of this increase is in our fourth quarter results. Approximately 70% of our warehouse revenue is with our Top 100 customers. About half of these customers have contracts with formulaic mechanisms in place to allow for us to equitably adjust our pricing as long as there's been a demonstrable increase in our costs. The remaining half of these customers have come to the table clauses that require a good faith negotiation to increase price. For the Top 100, we initiated these conversations in the third and fourth quarter of 2021. And…

Thank you, Rob. Today, we will provide updates on our fourth quarter and full year results. I will also provide our outlook for 2022. For the fourth quarter, we reported total company revenue of $716 million and total company NOI of $161 million, which reflects a 37% increase and a 6% increase year-over-year respectively. Corporate SG&A total $49 million for the fourth quarter of 2021 as compared to $40 million in the prior year, reflecting our external growth over the past year net of synergies and higher stock compensation expense. This growth was partially offset by a decrease in our annual performance based cash incentive compensation expense. Core EBITDA was $124 million for the fourth quarter of 2021, an increase of 5.6% year-over-year, our core EBITDA margin decreased 511 basis points to 17.3%. Our fourth quarter AFFO was $82 million or $0.31 per diluted share. Now let's turn to our results within our global warehouse segments. For the fourth quarter of 2021, global warehouse segment revenue was $554 million, an increase of 36% compared to the prior year. This growth was driven by the recently completed acquisition and ramp of recently completed development projects, paired with contractual and market driven rate escalation. This growth was partially offset by the impact of food supply chain disruptions, resulting in lower economic occupancy and throughput in our same store portfolio. Warehouse segment NOI was $151 million for the fourth quarter of 2021, an increase of 3.6%. The increase in warehouse NOI is driven by our recently completed acquisitions, largely offset by the impact of inflationary pressures across our global portfolio. Global warehouse segment margin was 27.2% for the fourth quarter of 2021, 849 basis points decrease compared to the same quarter of the prior year, due to lower margin acquisitions and inflationary cost…

Thanks Marc. I'd like to reiterate how pleased I am to join Americold on a permanent basis and lead the company's next chapter. We are committed to providing best-n-lass service for our customers. And I'd like to thank our customers for their confidence in us. I'm also incredibly proud of our 16,000 plus associates who are the heart of our business. I want to extend a special thank you to each of them for their hard work and dedication every day. I look forward to spending more time with them in the near future. Thank you again for joining us today and we will now open the call for your questions. Operator, please open the call for Q&A.

[Operator Instructions] Thank you. Our first question is from David Rodgers with Baird.

Yes. Good evening, everyone. I wanted to start with you, George, if I could first congratulations on your appointment as CEO, but two questions around that if I could you, the board and management were pretty clear that this is not a possible outcome. And so probably comes as a little bit of a surprise. So one, wanted to give you the chance to talk about kind of what the change of heart was that kind of brought you to this permanent position. And then two, maybe what do you see is kind of the focus of your tenure here, as the CEO in replacement of Fred.

Yes, thank you, Dave, appreciate the question. I consistently said, when asked that, look, Americold was the industry leader in cold storage, and that anybody would have been privileged to lead the company, I certainly felt that way from the very beginning. In my case, I was coming out of retirement, even though it was a relatively short retirement. And those decisions aren't individual decisions. So took a little bit of time to work through. But what I can tell you is once a decision was made, joining Americold was probably the easiest professional decision I've ever made in my life. And like I said, in my prepared remarks, I couldn't be more happy to be here. So moving on to the second part of your question, and I'd say the top three priorities for me is starting literally immediately, one, labor management, enhancing our recruitment and retention processes, reducing our dependence on temp labor, increasing our ratio of permanent labor. And we know when we increase permanent labor, we get number one, far more productivity, which transfers into lower costs for throughput pallet. So that's one, number two, I think the industry has suffered in customer service driven by COVID, and labor issues, I want to make sure that when we build back our labor force, we come back with customer service levels that are not only at pre COVID levels, but best-n-lass, I can tell you as a customer, nothing means more than best-n-lass customer service. And we're committing to getting back to those levels. And then last, ensuring our development projects remain on track. We believe in each of those business cases. But as development projects are not immune to the current macroeconomic environment. Nor are they immune to the supply chain issues. So they require constant attention. They're very complex builds. And we remain dedicated to making sure they stay on track, particularly with respect to the business case. So I hope that answers your question.

