Americold Realty Trust

NYSE:COLD

Earnings Call Transcript 2019-Q1

[Operator]

Greetings and welcome to Americold Realty Trust First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Kara Smith, Investor Relations.

[Kara Smith]

Good afternoon. We'd like to thank you for joining us today for Americold Realty Trust's First Quarter 2019 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.americold.com.

On today's call, management's prepared remarks and answers to your questions 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. 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. More information about these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures is contained in the supplemental information package available on the Company's website. We would also like to note that numbers presented in today's prepared remarks have been rounded to the nearest million with the exception of per share amounts.

This afternoon's conference call is hosted by Americold's Chief Executive Officer, Fred Boehler and Executive Vice President and Chief Financial Officer, Marc Smernoff. Management will make some prepared comments, after which we will open up the call to your questions.

Now, I will turn the call over to Fred.

[Fred Boehler, executive]

Thanks, Kara. Thank you and welcome to our first quarter 2019 earnings conference call. This afternoon I will provide highlights for the first quarter and discuss our exciting and significant transaction activity completed post quarter end. Marc will follow with a summary of our first quarter results and then review our balance sheet, capital markets activity and outlook. After our prepared remarks, we will open the call for your questions.

Beginning with the first quarter, we reported revenue growth in our Global Warehouse segment of 1.1% and NOI growth of 1.4%. We would note this quarter we were meaningfully impacted by currency fluctuations associated with the strength of the U.S. dollar and adjusting for that impact, revenue growth in our Global Warehouse segment would have been 3.4% and our NOI would have grown by 2.7%.

With regard to our overall business, fundamentals in the temperature-controlled warehouse industry remains strong. Demand continues to be steady supported by consumption growth and favorable secular trend. At the same time, high barriers to entry including high cost, customer relationships and operational expertise serve to keep supply growth in line with market growth. We believe owning the right assets in the right locations together with our customer-centric focus through which we partner with our customers to integrate their supply chain is the right long-term approach for consistent and profitable growth.

Turning to our development activity. We continue to make progress on all fronts. In Chicago, at our state-of-the-art expansion project, we have received our certificate of occupancy for Phase 1 of the building, and our large anchor customer began inbounding product at the end of the quarter. We expect that Phase II of the building will be completed this quarter and we have signed an agreement with the customer for 7% of the capacity taking total commitments to 45% of capacity.

In Australia, we continue to work with our customer on the detailed design phase of the project. At the end of April, we completed the purchase of land site in Sydney. Finally, in Savannah, we plan to break ground in the next 2 months as expected on our 15 million cubic foot state-of-the-art temperature-controlled facility focused on the import and export of protein products. At this point, we continue to firm up customer commitments for that space.

Further, at the end of the quarter, we announced a significant expansion and redevelopment of our Atlanta major market campus consisting of our Tradewater facility, which some of you on this call may have toured; our Gateway facility and the surrounding facility. Specifically, we intend to invest $126 million to $136 million in this campus. This project will result in increased capacity and position Americold to support existing customer growth, add new customers and improve our efficiency and profitability. At our Gateway facility, we plan to redevelop 2/3 of the business, which was vacant and plan to build a fully automated facility with approximately 46,600 pallet positions. And at Tradewater, we intend to build a semi-automated expansion, which will add 13,600 pallet positions. Work has already begun related to these projects and we expect that we will deliver the Tradewater expansion late in the first quarter of 2020 with the campus completed by the end of the second quarter 2021.

We have underwritten this project to achieve returns consistent with our redevelopment and expansion projects. These plans are supported by incremental demand from existing customers as well as overall market demand that we have previously turned away due to lack of capacity. Post quarter end, we made 2 exciting announcements that substantially accelerated our external growth activities. First, we have closed on our acquisition of privately held Cloverleaf Cold Storage, previously the fifth largest owner and operator of temperature-controlled space for $1.24 billion. The portfolio consists of 22 temperature-controlled facilities containing 132 million refrigerated cubic feet, which had scale, density and diversification of commodity and customer to our existing geographic reach. 91% of the portfolio's revenues are from warehouse rent, storage and services, which is consistent with our business. We view this portfolio as an irreplaceable and strategic part of the US food production network and the commodity mix is primarily from the attractive protein market.

From a customer perspective, the portfolio serves over 350 customers. The top 10 customers, all of which overlap with our existing customer base, account for approximately 56% of total revenue with the average length of relationship of 45 years. Further, 21 of the 22 properties are owned, which is very important to us as we believe full control of the underlying real estate is an integral part of our value creation strategy. The assets we acquired were well maintained and as a result, we do not anticipate meaningful CapEx spending beyond typical annual maintenance costs. Further, the portfolio same-store growth profile lines up well with our existing portfolio. Over the next 3 years, we believe there is significant opportunity to commercialize these contracts bringing these facilities on to the Americold operating system and introduce our engineered standards.

