Greetings, and welcome to Americold Realty Trust's First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Kevin Reed, Vice President, Investor Relations. Thank you, Mr. Reed, you may begin.

Good afternoon. Thank you for joining us today for Americold Realty Trust's First Quarter 2024 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 at www.ir.americold.com. This afternoon's conference call is hosted by Americold's Chief Executive Officer, George Chappelle; President of Americas, Rob Chambers; and Chief Financial Officer, Jay Wells. Management will make some prepared comments, 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 AFFO. The full definitions of these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures are contained in the supplemental information package available on the company's website. Now I will turn the call over to George.

Thank you, Kevin, and thank you all for joining our first quarter 2024 earnings conference call. This afternoon, I am pleased to announce our financial results for the quarter and will highlight key operational metrics. I will then discuss our updated outlook for the remainder of the year. Rob will provide an update on our recent customer initiatives and growth activity and Jay will provide a detailed walk-through of our updated full year 2024 guidance. Let's begin with a snapshot of some key financial achievements for the quarter. We generated AFFO of $104.9 million or $0.37 per share, an increase of over 28% on a per share basis year-over-year. Our performance on a constant currency basis was driven in large part by the significant improvement in our same-store services margins, where we delivered a record first quarter of 10.7%. This was a 671 basis point improvement year-over-year, which resulted in an incremental $22 million of NOI or roughly $0.08 a share in the first quarter. As growth appears to be slowing across the industrial REIT sector, we continue to demonstrate our ability to drive profitable organic growth across our platform. In the first quarter of 2023, we announced a $100 million strategic investment in our ERP infrastructure, which is showing early positive returns. The system's first phase went live Monday of this week, and we have made numerous process improvements leading up to this launch that have resulted in enhanced revenue recognition, better labor and cost management and helped drive our strong first quarter results. We are encouraged with the sustainable results to date and expect the system to deliver returns in line with our previously disclosed expectations. It's important to note our new system comes with AI capability embedded in the software, which we can utilize and customize to…

Thank you, George. As George mentioned, I will provide an update on our recent customer initiatives and growth activity. Pricing initiatives. We remain very focused on our pricing initiatives and are working diligently to ensure that we both offset inflationary pressures and price our business to reflect the value of the service we provide to our customers. In the first quarter, same-store rent and storage revenue per economic occupied pallet on a constant currency basis increased by 3.9% versus the prior year, 5% excluding the reduction of certain power surcharges. Same-store constant currency services revenue per throughput pallet increased by 10.8%. Our pricing actions in 2024 are driven by: First, as our longer-term customer agreements come up for renewal, we continue to revisit our pricing structures in order to ensure renewals are priced at market rates, inclusive of the inflationary impacts over the past several years. We have made great progress in this area. Second, we continue to benefit from our in-place annual contractual rate escalations on these current customer agreements. The majority of our annual increases or GRIs for 2024 went in during Q1. Third, as it relates to longer-term agreements, we will maintain our in-year targeted pricing and power surcharge initiatives to address known inflation, which has moderated in certain areas of our business. And fourth, all new business and shorter-term agreements are being priced with a current and forward view of our cost structure. Within our Global Warehouse segment, we had no material changes to the composition of our top 25 customers who account for approximately 50% of our Global Warehouse revenue on a pro forma basis. Our churn rate continues to remain low at approximately 3% of total warehouse revenues, consistent with historical churn rates. We have also continued our upward trajectory regarding fixed commitments. This…