It did. Thank you. And if I could follow up one on operations, maybe related to Rob's comments around pricing and the increases that you've been able to achieve. Rob, thanks for your pointing out page 37. It's a good table. But how do we kind of track through the pricing increases on that table, we can see the labor increases, but as you look at kind of either same store revenues on a throughput basis, or economic or physical occupancy they really haven't caught up in the fourth quarter, relative to those labor cost increases. So maybe a little bit more color on that and how you're thinking about that tracking through 2022?

Yes, sure. Thank you. I mean, for us, what we thought out is, we've engaged in conversations with the majority of those customers, with our customers. And ultimately, I think we still consistently feel like, we'll be -- the full impact of the price increases that we put in will be felt really coming out of the first quarter into the second quarter. And at that point, we will have offset that inflation that we've seen, particularly on the services side of the business.

Our next question comes from Mike Mueller with JP Morgan.

Yes. Hi. The sequential revenue growth in service revenue per throughput pallet, it was about 3.8% in the quarter, in the prior few quarters, it was mid to high 4s year-over-year growth. So I was wondering, what drove that deceleration?

Yes, there's a number of things that factor into that which include business mix. So obviously, it's going in and throughout the year you had lower throughput volume overall, we have a slight shift overall in business mix to less volume less value added services. So without lower volume, you tend to have less value added services. And I think given the state of the supply chain some of the challenges what we saw is product moving through more quickly and less value added services being done within our warehouse to get the product more quickly to the end consumer.

But Mike, it’s Scott, I just want to follow the 3.8% was the revenue year for throughput pallet in the same store, it actually as Rob called out accelerated throughout the year so that was the average for the quarter. But remember Rob worked the prices in there you saw that increase to 5.9% in December as those increases as those price increases came in, that's the way it worked its way through the quarter.

Yes, got that. Definitely picked up on that. Appreciate that. And then I guess, in your conversations with customers, have you had any instances where customers who were on fixed commitments have actually wanted to back off just because of the past couple of years’ experience?

We haven't. I think all of our customers, George mentioned, recognize that there is a goal to get back to pre-COVID production levels. And as folks are able to bring labor back on, I think everybody is going to be rising around a similar time frame. And so that leaves everybody to wanting to make sure that space is available for them, when the production ultimately does come back. So we haven't been even in our prepared remarks, we referenced the fact that our fixed commitments have continued to grow quarter-over-quarter and year-over-year. So it's still a structure we're very comfortable with.

Our next question comes from Craig Millman with Keybanc Capital Markets.

Thanks, everyone. And George, I apologize, I kind of cut off on Dave's first question, but I just wanted to kind of follow up. Just because when we had chats around [Indiscernible], I kind of asked you directly if you thought you'd be kind of the guy permanently in the seat. And you were almost adamant that you wouldn't be and it's been not that long with time period since [Indiscernible], could you just go through kind of what change in your view that got you are comfortable with being the permanent guy, and also just how deep you got and the search firms got into interviewing external candidates?

Yes, well, I can tell you is that there was nothing professional or Americold base, let's say in my comments, when I said I was not a candidate, it was about being retired and being retired with a family and working through the decision to come back to work full time, which is everybody knows is a massive commitment. So it had nothing to do with Americold that had nothing to do with the industry. It has nothing to do other than the personal situation I was in at the time, and the decision to leave that personal situation and go back to working full time. So and that did take a while to make sure it was the right decision for me and in my particular circumstances. So that was it. When it comes to the search process, I know it was extensive. I know that it had a number of highly qualified candidates, I think I mentioned and it probably was with you that it would attract a lot of incredibly talented people, because it's, Americold is an industry leader that has been an industry leader for a long time and has the capability to attract that type of talent. So that's really, I can't really add any more to it.