Additionally, the portfolio includes an attractive entitled development pipeline. We expect to add up to 20.3 million refrigerated cubic feet to the existing portfolio by the end of the second quarter of 2020 via 3 expansion projects, which are currently underway and a potential development in the planning stages. With regard to the greenfield development in Waco, Texas, we are currently reviewing the project with our combined organization to evaluate the sizing and the scale. We believe this acquisition was a strategic opportunity to add immediate size, scale, diversification and in-place cash flow as well as long-term growth to our portfolio. While we are excited about acquiring the fifth largest portfolio in U.S., we also believe there is meaningful opportunity to partner with smaller operators and bring them into the Americold family.

As such, we also closed on the acquisition of Lanier Cold Storage for $82 million. Consisting of 2 cold storage warehouses, the acquisition adds 14 million refrigerated cubic feet and approximately 51,000 pallet positions in the key poultry market of Gainesville, Georgia. We view this transaction as a tuck-in acquisition that expands our growing poultry capability. Similar to Cloverleaf, we believe there are opportunities to realize synergies, commercialize contract and implement Americold's operating system and engineered standards. These 2 acquisitions meaningfully benefit Americold from the tenant concentration perspective. With the addition of Cloverleaf and Lanier, our tenant concentration in our top 25 customers further diversifies and drops by 500 basis points to 59% of warehouse segment revenues on a pro forma basis.

Additionally, we continue to work to optimize our company and platform, including ensuring that the leadership at the top of our organization is positioned to help meet and exceed Cold's current and future objectives. With that in mind, we recently announced our hiring of Sanjay Lall, our new Chief Information Officer. Sanjay shares our vision and has significant experience integrating complex networks and we are very excited to have him onboard.

Finally, in March, our legacy financial sponsors Yucaipa and Goldman Sachs exited their investment in Americold through a successful secondary offering. We thank both groups for their years of support as we transition from a privately held company to a publicly traded REIT. With the exit of these shareholders, our Board has evolved as well, and in March, the Board elected Mark Patterson as Chairman. Mark has an extensive real estate background and significant board experience and we are pleased to have them in this leadership role.

I'll now turn the call over to Marc to provide more details on our results, balance sheet and recent capital markets activity.

[Marc Smernoff, executive]

Thank you, Fred, and good afternoon everyone. Today, we will provide updates on our actual performance as well as certain metrics on a constant currency basis as our results were meaningfully impacted by the strength of the U.S. dollar this quarter. In addition, certain items may not be comparable to prior year due to the changes in our capital structure in the first quarter of 2018. For the first quarter 2019, we reported total revenue of $393 million and total contribution or NOI of $99 million, which reflects a 0.5% increase and a 1.4% increase over the prior year, respectively. On a constant currency basis, these growth rates would have been 2.8% and 3% respectively. Core EBITDA was $71 million for the first quarter of 2019, a slight decrease of 0.8% year-over-year. As a result, our core EBITDA margin contracted by 24.3 basis points to 18.1%. On a constant currency basis, core EBITDA would have been $72 million, an increase of 0.7% year-over-year.

While our overall operations remain on plan, in addition to currency, we had certain items this quarter that impacted our comparison year-over-year. With regard to workers' comp, we had a $1 million unfavorable comparison year-over-year. Recall that in 2018 in the first quarter, we had a $1 million favorable comparison for workers' comp that did not recur.

Also, healthcare costs were higher by $1 million year-over-year driven by the timing and nature of activity incurred during the first quarter of 2019. It is important to remember that these modest quarterly variations are normal in our business, which is one of the reasons we believe it is important to look at our results on an annual basis.

We reported a net loss of $5 million compared to a net loss of $9 million for the same quarter of the prior year. Please note, our net income was impacted by several items, including a $12.6 million asset impairment charge related to our redevelopment in Atlanta and the sale of an idle facility, the acceleration of equity grants due to changes in Board and management composition and related severance charges.

Our first quarter core FFO was $40 million or $0.26 per diluted share. Our first quarter AFFO was $44 million or $0.29 per diluted share. Add backs to core FFO includes the same items as previously listed. As a reminder, the full definition and reconciliation of core EBITDA, core FFO and AFFO to reported net income can be found in our supplemental.