Thank you, Rob. Today, I'll discuss our capital position and liquidity and update our full year guidance. Beginning with our balance sheet. At the end of the quarter, total net debt outstanding was $3.2 billion. We had total liquidity of $732.5 million, consisting of cash on hand and revolver availability, and our net debt to pro forma core EBITDA was approximately 5.4x. As we discussed last quarter, our previously announced expansion in Allentown, Pennsylvania, our greenfield developments in Kansas City, Missouri and Dubai, and our new expansion project in Sydney, Australia, will increase investment spend in the second quarter of this year. Please see Page 33 of the IR supplement for additional details on our development projects. Turning to our full year 2024 guidance, we are increasing our AFFO per share to the range of $1.38 to $1.46, an approximate 4% increase at the midpoint and approximately a 12% increase from 2023's AFFO per share result. Before reviewing the individual components of this guidance that are set forth on Page 35 of the IR supplement, let me quickly remind everyone of the new 2024 same-store pool for the Global Warehouse segment. This pool now has 226 facilities, which is approximately 96% of the total number of properties in our Warehouse segment. A summary of the 2024 same-store pool historic performance for the first quarter of 2023 is presented on Page 32 of the IR supplement. We have 10 facilities that are in our 2024 non-same-store pool. Now turning to the individual components of our updated AFFO guidance and starting with our Global Warehouse segment, we still expect full year 2024 same-store constant currency revenue growth to be in the range of 2.5% to 5.5%. Let me provide more detail around the key drivers of this updated guide. With respect to…

Thanks, Jay. It's been a great quarter for growth in Americold, with breaking ground on developments with our 2 strategic partners, CPKC and DP World, in addition to announcing a strategic expansion in Sydney, Australia, we continue to fuel our development pipeline for future profitable growth. What really separates Americold from most industrial REITs is the ability for our logistics operating company to generate organic growth through delivering mission-critical services in the global food supply chain as efficiently as possible. The labor metrics we've disclosed and tracked for over 2 years now have correlated to the increased margins we said would come with a productive stabilized workforce, which has allowed us to accelerate our 9% services margin goal by almost a full year. The improvement in metrics speaks to the sustainability of the warehouse services results and the solid foundation we have built beneath them. The early returns on process improvement as part of our ERP implementation speak to the productivity and organic growth still ahead of us, even as we guide towards a second double-digit year of NOI growth in our same-store pool. It's worth noting our results are accelerating at a time when consumer demand has been receding. When consumer demand does accelerate, we believe our investments in new systems and processes will prepare us to grow profit faster and more sustainably than many other operators. I want to give thanks to the over 15,000 associates around the world for their unwavering support and dedication and who bring their best-in-class customer service with them every day. For this, I say thank you for all your efforts. We could not do this without you. Thank you again for joining us today and we will now open the call for your questions. Operator?

[Operator Instructions] The first question comes from the line of Samir Khanal with Evercore ISI.

Maybe on the occupancy front, maybe tell us like in 1Q, where did occupancy end up versus your expectation? And I guess how should we think about the cadence of the trajectory of occupancy through the balance of the year?

Yes. Good question, Samir. It came in 345 basis points below prior year. That was exactly in line with expectations. If you look at the path to the midpoint of our current guide, our revised guide, we would have to increase economic occupancy 400 basis points sequentially in the next 3 quarters. We think that's very achievable and that's why we haven't changed our occupancy guide. So we feel really good about it.

Yes. Keep in mind, we are lapping a build that is not normally -- as part of our seasonality and what you're really getting back to is more of the more normal seasonality of our occupancy that you've seen here.

Okay, got it. And I guess the other topic investors are focused on is clearly throughput. So maybe talk around kind of what you're seeing, how do you think throughput will sort of will play out, let's say, in the second quarter? I know you've talked about an improvement in the second half. Is that sort of what you're still expecting?

It is, Samir. And we were down [ 750 bps ] year-over-year in the first quarter. That was exactly in line with where we said we would be. We said the first quarter would very closely mirror the fourth quarter of last year and it did. We're not revising the guide because we think it's very much in line with the original guidance we put out. But one piece of good news is really in April, for the first time, we saw a year-over-year improvement in throughput. So if you remember, we signaled that, that might happen closer to the end of the second quarter. We're seeing it a little bit more towards the beginning of the second quarter. So that's some positive news. No change to the guide. It's in line with our previous expectations, but a little bit of positive news comes through in April.

Next question comes from the line of Josh Dennerlein with Bank of America.

I just wanted to explore the ERP rollout more. Just could you kind of -- when did that come online in the quarter? And then like, I guess as we think about the balance of the year, what kind of improvements or things should we be looking out for as it kind of is fully rolled out and goes into the system?