That's helpful, then just on the expense side sounds like your through on your top tenants, you kind of gave some retention bonuses or true ups to kind of non-executives. Sounds like about $16 million in total. I don't know if it's more than that. I know you said there was $4 million, maybe in the $4000 or so maybe $20 million.

Correct. It's about $20 million spread over, it'll hit three years, but it's $4 million that was already in this fourth quarter, $11 million, which will impact next year or 2022 and $5 million impacting 2023.

Okay, and then I'm just trying to figure out what kind of cushion you guys gave yourself in 2022 above that 2% to 4% to absorb some maybe higher use of contract labor in the near term or just kind of higher wages above and beyond normal inflation.

Correct. Did you reference the two, what 2% to 4%? Are you referencing, we just want to make sure --

Just the normal cushion you guys have in your contracts to pass through costs?

Yes. So I think what our guide implies. And if you look, in particular in our same store where we're guiding actually negative two to flat really, while we're getting the benefit of all the rate increases Rob mentioned our guidance is that the disruption in the industry, and I think you've seen this both in the USDA report both for last year, and even the January report that was just filed just the other day, that the starting inventory, the state of the inventory has not yet fully recovered, we're still seeing negative year-over-year comps, which are weighing in to the overall guidance. So if you think about our outlook for the year, and the implications that same store guide entails is we, at the midpoint we don't expect to see a significant recovery in 2022, or degradation as I mentioned in my prepared remarks, if we do see improvement in occupancy, that will help us get to the upper end of our range. It'll also drive associated throughput. If we see degradation of occupancy and associated throughput, they'll get us closer to the lower end of the range.

Our next question comes from Emmanuel Korchman with Citi.

Hey, it's Michael Bellman here with Manny. George, in your opening comments, you said your ability to predict when economic and fiscal occupancy levels will fully recover was impossible. And I assume the same goes for the expense recapture in terms of amount and timing, that you just don't yet have the confidence. And it's basically impossible to understand. You ended your comments with some, yes about sort of what you're doing to your customers and all that. I'm wondering if we can spend some time on the investor side of things. Obviously, it's been a pretty tumultuous four months. And actually, if you go back prior to you getting there, there was a number of missteps that arguably led to the board deciding to bring three new members on and terminate the prior CEO, and two what I really understand from your vantage point, now that you've made the decision to join the board and offer your advice as a retiree. You've now made the decision to be active and fix the problems. What confidence do you give to a shareholder both that could be existing and that could be wanting to buy your stock about when you believe earnings will recover? And I'm sure you've looked at the numbers last year, it was supposed to be a $50 for this year, that's where the street was thinking prior to the declines after the 3Q print. Even this year it was supposed to be a $40. If you go back a year or so, being at $1, 50% down, at what point will those earnings come back so that shareholders can start underwriting that level? And what confidence can you give them?

Yes, no, very good question. I appreciate the sentiment. Look, my objective is in the short term control what we can control, right, that's labor management. I mentioned getting back to a permanent workforce that on a percentage basis is far higher than it is today. It's controlling our development projects to ensure that they come in on time on budget and hit the yield was published. What I can't control is the recovery of the food industry, when it occurs and how fast it occurs. What I can tell you based on my years in the food industry is that when you have service levels at 70%, which I referenced in my prepared remarks. And you also have unmet demand, the likes of which is higher than anything I've ever experienced in decades in the food industry with very large customer, very large manufacturers. What I can tell you is they want to produce more, they view that as a huge opportunity. And they will do everything they can to produce more so my confidence that it will come back historic inventory levels at Americold specifically and in the cold chain in general, will come back, I can't be more confident of that. But I can't tell you is when but when it does, if we do a good job of on things we control labor and development being the two biggest ones. I am confident that investors will see the type of performance they expect from us. The issue was when it comes back and in my prepared marks I was being as honest as I could I can't tell you when it's going to happen.