For the first quarter 2019, Global Warehouse segment revenues were $290 million, which reflects growth of 1.1% year-over-year or 3.4% on a constant currency basis. Segment NOI was $91 million, which reflects growth of 1.4% or 2.7% on a constant currency basis. Global Warehouse margin was 31.4% for the first quarter, a modest improvement compared to 31.3% for the same quarter in the prior year. At quarter end, 43% of our rent and storage revenue or $222 million on an annualized basis were derived from customers with fixed commitment storage contracts. This compares to $220 million in the fourth quarter 2018 and $198 million in the first quarter of 2018, which translates to an increase of 20 basis points and 410 basis points on our fixed commitments percentage respectively.

I will now turn to our same-store results in our Global Warehouse segment. We define same-store as facilities that have at least 24 months of normalized operation. For the first quarter 2019, 137 of our 144 warehouses were included within our same-store pool. Our same-store pool has 2 additions this quarter, Dallas and [indiscernible], and one removal of a leased facility in Idaho that was moved to non-same-store in anticipation of our exit from that lease in the third quarter of 2019.

We continue to focus on owning and controlling our assets and therefore are currently working with the tenants of that building to transition their business to other sites within our portfolio.

Additionally, we would note that our same-store results, specifically our volume metrics this quarter reflect 2 items, the timing of the Easter holiday relative to the first quarter of last year and one less working day during the quarter. Again, the seasonal basis of our business is why we believe that our annual results are the best way to track our progress. For the first quarter 2019, our same-store Global Warehouse segment revenues were $282 million, which reflects growth of 0.4% year-over-year and 2.7% on a constant currency basis.

Global same-store rent and storage revenue grew by 0.2% year-over-year or 2.1% on a constant currency basis. For the first quarter, our same store economic occupancy was 78.6%, which reflects the decline of 186 basis points from the prior year while partially offsetting a 249 basis points decline in physical occupancy. As we continue to make progress with our fixed commitment storage contract, our first quarter same-store economic occupancy was 424 basis points higher than our corresponding physical occupancy of 74.3%. We would remind you that our reported physical occupancy is the weighted average across our portfolio and reflects seasonal fluctuations. Global same-store warehouse services revenue for the first quarter increased 0.6% year-over-year or 3.2% on a constant currency basis. Our favorable mix resulted in growth of 3.2% in our same-store warehouse services revenue for throughput pallet, offsetting the 2.5% lower throughput pallet volume associated with this mix as well as the timing of Easter and one less business day in the quarter.

Our same-store warehouse services contribution was $6 million, a decrease of $1 million or 14.4%. Warehouse services contribution margin decreased 62.8 basis points to 3.6% in the quarter, which again was impacted by the unfavorable prior year comparison for workers' comp and current period healthcare costs. In total, our first quarter 2019 Global same-store warehouse NOI was $88 million, up 0.2% over the prior year results driven by the same factors previously discussed. On a constant currency basis, same store NOI grew by 1.5% and adjusting for the workers' comp benefit realized in the first quarter of 2018, same-store NOI growth would have been 2.6%.

Within our Global Warehouse segment, we had no material changes to the composition of our top 25 customers who account for approximately 64% of our Global Warehouse revenue and who have been with us on average for over 30 years. Additionally, our first quarter churn rate was approximately 5% of total warehouse revenue, a 100 basis point increase from the first quarter of 2018 driven by active portfolio management, our 410 basis point growth in fixed storage commitment and normal first movement by smaller market customers.

Corporate SG&A totaled $31.1 million for the first quarter of [ 29 ] as compared to $28.1 million for the comparable prior year quarter. This increase is primarily a result of higher public company costs in the first quarter and stock-based compensation partially offset by the impact of foreign currency translation. We would also note that our SG&A as a percent of revenue will vary from quarter-to-quarter and should be viewed on an annual basis. We still expect to be within our previously provided guidance range for the full year.

Additionally, we reported a new financial statement line item referred to as acquisition, litigation, and other within our statement of operations for the first quarter of 2019 due to various material charges incurred in the quarter, which totaled $8.5 million. Additionally, we reclassified certain costs from SG&A in the comparable prior quarter to conform with this new presentation. This caption represents certain corporate costs that are highly variable from period to period and further details can be found in our supplemental.

Now let me update you on the development and acquisition spending during the first quarter for the projects Fred outlined to you. In Chicago, our total estimated cost and stabilized returns remained consistent with our previously stated range and we are on-boarding customers into Phase 1. We do want to point out that unlike our build-to-suit facility in Middleborough, Massachusetts, which was fully occupied upon completion, there will be time and costs associated with operating our facility in Chicago before it reaches stabilization.