Yes. I'll maybe hand it over to Jay for a couple comments, but it didn't go live in the first quarter, it went live on Monday of this week, actually. What we cited for the improvements that impacted the first quarter very positively were since the first of the year, we've been working on process change and process improvement ahead of the implementation of the new software. To make the software as effective as possible, we needed to change the way we work to match the software and starting that work in the beginning of the year accelerated results that we believe the system would have brought, but actually the process improvement brought them quicker. And we believe the system is 100% on track to deliver the returns that -- that we identified when we made everybody aware of the investment. So we're right on track with the plan and Jay, I don't know if you want to add anything else.

Sure. George did a pretty good [indiscernible] job, I'll give you a couple of examples. I mean before you turn on a new billing system, you're going to improve your processes associated with billing. So we actually saw billing incremental type of value-added services under the new processes that we otherwise would not have done. So that was a benefit we saw in the quarter. And improving our procurement processes and reducing costs, we also saw benefits. And labor management, we also saw benefits. So it was different process improvements you want to do before you roll out an ERP implementation. We had not forecasted any benefits in the quarter and have seen at least $2 million of benefit in the quarter of just pure process improvement. And now that the service -- the system is going live, we're seeing more benefits as we move through the year.

One follow-up to that. What benefits are assumed in the guide as far as the rollout from here? It sounds like you picked up an incremental $2 million in 1Q that you weren't forecasting. Just kind of curious, like what, the ERP itself, like when you were initially putting out guide, was including as far as the benefit?

I would say that all of those benefits Josh, primarily hit the handling area of our business. And one of the reasons that our handling business has done so well, increasing the margins, along with all the workforce metrics that have come in line like they said they would, is these process improvements that Jay is talking about. We have budgeted those originally in our original guide in the handling area of the business because much of the improvement helps there. It's part of our incremental guidance to now 9% of the year, accelerating that objective by a full 12 months. We're now guiding to 9%. And you can assume that the systems benefits that drive the handling increase are all embedded in that guide. It's a component to getting us now to 9% handling margins a full year ahead of when we thought we could achieve it.

Next question comes from the line of Vince Tibone with Green Street.

You mentioned you're now expecting throughput margins of 9% for the full year, even though margins were 10.7% in the first quarter. So is there any seasonality with margins we should be thinking about? Or are you just maybe being a little conservative with the guide? Just any color on how we should think about the service margin trends as the year progresses would be helpful.

Yes. Thanks for that, Vince. And you're right, we're guiding to 9%, which just a few short months ago was very aspirational and now it's part of our plan. So I feel really good about getting to 9%. I just want to say that in terms of making a commitment in our guidance. It's a much different place than we were 6 months ago. It is slightly down from 10.7% in the first quarter. But these process improvements we just mentioned are early days, right, in terms of the impact. And we think getting to a 9% platform based on -- margins for our handling platform based on the systems and process improvements now is not in any way conservative, quite frankly. It's a very strong guide considering where we were and the sustainability of margins is something we need to be very confident in. We are at the 9% level. We're just maybe being a little conservative, having turned on the actual systems literally Monday of this week. And typically, I think most people would expect a slight productivity loss when you turn on a new system. I think that's pretty typical and then a quick rebound. So there's a little bit of that. But I would focus on our guide to 9% handling margins for the year, which again, not that long ago, was an aspirational target.

And then just switching gears a little, I'm looking at Page 23 of the supplemental and I noticed physical occupancy was at its lowest level since '21. Can you discuss some of the drivers there? I mean you mentioned a weaker consumer, but I thought a slowdown in end demand could actually kind of lead to higher occupancy levels or are there any notable trends in food production that have really changed? Just any color on the kind of physical occupancy side of things would be great.

Yes. I'd say the biggest impact on the physical occupancy side, Vince, goes back to a comment Jay just made, where we were lapping a counter-seasonal level of inventory last year. So last year, I believe our economic occupancy was around 84.4% at the end of the first quarter. Incredibly high, driven by manufacturers producing ahead of demand as they finally had labor to do that and wanted to create some space between customer service and their production facilities. We're lapping that now. And as I said, we landed economic occupancy almost exactly where we thought it would. We said it would replicate the fourth quarter, economic occupancy. And I think we did that. We brought it down about the same amount year-over-year. And we're not changing our guide because if you look at where we end the first quarter, it's about 400 basis point improvement to get to the midpoint of our guide over the next 3 quarters. Seasonality should do that. So that's really the story on occupancy.