George, can you help us, again, I remember when we start getting a read, it was even read or reread our note, it was pretty definitive that you weren't going to take the CEO seat, look, I'm extraordinarily happy that you're in it. But obviously it does come as a surprise, can you just talk through a little bit on the timing, because I assume acting as an Interim CEO, the decision that you were making may be very different than if you were sitting in the seat for the longer term. I view it as a caretaker versus someone who's strategically thinking about the business, the organization, and the management team, there's a lot of things that you would do as a permanent CEO that you wouldn't do as an interim. And so when was the switch made? And how much time due diligence have you really spent in the organization? And I recognize you there now, it's been four months, but what activities have you done? But how much more is coming, right? Is the board active? You have three new board members, including yourself. I don't know if you're going to add someone else in for an independence perspective, but like a new board, are they going to strategic review? Are you going to re-change the executive management team, how much more change just from an organization, but about all the industry stuff. But clearly the board thought there was an issue in the way the company was being run. So I think I'm really trying to get at is, what else should we be expecting in terms of changes from an organizational capital deployment? Everything that goes into it from the CEO perspective?

Yes, thanks for the question. First off, though, I'd never considered myself a caretaker. I had joined the board, I had a very vested interest in Americold being successful as a board member, and I was given the support of the board to act as a leader not as a caretaker. And there's very little that's changed in my posture, or my decision making, literally since I arrived, as the interim leader. So the mindset has been -- mindset and energy has been consistent throughout the time period. So there's absolutely zero change. In terms of changes in the company, I've said a number of times, in my mind, there is nothing flawed with the business model of Americold. It is a vital component of the food cold chain, it's not an optional component. It's a vital component. Our task right now is to get our house in order and the things we can control. I mentioned labor management, that I mentioned the development projects, and be ready to accept all of the inventory we possibly can when food producers can produce and to service customers that service levels that are at least 98.5%, if not higher, when that occurred. That would have been exactly what I said, had somebody asked me what the goal was four months ago, and it's the exact same answer today.

Our next question comes from Michael Carroll with RBC Capital Markets.

Yes, thanks. Obviously, the macro environment still remains fairly dynamic right now, I guess, with the current Russia conflict. It seems like that's going to materially impact fertilizer and food exports. I mean will this or could this further disrupt food production? And how has this impacted your recovery outlook or expectations on the business?

Well, obviously, very recent news, will it have an impact on a European business? I'm sure it will. Right. I mean, it's hard to imagine that something of this magnitude, as unfortunate as it is, would not have an impact on European business. How that manifests itself? I honestly don't know. I'm sure you could theorize that energy may be an issue for sure. And it could be some others. You mentioned a couple. I can't really predict it. But I can tell you we're extremely focused on it. We were on the phone with our European team this morning. We discussed this but I think it's wait and see least for the next couple of weeks to see what happens.

Okay, then within your, I mean, you obviously have a pretty global portfolio and the supply chains pretty interlinked. I mean will the weakness mainly be in Europe or could you see issues in your Australian and South American and potentially US portfolio, I guess, how insulated is the US portfolio from this?

Look, I think if you step back and look the US portfolio is being impacted in the supply chain challenges that are being discussed are really global in nature. So they're not unique to Europe, they're not unique to US. They're not unique to the other geographies that we operate in. So we're seeing global challenges similar challenges around the globe around labor, labor availability, power, inflation. So we're addressing those on all fronts, Mike. So I don't think we see unique things. If you step back many of the geographies that we serve tend to be breadbasket geographies where there are producers of food that we do export around the globe, right. So we'll have to be seeing how import flows, import export flows change is a result of what's going on in Europe. But the general markets we serve are our breadbaskets.

And maybe I'll just add, if I was to think of impacts in geographies, such as North America or Australia, New Zealand, it probably is more on the import export side and how those flows change given recent events, and less so in country and that's at least what we think today. But we'll see again, as you can imagine, incredibly fluid situation and very new.

Our next question comes from Samir Khanal with Evercore ISI.

Good afternoon, everybody. Hey, Marc, you've talked about the guidance a little bit earlier, maybe help us understand what's sort of baked into the low end of guidance. I know, you talked about a factoring and deterioration or occupancy. I mean, can you help us sort of quantify that, I just try to understand a bit more how the worst case scenario and maybe on the other side of the high end, what occupancy you're assuming.