In Australia, we completed the purchase of a land site in Sydney for $39.7 million. In Savannah, we completed our $36 million acquisition of PortFresh and the associated land parcels this quarter and incurred only nominal costs associated with our development project. We expect to break ground in the second quarter of 2019.

Turning now to our balance sheet and capital markets activity. We continue to work to max fund our new growth opportunities with our capital raising activity while maintaining strong liquidity, capacity and flexibility to execute our strategic plan. In March, we completed a secondary offering of 46.5 million shares held by our legacy financial sponsors, including the exercise of the underwriters' option for $27.75 per share. As Fred mentioned, with this offering, our legacy financial sponsors, Yucaipa and Goldman Sachs, fully exited their investment and Americold did not receive any proceeds.

Regarding our transaction activity post quarter end, let me now discuss the financial impact of our Cloverleaf and Lanier acquisition as well as our related capital markets activity. On May 1, we closed our acquisition of Cloverleaf Cold Storage for a purchase price of $1.24 billion, which translates to a 17.9x pro forma run rate 2018 EBITDA multiple and a corresponding 5.6% EBITDA yield. This purchase price resulted in an approximate 7% NOI entry yield, which is exclusive of SG&A expense. The transaction is accretive day one on a leverage-neutral basis and we expect this acquisition will take 3 years to stabilize. We believe Cloverleaf represents a meaningful value creation opportunity when taking into account the following factors. We expect to fully integrate this acquisition and begin the implementation of the Americold operating system, our commercial processes and our engineered standards. As we implement these programs over the next 36 months, we expect this new portfolio will achieve the same-store revenue and NOI growth trajectory as our existing same-store portfolio.

On the cost side, we believe the synergies are meaningful, but will take time to be fully realized. Specifically, we have identified at least $10 million in cost savings that we expect to eliminate. Our target is to capture 70% to 80% of these costs in the next 12 months, but keep in mind, we expect a small J curve with elevated expenses incurred in the near term to achieve these eventual savings. We expect to realize the remainder of the $10 million in cost savings in year 2. With the Cloverleaf acquisition, we acquired an in-process development pipeline. The total cost for the 3 expansion and one entitled development is expected to be approximately $90 million to $100 million of which $13 million has been spent. We expect the returns on these projects after providing for 1 year of stabilization to be consistent with our stated return on projects of these types.

Additionally, on May 1, we closed our acquisition of Lanier Cold Storage for a purchase price of $82 million, which translates to a 13.7x entry EBITDA multiple and a 7.3% EBITDA yield. This purchase price resulted in an approximate 7.9% NOI entry yield, which is exclusive of SG&A. Similar to Cloverleaf, we expect to fully integrate Lanier into our platform and realize cost synergies and drive incremental growth through the implementation of the Americold operating system, our commercial processes and our engineered standard, which will increase our yield over the long term.

As of March 31, 2019, our portfolio consisted of 155 mission critical facilities. This reflects the acquisition of PortFresh in Savannah, which closed during the first quarter and the expiration of our managed agreement for a site in Sioux Falls, South Dakota. We would note that the run rate EBITDA associated with Sioux Falls was $0.6 million in 2018.

Inclusive of the 22 facilities we purchased with our acquisition of Cloverleaf and the 2 facilities we acquired from Lanier, our total portfolio consists of 179 facilities. Of these, 167 are in our Warehouse segment and 12 are managed, and our total portfolio exceeds over 1 billion cubic feet. To fund our recently announced growth activity in April, we completed a follow-on offering of 50.31 million shares including the exercise of the underwriters' option at $29.75 per share. The 50.31 million shares is inclusive of a forward contract for 8.25 million shares to be settled within 1 year. At closing, net proceeds to the Company were $1.2 billion prior to the forward offering, which we used to fund the bulk of the purchase price for Cloverleaf and Lanier. We expect to use the proceeds from the forward contracts to fund our Atlanta major market expansion and the development pipeline associated with Cloverleaf. Subsequent to quarter end, we also priced $350 million of senior unsecured notes in an institutional private placement offering at an interest rate of 4.1% and a duration of 10.7 years. We expect to use the funds as long-term debt financing for the Cloverleaf and Lanier acquisition. We expect to close the private placement this week, subject to customary closing conditions.