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

George, maybe touching a little bit on the throughput dynamics and the service margins. I think last quarter, you guys kind of mentioned something along the lines of you thought throughput was going to be down like 7.5% kind of where it came in, but that service margins could actually erode a little bit. Is that -- is this more a function of like some of the GRIs and stuff that you guys have in place have been able to drive it and with the labor? I guess break down the components of that, that are really driving that sort of margin.

Yes. We do hit the components. I mean first of all, you're correct. The throughput came in exactly where we said it would this quarter. We said it would be very much like the fourth quarter. But the throughput margins are driven by the exact 2 components you mentioned. First is price. We said our price in handling was up 10.8% in the quarter year-over-year. That is certainly going to drive margins. No question about it. But the big story has really been productivity. I mean we've reached levels of permanent hours, permanent associate hours in our system that are now 78%. That's significantly higher than the last 2 quarters. We've reached retention to be at pre-COVID levels. I mean the workforce has become more stable, more time in job, more engaged and more productive. So it is both of those, pricing over 10% year-over-year and the productivity driving the margins. I'm not sure we've split that out in the past and I don't have a split handy, to be honest. I don't think neither do you.

All I would say is, the over delivery in the quarter was we did hit the labor margin -- the metrics that George had discussed. And what happened was it really translated into NOI much quicker than we expected. So we saw the benefits of labor really coming through well, where our overall temp labor was down significantly and really started seeing the efficiencies on our perm labor. So that was really what got us to over-deliver and get our handling margins up above 9% quicker than expected.

And maybe just to follow up on the throughput. We did say in April for the first time we saw a year-over-year improvement. That would be showing up a few months earlier than we had thought in our original guide. So there is reason to believe that the throughput could improve. But our guide is up significantly, not dependent on that happening.

That's very helpful. And then just -- I know we touched on occupancy and kind of the counter-seasonality kind of in the first quarter. But more so, just looking at economic occupancy and looking at Europe in particular, I understand there are not as many fixed commitments. But that rate is down around like 900 basis points quarter-over-quarter. So is there anything in Europe in particular that's really like driving those occupancy levels down in particular? I know there's probably not as many fixed commits in those specific geographies, but just some commentary on that area and the market, in particular, would be helpful.

Yes, you're 100% right. There's not as much fixed commits there. I would say just in general, the economic environment in Europe is not as healthy as in the U.S. and the throughput declines, and in some cases, occupancy declines, have been more pronounced. Having said that, our business has grown the last 2 years in Europe from an NOI perspective. So we're managing the business much like we manage the business in the U.S. We're maintaining price points. We're trying to get the labor to match the throughput, where we're doing our best to fill the pipeline. But it is an economy that is recovering at a slower pace than the U.S. And again, we're happy with the business. You can see the results last year in the supp and you can see what we're projecting for this year. And it is a business that's contributing at least in line with the pace we're growing same-store NOI, at 11% now.

And I'd say probably the pipeline of new business is probably the best it's been in a while. So I think we've got a very good pipeline to fill up our warehouses in Europe.

Next question comes from the line of Mike Mueller with JPMorgan.

Going back to the service margin questions. If you're expecting throughput volumes to improve in 2H, what are the factors that are driving the margin down relative to what you had in 1Q? Was there anything, I guess abnormal contributing to the 10% to 11% margin print in the quarter?