Yes, so if you look at our economic occupancy and these occupancies just remind everyone are the average for the quarter. But we're roughly carrying in Q4, roughly 144 basis points, define year-over-year across the portfolio. And so roughly, if you think about our guidance going into next year, it really carries that rough year-over-year decline forward. So we're thinking somewhere, occupancy should be on a year-over-year basis. And we're between 100 to 200 basis points down on average throughout the year. So what gets us improvement, obviously, is if we see a more quick recovery, and we see greater occupancy, and throughputs, that will drive us up to the upper end of the range, if the market continues to deteriorate. So just as George mentioned in his remarks, all of us as end consumers remain strong. But the challenges definitely persist in the industry in terms of labor availability and food production. So if those continue to be challenged, and degrade from where they are today, that could put pressure on and move us towards the lower end of the guide.

Got it. And I guess, George, the second question here is, I guess what have you heard from your food manufacturing customers, given your background as to when you think will get back to sort of a normalized inventory level? I know, you said it's sort of solid and certainly out there. But based on kind of your context, what do you hearing directly from them?

What I'm hearing is that when they can attract the labor that they need in terms of numbers have the time to train them, make them productive, and then get the right flow and cadence of how they produce efficiently, then inventories will build and that makes perfect sense to me. That's exactly how it's done. What they cannot offer is timing. And it gets back to some of the comments in my prepared remarks. I mean that we've seen cases where optimism started to take hold and then its three steps back with Omicron. And I think that is really been a shock to the system in terms of how quickly things can change. And it's prevented people from attempting to predict the future, quite frankly, and I can certainly understand that. Again, I know they're motivated beyond motivated to ramp up. It's producing food for sale is what they do, and I spent a lot of time in that. I can tell you it's something they take very seriously. But until the labor barrier is removed, they really have -- they're really handcuffed. And again, timing is just something people aren't even willing to discuss because it's just very variable based on labor availability.

Our next question is from Ki Bin Kim with Truist Securities.

Thanks and good evening, everyone. Just want to back to your ability to push on inflationary cost to your tenants, I didn't get it. I might have missed it, but I don't think I got a full answer on that in terms of like, what percent is actually, what percent of your customers including those are variable, I guess you push it all through, but especially those on a kind of fix contract basis that what percent of your customers are actually taking on the increases, how much of the increases have been pushed through.

Yes, we've had conversations with across our entire customer portfolio, inclusive of our Top 100 customers, those outside of the Top 100. And those customers on fixed commitment contracts. The issues that Americold experience from a cost standpoint are extremely macro in nature, they're not specific to Americold. And we -- so the conversations have been very rational and our contracts do allow as we described in the prepared remarks for cost changes beyond our control, which is -- what the majority of these costs are. And so we've been able to have the conversations across our entire customer base.

And maybe I can add having been a customer on this not too distant past that a strength of Americold is to be very analytical in the discussions. So to put forth a price increase justified on actual data on customer performance and a cost base that the customer can relate to. I think that's incredibly helpful when passing these price increases through and a big part of the reason that they have hit 100% of the portfolio and have gone through the system exactly, as Rob mentioned, and in line with our guidance led for that exiting the first quarter of this year, we will have recovered all known inflation and our cost structure as schedule.

Okay. And in terms of your G&A increase, you’re guiding towards almost a $40 million increase. I don't think there's -- I don't cover all reefs, but that's probably I got the point of biggest ones, especially in light of your spot price which is in challenge still situation. I just think that G&A increase, these are a little more attention. Can you just help us understand why that size of magnitude and break it down a little bit further to understand what's happening?

Yes, hey, Ki, it’s Marc. As I said in my prepared remarks, the key drivers of the increase are really the resumption of performance based cash incentive compensation. So obviously, with the performance in 2021, that was not accrued or included in the year end results, it wasn't earned. But we do in our plan going forward, we do plan for that in the ordinary course. Additionally, on top of that, we talked about in my prepared remarks, the incremental $11 million of non-cash share expense are related to the retention program, the share base retention program that was put in place this year. So those two items make up more than half of that increase. On top of that, one of the things we're doing in IT is we're transitioning more of our software as we integrate businesses to a software as a service platform. So what that does is it puts a little more operational expense in G&A. But it actually saves us maintenance CapEx over time. So from AFFO perspective, those types of investments should be neutral. From and then the last thing we continue to see is just inflationary cost pressures still on overall wage environment insurance, travel, et cetera, et cetera. So those other additional costs that are embedded in our G&A to your normal annual treadmill costs are what make up the cost.