Pro forma for our post quarter end capital markets activity inclusive of our equity offering and debt private placement and pro forma for the recent closings of Cloverleaf and Lanier, we had total liquidity of $1.5 billion. This is inclusive of $139 million and $237 million of net proceeds from our September 2018 and our April 2019 equity forwards, respectively. Our total debt outstanding was $1.9 billion, of which 75% was in a unsecured structure and 18% was at a fixed rate. Our net debt to core EBITDA was approximately 4.0x. Our real estate debt has a weighted average term of 7 years and carries a weighted average contractual interest rate of 4.54%.

Before I turn the call back to Fred, we would like to provide some perspective on our outlook for 2019, which we're updating to reflect our recent activity. In 2019, we expect the following: we reiterate our Global Warehouse segment same-store revenue growth range between 2% to 4% and we continue to expect same-store NOI growth to range between 100 basis points to 200 basis points higher than the associated revenue growth, both on a constant currency basis. This is unchanged and not impacted by our investment activity.

Selling, general and administrative expense as a percent of total revenue is expected to range between 6.8% to 7.2%. This range is unchanged, but reflects the inclusion of both Cloverleaf and Lanier. Recurring maintenance and IT capital expenditures are expected in the range of $56 million to $66 million, which reflects the addition of Cloverleaf and Lanier portfolios. Growth and expansion capital expenditures are expected to be $275 million to $350 million. This includes spending related to the Company's announced projects in Chicago, Savannah, Atlanta and Australia as well as the 3 expansions associated with Cloverleaf. Anticipated AFFO payout ratio of 67% to 70% reflecting the recently increased dividend and capital markets activity. Full year weighted average fully diluted share count of 182 million to 186 million shares, reflective of our capital markets activity and inclusive of the 6 million share equity forward issued in September 2018 with an outstanding settlement date of no later than September 2019.

I will now turn the call back to Fred.

[Fred Boehler, executive]

Thanks, Marc. We are proud of all we have accomplished since the start of the year. We continue to leverage our portfolio, operations, talent and technology to profitably serve our customers and drive long-term shareholder value. We are very excited about the external growth pipeline including our recent acquisitions and our development projects, which we believe represent significant long-term growth and value creation opportunities for the Company. I'd like to thank all of our associates for their continued outstanding contributions to advance this business. I'd also like to welcome the 1,600 employees that have just joined us from Cloverleaf, Zero Mountain and Lanier. We are excited about what this combined team of just under 13,000 employees can do to add value to our customers and shareholders. Thanks again for joining us today and we will now open the call for your questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Ki Bin Kim with SunTrust.

[Ki Bin Kim, analyst]

First off, congratulations on the Cloverleaf deal. So I just wanted to focus to -- I wanted to focus a little bit more on the core operations and everything I'm going to talk about here is going to be on a constant currency basis. I'm just trying to get a sense of like how much the Easter shift mattered. I mean, the one extra day in a quarter, I'm not sure how much that matters, but it seems like very little to me, but your same-store revenue declined -- same-store revenue growth declined to 2.7% versus 4.5% last quarter. NOI went up on a constant currency basis, 1.5% versus 6.9% last quarter. So just trying to get a better sense of like the puts and takes.

[Fred Boehler, executive]

Yes, so I'll make a quick comment and then turn it over to Marc on the financial side, but just kind of understanding Easter flow and typically what happens is obviously production starts to ramp up, storage starts to ramp up ahead of the holiday and then about 2 weeks before Easter, a product really starts to flow from a throughput standpoint out of our warehouses down the channel to retail warehouses, which then in turn get the product to the store. Usually, Easter is a little bit earlier in the year. It's very, very late this year. So usually it kind of straddles 2 quarters first quarter, second quarter. So you got a build happening in the first quarter and then sometimes the release of product to the stores happened also in the first quarter when there's an early Easter. Sometimes they can straddle and the outflow will happen in the first 2 weeks. So in this particular case, Easter was so late that the whole flow outbound to the stores really occurred in the second quarter versus the first quarter.

[Marc Smernoff, executive]

And then just to answer the final part about the one less workday. Each workday translates to about $2 million of services revenue, which impacts our overall growth rate in this quarter by 70 basis points.

[Ki Bin Kim, analyst]

70 basis points to the NOI or to the revenue?

[Marc Smernoff, executive]

To revenue.

[Ki Bin Kim, analyst]

Right. So on the 2.7% same-store revenue growth, I mean if I'm sure you guys can look at it neutralizing the shift of Easter. If you neutralize it, what would that be?

[Marc Smernoff, executive]

As we said, we reiterate looking at our business on the full year basis and if we think about it, we reiterated our same-store guidance in the same-store portfolio, which on the top line revenue was roughly 2% to 4% on an annual basis constant currency. So the 2.7% constant currency is right in line with our what we'd expect the portfolio.