Yes. I would say, getting back to the guide on throughput, we have not changed. It's the same as the original guide we had. I was just saying in terms of our outlook, very recent new news, right, our actual -- our results for April indicate that for the first time, the year-over-year throughput is actually positive. So I wasn't signaling that, that is built in the guide. We're still on our original guide. The margin improvement we've made is all about our pricing, the progress we've made on our workforce and the early returns on system process improvement ahead of going live with our ERP system. Again, the decline in services margin from 10.7% to [ 10% -- 9% ], I kind of view it as we made a commitment to get to 9% and we've fulfilled that commitment, at least from a perspective of what we're committing to in our guidance, almost a year ahead of time. So I view the 9% as a massive improvement in our company, $22 million worth of incremental NOI in the first quarter, which you can -- we said that was worth, at one point, $100 million. And if you do the math, it's going to end up pretty close to $100 million. So we feel really good about it. The decline from 10.7% to 9.9% in the guide simply relates to turning on the new system and having to train thousands of people on how to use it and expecting a slight productivity decline as we do that. I think every ERP implementation plans on that happening. We're no different. And then secondarily, as Jay said, we've seen run rates that are drastically different in the handling margin area as a result of everything I just mentioned and we just have to figure out where the baseline is. But we believe it's at least 9%.

Yes. And to answer your other question on one-timers that benefited our handling margin in Q1, there were no material one-timers that elevated the handling margin in Q1.

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

I just want to circle back to the expense savings here. As I'm looking through, clearly, labor is a big piece of it. Other service costs is another big piece of it. I know you've talked a couple of times about lower temporary workers and I get that. But as you -- can you kind of walk through the other pieces of it? I mean are you guys cutting hours? How are you guys managing kind of that labor piece beyond just more permanent workers? And also on the other cost side of things, I noticed your depreciation for non-real estate is down. I mean interest expense is down. Are you guys just spending less or deferring costs on equipment or maintenance or other things? That ultimately, I guess everyone's trying to get at the ramp down in service margins here from this quarter down to 9%. I mean is a lot of this just deferred in costs that you're ultimately going to need to put back into the system if throughput does improve? I'm just trying to get a sense of kind of putting everything in a pot, kind of, can you walk through really the what's driving this with specific examples?

I don't know how specific I can get, Craig, on the call here, but I can walk through the components of our handling services margins improvement and explain why we think they're very, very sustainable at the 9% level regardless of the throughput guidance. I'll just note again, we haven't changed our throughput guidance. It's exactly the same as the revised guide. It's driven in first part by pricing. Pricing was increased, I think 10.8% year-over-year in our handling environment. So there's the component, first component, which is higher pricing for the same services. Two is our workforce has become productive. And what I've always described about that is that if it takes 5 people to move 50 pallets an hour and you then turn that into 3 people to move 50 pallets an hour, you are doing the same work content with less people. That's what we've achieved. There's 1,000 tactics along the way as to how we've achieved it. There are some big movers like our retention improvement to pre-COVID levels, our workforce having more time in their job with turnover declining, et cetera, all the metrics that we've talked about already. So it's really a combination of those things combined with now new processes and a new ERP system laid on top of it, which gave us some unexpected early returns, as we mentioned in the prepared remarks. So I don't know that I can go into a lot more detail than that, but those are the broad components and they all come together to create outsized handling margins. And I understand using the words, 10.7% to 9% is a decline. That's mathematically correct. I understand that. But I'd just remind everybody again, this is an objective that we said was aspirational just 3 or 6 months ago, and now we're saying it's here. It's in our guide and it's going to deliver incrementally a huge amount of NOI and that's why we're excited about it.

And on the 2 other couple, on interest expense, driver that is one we're generating a small amount of incremental cash flow that's going to be applied against the revolver, and that will improve interest, but also with the projects that we've announced, there is a little bit of interest expense being moved to capital. So that's really the driver. So it's overall cash tax -- interest is not going down significant. It's more based on the projects we've announced and worked with the computations, we have a little bit more capitalized interest. And on other costs, I mean we held to our guidance on the maintenance CapEx. We're not reducing it. We actually spent $1.7 million more in Q1 on maintenance CapEx, which is generally our light quarter, but we will spend the remainder to get to the $80 million to $90 million of CapEx the remainder of the year. So it will go up the remaining 3 quarters. But we did spend more this quarter than we did in Q1 of prior year. So we're not cutting any type of spend to deliver on these numbers.