Our next question comes from Joshua Donovan with Bank of America.

Yes. Hey, everyone. I wanted to ask about the 8-K, the executive severance benefits plan. Is that -- is the changing control payouts new or if it's not new, is it different than what it was previously? And if so, why?

No, they're consistent with what they previously were. I think we changed our function in terms of employment agreements going to the standard program. And you'll see that the terms of benefits are very consistent if you look at our proxy from last year.

Okay, I guess maybe why would this needed? Like the new one than the old one? Just because you have a new CEO or?

Yes, I think it's something in terms of one of the things that our board has been working on in terms of moving towards the best practices that they see in the industry, and we're following the best practice.

Okay, got it. And then I wanted to ask about on page 37, should we be more focused on the economic occupancy the physical occupancy for the same store rent and storage revenues per occupied pallet? Because I see that looks like 4Q ’21 on the physical side was declined versus what you had in 3Q?

Yes. So definitely, the economic occupancy is what truly drives our financial results. So we really encourage people to look at the economic occupancy, the physical occupancy, we always show it because obviously one of the things that drives throughput is the physical holdings of product in the network. And clearly, as you see what the physical holdings just as you heard us mentioned, on our prepared remarks, the challenges in the overall food supply chain are definitely weighing on food producers ability to produce, and that showing up in our physical occupancy.

Our next question comes from Vince Tibone with Green Street.

Hi, good evening. Could you elaborate on the operating efficiencies you mentioned that will help offset wage inflation? Given the majority of the wage increases were given in the back half at ‘21, I was surprised to see that guidance implies same store expenses to be down in ‘22. Any just color you can give on these fronts will be helpful.

Yes, when I referred to operating efficiency, it's really the mix between temp and firm labor, which we want to dramatically shift to permanent labor. And then second, the productivity you get with a permanent workforce, once you have the ability to train them, and get them to work in a rhythm, where they're consistently doing the same job for a period of time, which you never get the chance to do with temp labor. So that in and of itself drives efficiencies around labor throughput pallet, et cetera, et cetera. And that's what I was referring to on the productivity front.

Got it. That's helpful. And then it just how should we think about just expenses and how they're trending as occupancy recovers? I know, we're focused a lot on this year, but maybe think a little bit ‘23 and beyond just as occupancy rebounds, how much more employees expense load, do you think will be negative to support the growing volumes? Or maybe conversely, how much can you cut labor expenses this year, or when inventory or occupancy could be down again?

Yes, so the way we manage our business on the throughput side is the labor force is highly variable. And they're managed based on the work contents presented. So obviously, as we start to see more production come up, greater volume come in, we will increase our spent on variable labor to support that volume. But there's embedded margin in that. And so with that higher throughput will earn not only greater dollars from storing that product, but we also earn product or margin handling that product on that [Indiscernible]

Our next question comes from Anthony Powell with Barclays.

Hi, good evening. The question on your development, I guess you have starts of $100 million, $200 million this year. What returns are you looking at? And are the returns still in the low teens given all the labor costs increases and whatnot? How returns I guess trended or how it should be trend going forward?

Yes, so if you look at page 41 of our supplement, which details we're still seeing development opportunities and this is a cash on cash unlevered basis, where we believe we can generate yield, stabilized yields in the low double digit. So with that I remind people these are the yields that we call upon stabilization include not only the return for the infrastructure, but also the return for the services that we provide within that infrastructure.

And that hasn't changed, I guess, why hasn't that changed? Why hasn't been gone down and guess given higher labor costs? And what's allowed you to kind of maintain those levels? Given the environment we are in.

I think because that's how we price. So obviously, the cost side is an input to which we margin up to drive our return.