[Ki Bin Kim, analyst]

Okay your total pallet position if you look at it year-over-year is down 50 basis points. I'm just a little curious why there's even a change in total pallet positions, assuming in the same-store pool?

[Fred Boehler, executive]

Yes, so remember the same-store pool does change period to period. As an example, this quarter we pulled out [indiscernible] facility, which is attached to our development project cause that now will no longer comp as a same-store given that we started launching the next phase of the expansion of that building and we added 2 additional sites. So what that changes is the impact of the same-store, but the other thing that does go on period-over-period is the way depending on what solds, different changes in the customer business profile, we may need to re-wrap or re-adjust the facility to accommodate the business or the customers what have been sold into those buildings.

[Ki Bin Kim, analyst]

Okay, so the reason I ask that is that the economic occupancy went down 186 basis points while physical occupancy went down 250 basis points, but if you actually look at the physical occupied pallet change, it went down 370 basis points. Right? The only reason the occupancy number looks better is because of the pallet position. Well, not only, but part of the reason why the occupancy number looks a little bit less worse is that the pallet position has changed, the denominator. So the physical occupied pallet position change of negative 370 basis points, like how much of that is explained by Easter?

[Marc Smernoff, executive]

Yes, there could be to a degree again with as late as Easter was, there is still builds going on in the first week of April, for example, so there could be a slight piece of that. I'd say, moreover, what we're seeing is because of our growth in the fixed committed space, which you can see is profitable and proving to be fruitful for us as a overall organization, that limits our ability to sell into that space. Right? So if it's reserved and its accounted for even if it's not physically occupied, we're not selling into that space because it is reserved for our clients' needs. So again, we're making that trade-off. We think that the financials are proven out that, that trade-off is positive. So kind of that physical occupancy indicator is becoming muted somewhat by our drive towards economic occupancy in the fixed commitment.

[Operator]

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

[Michael Carroll, analyst]

Fred, I wanted to touch on the company's recent acquisitions. I know most of these deals seem to be focused on production-advantaged facilities. Is there a specific reason for that? Are there better valuations out there for those types of assets, does it improve your platform more or less than other types of facilities or is it just the available opportunity set that you saw in the marketplace?

[Fred Boehler, executive]

Yes, I think it's more opportunistic related. Remember, we've talked a lot about our different asset types and the kind of value that we put on it and we believe that the broader market has put on it as they understood our supply chain. Those assets that are production attached are just as valuable as those assets in the Tier 1 distribution market. Without those assets, food doesn't get to market. So we think the value proposition is the same, even though that asset is sitting in Sioux City versus sitting in New York City. So again if you don't have that asset to that plant, the product never makes into the market itself. So we think these are critical infrastructure that's needed to help facilitate the movement of those goods from that point of manufacture to market. So, I wouldn't say that we're out there targeting any specific production type versus distribution type versus retail. We're looking at all the opportunities we're looking at the returns that can be achieved via any. So, quite honestly, we just don't discriminate against any of the product types.

[Marc Smernoff, executive]

And if you marry that up against what you're seeing from our development side, we are bringing state-of-the-art development to major markets. So with reference of our Chicago project that we're nearing completion, the launch of the Atlanta major market, the projects associated with the Australia build, all those are bringing state-of-the-art product to major distribution hubs. So we're kind of balancing the portfolio in that way.

[Michael Carroll, analyst]

Okay and then when you're looking at your current acquisition pipeline today. I mean can you break that out of, I mean how sizable is it or is there a good mix between the production advantage and distribution centers and also expect more of a breakout I guess going forward.

[Fred Boehler, executive]

I would say that it is a mixed pipeline in terms of opportunities, some are distribution, some are production advantaged. I'd say the majority of opportunities we're looking at are at either end of those supply chains as I think we've talked about before. I can't think of anything that we're looking at right now that's in kind of tertiary markets like a Green Bay, Wisconsin type of thing. While that asset is still critically important because again it is supporting local manufacturing and the consumers that do exist in Green Bay, we've seen most of the needs, most the trends in the production support, production advantaged operations as well as the distribution and retail operations. [indiscernible]

[Michael Carroll, analyst]

Okay and then, Marc, can you talk a little bit about the J curve that you're talking about in terms of the expense synergies from the recent acquisitions. Are you going to have to spend more money to bring those on. So we should expect a pickup in G&A and then over time, you will see that coming down, is that what we should expect?