So you guys kept throughput the same, so throughput future expectations that it's at the zero end or even positive by the end of the year, right, which, again, I think your initial expectations have assumed or at least implicitly assumed some rate cuts that maybe aren't going to happen, so the consumer could stay a little bit weaker. But just let's say, you're plus 0 to 3 versus 0 to negative 3, are the margins still able to stay at 9% with potentially higher needs for labor? Is that kind of how it works? Or do -- if you get a rapid increase in throughput, do margins suffer in the near term as you guys have [indiscernible] labor side?

The commitment, Craig, on the 9% margin aligns with our current plan. I don't -- there's no danger that we see of anything being compressed with throughput going up or down. But to be clear, we have not changed our throughput guide. Our throughput guide in our initial guide compared to the guide now is identical. We haven't changed the numbers. I did mention a little bit of positive news around April, new news, not in our guide. And it was the first month throughput increase year-over-year. It doesn't mean it will happen next month. But again, we're looking for positive signs on throughput here and that's one we found very, very recently with April having just closed. So our guide remains the same. If throughput changes, it's not going to change our margin profile. We're managing the business in line with the variable nature of the throughput. We've now done it at a level that gives us 100% confidence in the 9% margins for the remainder of the year.

Next question comes from the line of Ki Bin Kim with Truist Securities.

Just a follow-up on the previous question. On the labor efficiency that you're achieving, maybe you can wrap that around a different set of KPIs, like services provided per employee or worker idle times, maybe that's come down, maybe something a little bit closer to on the ground.

I don't have any of that data to disclose, Ki Bin. I will remind you the metrics that we've been disclosing for over 2.5 years, we said would have to improve for us to improve our services margins. They all have improved. Our permanent employee content in the company has never been higher at 78%. Our retention is now back to pre-COVID levels. We're climbing up the ladder of associates in the job for greater than 12 months. That's probably more of a timing issue than anything else right now. We believe we're actually at pre-COVID levels. So those are our disclosures around labor. We said when they improve, the services margin would improve. We said they correlate really, really well, and they have improved and we've delivered record services margins. So I think our labor disclosure is very sufficient to track the performance of the margins in the handling area of the company and it's proven to be very accurate this quarter.

And going back to your throughput comments about it being positive slightly in April. Do you think that was concentrated to any kind of particular tenant that might have had, I don't know, like a big harvest or something? Or was that pretty wide across the system? And second to that, your physical occupancy being down [ 760 ] basis points, if you can provide an April update on that as well.

I would say our physical occupancy, and maybe I'll ask Rob to comment on this, we would expect the gap in physical occupancy in a normal seasonal year to be widest between fixed commits in the physical exactly this time of the year, at the end of the first quarter and then go from a seasonal flow there. But maybe, Rob, if you want to comment on the fixed commits impact, that would be good.

Sure. So that's right, George. I mean our expectation is that gap is going to be the widest now this time of the year. I think our expectation as we go through the rest of the year is that the gap between physical and economic occupancy will close. As far as whether or not we saw any specific customer or any specific node in the supply chain and it was maybe there was a bigger gap, I would say protein is the one sector. And you see that in our customers' earnings releases, where protein is one that's down more than others, like our consumer packaged goods or our retail sector. So we want to see continued improvement in the protein sector and we think we'll see the gap between physical and economic occupancy close between now and the end of the year.

Next question comes from the line of Michael Carroll with RBC.

I just want to focus on the full year guide. I mean if you annualize the first quarter number, I think that would put you above the new range that you set out. I know 1Q is usually the low point of the year, you expect throughput to trend a little bit higher. You expect occupancy to rebound with seasonality. It seems like even the non-established NOI was peaking to the negative side this quarter and it should recover. So why did you not increase your guidance by more? I guess why does that imply the quarterly run rate should trend a little bit lower throughout the year?

Yes. And I'll take this one. As I mentioned earlier, our maintenance CapEx, though higher than Q1 of last year, was only $17.9 million, so that means we're going to incur at the midpoint, another $67 million of maintenance CapEx in the following 3 quarters. So that does cause a reduction in AFFO and part of why it's more flattening out for the remainder of the year within our guidance.