Yes, just, this is Rob, as pricing inflation in the existing portfolio we see these pricing inflation exactly the same way at a development project. So it's accounted for identically.

Got it. Alright. And I guess on the guidance. So the guidance doesn't assume any kind of additional needed a discussion with customers in terms of price increases, right. So, yes, it assumes that what you've done already is all you need to do, is that right?

Yes, as I think we said in the prepared remarks we've priced what we've seen, if we continue to see inflation beyond the embedded normal escalation in our contract that would require us to go back to customers. And As Rob mentioned and George mentioned both in their prepared remarks, there tends to be a slight lag where we need to experience that for a period of days, and then we can work to implement the rate increase so.

Our next question is from Bill Crowe with Raymond James.

Yes, thanks, good evening. George, maybe it's just me but the picture that I think has been painted tonight is of a company that's not been particularly well run. And you talk about the challenges delivering service to your customers, and that sort of thing. I guess the very fact that you're on this call indicates that there's been a problem. And I guess I'm trying to I guess maybe one, did Agro make a mistake selling to Americold and is that really prompted your decision to come full time and to kind of resurrect that, or number two, going back to Keybanc’s summit, if it has been a kind of a challenge in business over the past couple of years, why is G&A going up $40 million? And how much of that is staying headquarters versus workers out in the field?

Yes, I'll let Marc address the G&A question. But the first part of your question is, I don't think Americold has been run poorly just to be perfectly clear, if you look at the companies I'm aware of in the food industry, and others in the cold chain like Agro Merchants, the macroeconomic environment, driven by COVID and unavailable labor, okay, something I've never experienced in my career, I've experienced high cost labor before, I've never experienced unavailable labor to this degree. I think that's what has really impacted service levels, that's what has really disrupted companies. And as we've said, a lot of times, Americold is not immune to those macroeconomic issues. So it's clarified now, it's still our job to build back to where we were and beyond when it comes to customer service, when it comes to our labor mix between permanent and temp labor. And when it comes to ensuring our development projects deliver, those are all things we can control. Those are all things we have to make sure emerge stronger than they were pre COVID. But I don't think it’s Americold being run in a poor way. It's the macroeconomic environment that impacted every company in the food supply chain. So Marc, if you want to address the G&A?

Yes. So on the G&A front, as I mentioned previously it's the step up is -- this is a performance driven culture. And I think you've heard that through what George said, clearly last year was not a performance where the leadership team or the management team and the operators of the business earned their full incentive. But when we do plan we set aggressive targets, and we plan to pay those cash incentives. So that part of just the year-over-year step up. The next piece is quite the contrary. Americold is thought of as industry leaders, we develop talent, and our leaders are well thought of throughout the industry. So as part of that we approved the return of grant to protect that talent that we have across the organization, as I mentioned that approximately $11 million next year of that increase, is the final two buckets, as I said is we're transitioning and as we're integrating systems and integrating our recent acquisition, we're moving away from buying software to entering into agreements with our software providers where it's software as a service. So that manifests itself in our G&A. And what you'll see over time is a reduction in the maintenance capital spend around IT. If you think about those are both a component to AFFO and they'll net offset each other and overcome it, it’s geography question. The final one is there is normal inflationary impact overall in the environment, both on corporate salaries and other overheads such as travel, insurance, and just associated benefits. So hopefully that helps you bridge the gap.

I appreciate that, Marc. Can you tell me how your thoughts about external growth acquisitions and development might have changed over the last six or eight months as your cost of capital has gone from kind of advantage for you to pretty significant handicap?

Yes, look, I think obviously, we're very aware of the recent impact to our cost of capital. But I think our core business model is designed around how we continue to support our customers and their growth. And we accomplish that a number of ways. We're focused on driving organic growth through the portfolio. We're focused on supporting our customers through dedicated development projects that support their business. As I mentioned in my prepared remarks, we have six deliveries of projects in 2022. Four of those are customer dedicated, and those tend to be the larger projects. And then lastly, we remain focused on strategic acquisitions that enhance the platform and enhance our ability to serve our customers around the globe.

Thank you. This completes our question-and-answer session. Thank you for your participation. You may now disconnect.