[Marc Smernoff, executive]

Yes, I think that's what's meant by a [ slicing ]. So there will be a slight increase in costs as we rationalize the cost structure to the extent there is certain redundant or headcount that's eliminated. Typically, there may be a severance charge associated with that or some periods as we transition and we have duplicate roles. So that's where the J curve comes. Obviously we're going to need to invest to bring their systems integrated into our systems or put our systems directly in their operations. So that's a little bit of investment but we do think that the J curve component of it, you'll probably see more really in the next quarter or 2 and then you'll start to see the benefit fully realized, consistent with the comments in our prepared remarks.

[Michael Carroll, analyst]

Okay and then last one from me, the Rochelle development, where is the occupancy at that right now and I guess what was the negative contribution from that asset some of it was just completed that was delivered in 1Q.

[Fred Boehler, executive]

Yes, it's actually the asset because it was an expansion, the base business is still generating positive cash flow. So there isn't a next to the negative carry yet, but where we get the ramp-up is just even though that's a highly automated site, you still need to fully pass it with the automation tech, the maintenance tech, even some warehouseman that support the individual receipt off a truck and to put it into the or to the automation system. So those costs are typically ramped up in advance. Of the Phase I, we just started inbounding. We're really at the early phases, but we're actually ahead of our guidance with the customer in terms of their inbound path. So consistent with other developments of the type. We expect this asset will stabilize over this first year and we expect to be at full run rate by 1 year from now.

[Operator]

Our next question comes from the line of Michael Mueller with JPMorgan.

[Michael Mueller, analyst]

Last Easter question here for you. So it sounds like based on what you said at the start of Q2, your occupancy comp should be higher than what it was last year. Is that correct. And also post Easter, are you at about even where you were last year on an occupancy basis?

[Fred Boehler, executive]

Yes, I would say that -- what I tried to explain is there some multiple variables that are driving occupancy. So if I was just isolating and looking at Easter independently what you said would be correct, but I'll just remind you that there's other things at play here in terms of harvest timing, the exact week that harvest come, promotional campaigns from retailers and when they're pushing product and then that phenomenon associated with our fixed commitments and what that's doing to our ability to be able to settle space that maybe in the past we would have.

[Marc Smernoff, executive]

As I remind people, I don't want people to lose sight of it even though our physical occupancy and even economic was down, our overall revenues in both the total warehouse as well as just the rent and storage sub-line item were up as were our earnings.

[Fred Boehler, executive]

So this is part of the active portfolio.

[Michael Mueller, analyst]

Yes. Got it. And then second question, how did the EBITDA yields going in and I guess the expected stabilized EBITDA yields compare to the NOI yields for PortFresh and Lanier?

[Marc Smernoff, executive]

Yes, so as we've mentioned in our prepared remarks, if you look on an NOI basis, so think about the NOI yield as being the [indiscernible] the PortFresh on the operation side was a 7% NOI yield. Cloverleaf was also a 7% NOI yield. So those 2 were consistent. Lanier was slightly higher at a 7.9% NOI yield. Obviously, different scope, different scale of operation. So when you look at the EBITDA yield, slightly different. Obviously with Cloverleaf being a much -- you know it was the fifth largest portfolio of US temperature-controlled infrastructure, so they had a much larger G&A component associated with them.

[Michael Mueller, analyst]

Sure. So would the EBITDA yield on PortFresh and Lanier be fairly close to the NOI yield?

[Fred Boehler, executive]

Yes, as we said in our prepared remarks, they are much closer. So the EBITDA yield of Lanier going in with the 7.3% EBITDA yield where the Cloverleaf on a trailing basis was 5.6%.

[Michael Mueller, analyst]

Okay. I missed the Lanier one. Sorry about that. Okay, thank you.

[Operator]

Our next question comes from the line of Dave Rodgers with Robert W. Baird.

[Dave Rodgers, analyst]

Wanted to ask about the 6 pallet positions and maybe a broader question, the more of those that you add into the portfolio, what's the impact to margin and I guess I think the more the economic occupancy moves up and physical maybe stays the same or drops, I think that margin would be enhanced to do that. So maybe you can explain that and then also maybe what's implied in your guidance for NOI versus revenue growth in 2019.