And then that typically doesn't happen in the past? Because I mean if you look at historically, I mean your -- shouldn't your occupancy kind of offset that? As your occupancy is right around 80% today and it's implying that it's probably going to go up a few hundred basis points, wouldn't that occupancy offset that CapEx increase?

I don't really -- this is George. I don't understand that point, Mike. I mean we have an occupancy guide that's in our revised guide and we have to hit the mid to hit the $1.42. Everything else would fall in line with that. And one of the anomalies that is in our business is we typically have a very low CapEx spend in the first quarter because projects tend to start a little later in January and ramping up after the new year, et cetera. And as Jay said, if you flow the remaining CapEx for the 3 quarters, we believe that accounts for everything that you're describing is the reason why you can't just multiply the $0.38 by 4 and get to a number for the year versus what we're projecting.

Next question comes from the line of Todd Thomas with KeyBanc Capital Markets Inc.

First, I just wanted to follow up on occupancy, it looked like that countercyclical build continued into the second quarter last year. So within the full year economic occupancy guidance that you maintained, flat to down 100 basis points, do the year-over-year occupancy headwinds, do they worsen in the second quarter before improving? Or do you see the improvement beginning sooner than that? And then I guess just following up, I wanted to see if you could discuss what you're seeing so far in the second quarter to that end in terms of economic occupancy, as we're through the first week or so in May.

I would say when it comes to economic occupancy, the way I look at it is if you take where we ended the year at the end of the first quarter, which was 345 basis points down from prior year and exactly in line with where we believed it would end, it was driven by the counter-seasonal inventory. That's the drop in occupancy. We've explained that, et cetera. If you look for the remaining part of the year, the next 3 quarters, we would have to sequentially improve occupancy, economic occupancy, over that time period 400 basis points to get to our midpoint guidance. But we're very comfortable with that within the context of a year that is back to our [ counter-seasonal ] environment. So that's how we view the guide going forward and that's why we are comfortable with the guide and have not changed it. When it comes to April and economic occupancy, I don't have any data on that. I mentioned the throughput data because it was something we were tracking. But I don't have any data on economic occupancy for April, other than to say it's in line with our guide for the year, because if it wasn't, we would have been aware of that.

Okay. And then the fixed commitment level, you improved that again by 200 basis points. Is there more upside than you previously thought in terms of where you think that can be in terms of fixed commits across the portfolio?

Rob, why don't you take that one where you are closer to that?

Yes. I mean we've said that we can get that into the 60s. And so I mean that in and of itself is a relatively wide range, but that's still what our target is. There's always going to be a portion of this business that is going to be transactional. Right now, we have a line of sight to getting fixed commitments into the 60% range. And I think that's what we're comfortable with at the moment as our target. We're okay with a portion of this business being transactional. But right now, we're focused on getting this into the 60s.

Next question comes from the line of Young Ku with Wells Fargo.

I just want to go back to guidance, specifically your non-same-store NOI guidance. There was about a $6 million swing at the midpoint. Could you provide some background in terms of what drove that change? And then how much of that is due to revenue versus OpEx?

I'll take a little bit on this one and then hand it over to you, Rob. I mean as Rob mentioned on the call, it's really looking at our retail automated facilities in Plainville and Lancaster, which we're -- we are being very discrete in our ramp-up there and that it's not pushing out the stability date. It's not pushing out the return on invested capital. It is just a much -- not a much, but a slower ramp-up. But let me hand it over to you, Rob, if you want to add more color to that?

Yes. What I would say is we delivered 5 automated facility last year and 3 of them supporting food manufacturing are all ramping up in line with our expectations. And then it's our 2 retail developments in Pennsylvania and Connecticut that are progressing and ramping up but ramping up slower than we had previously anticipated as we fine-tune the automation. And so we made a decision with our customer jointly to slow that ramp. So specific to the question about is it really more a revenue or a cost side, it's really going to be on the revenue side, which will flow down to the earnings, because we'll see less volume through those facilities than we had originally planned in our guide. But I think we think that taking more time now to optimize the automation will allow for a more smooth ramp and ultimately to be able to continue to hit our stabilization dates and returns.

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