[Fred Boehler, executive]

Yes, sure. So I'll take the first part of it and then turn it over to Marc. So yes, as we move to fixed commitment, there is definitely margin improvement associated with that and that margin improvement comes really from 2 places. Number one, no doubt when you know in the down season when there's not as much physical occupancy and we're getting paid the rents of the space, we don't have labor there, that's going to enhance margins, right. Number two, during the busiest part of the season, one of the greatest impacts that we saw and I mentioned it in the last quarterly call, our fourth quarter last year was the smoothest quarter that we've ever had. Why because we didn't overfill the warehouse. We had committed space, we were getting paid for that space and we are able to operate that warehouse efficiently, which was closer in line with the 85% to 90% physical occupancy. So, that allowed us to be more efficient not have to spend as much over time, not as much double handling, which is also margin enhancing and it obviously translates to benefits for our customers as well because the less handling, less touches I have, the more responsive we can be from a customer service standpoint and get their product out to market. So it was really good from an margin enhancing opportunity and superior from a customer service, customer satisfaction standpoint. I think the third piece that comes out of this fixed commitment piece is seeing how efficient that we are in it and knowing what the demand is in these core markets because the one that this affects the most are your primary distribution markets. It opens up opportunities for us to add capacity into the marketplace and be able to kind of repeat that same story with new business, new volume that needs to come into the market and again, that's why we feel so good about the expansion in Chicago and we feel great about the new one that we've just announced here in Atlanta.

[Marc Smernoff, executive]

And then on the overall margin basis, we still expect in the same-store NOI margin to outpace the growth of the top line revenue roughly by the 100 basis points, 200 basis points and you see that through the leveraging of fixed expenses, particularly on the real estate side of the business. So as we served in the first quarter, if you look through the detailed results, we were able to reduce the leverage of our overall power cost and related fixed costs in the warehouse. We expanded our margins roughly by 39%. So we are leveraging that overall fixed cost structure. Obviously, we have slightly higher core operational costs between the healthcare and the comp of the nonrecurring benefit of last year and workers' comp, but normalizing those, we continue to make progress on our core performance in our warehouse and we are continuing to see improved performance that should drive margin growth in the services side. So those things combined helped drive that outperformance.

[Dave Rodgers, analyst]

I appreciate all that detail. Maybe shifting to acquisitions. You had a couple of questions earlier on it, but what's your appetite right now? It sounds like the pipeline out there just is in the market, but there's quite a few things coming to market, are you guys continuing to be very active out in the acquisition market, what's your pipeline look like today?

[Fred Boehler, executive]

I'm sure my CIO Jay is sitting listening to this call and I would just tell him that he shouldn't be sitting listening to the call, he needs to be active. Jay is busy out there. We have a pipeline and we'll continue to work that pipeline. I think as we've discussed in the past some of those take awhile. Right. And you have to nurture those relationships for a period of time before they can come to fruition. So we will continue. I think the thing that we love about these acquisitions is both PortFresh and Lanier, we would consider tuck-in, you know just not a tremendous amount of effort that's needed from an integration standpoint. We fold them right into existing regions and districts, then the operators takeover and run those operations the same way they've been accustomed to with the Americold operations. Pull relief is obviously a little bit bigger, but again, one of the benefits that we have with those guys is they've already done a lot of streamlining. They are on one system, there is a couple stragglers warehouses that we're in the process of being converted that will convert on to either one of our WMS' or the WMS that they were already going on, but very little integration, heavy lifting from a systems standpoint, the operations will be split up into our existing regions and 2 districts. And again, one just like other operations. So our ability to digest additional tuck-ins is pretty straightforward. Bigger acquisitions, we would obviously time and strategize that accordingly, but again pipeline is healthy and we continue to pursue.

[Operator]

Our next question comes from the line of Joshua Dennerlein with Bank of America.

[Joshua Dennerlein, analyst]

Hey, guys, per the Easter impact and the one less day in the quarter. How much of the impact was that on your FFO, AFFO and EBITDA. Is there a way to quantify that?

[Fred Boehler, executive]

I think the best thing as I reiterate is overall, Easter happens every year and we encourage people to look at our results. Especially, this is a prime example on the full year basis and on the full year basis, we don't expect the timing of Easter to impact the overall result or for our guidance to differ as a result of it.

[Joshua Dennerlein, analyst]

Okay and should -- is there one more day, one more work day in 2Q that we should be factoring in?

[Marc Smernoff, executive]

I apologize. I don't have that right on the top of my head, but I'll looking [indiscernible]

[Joshua Dennerlein, analyst]

Okay, all right, now worries. And then I saw in the press release you mentioned there is like an impairment you took on the potential future sales an idle plant during 2Q '19. What happened with that plant? And then I also saw you mentioned a third-party managed contract ran out during 1Q. How come that I guess that warehouse didn't renew the contract with the strategic on your partner or is it more of their part?

[Fred Boehler, executive]

I'll hit the first part. So, when we went public, we actually had I think roughly about 5 or 6 idle assets in the overall portfolio. This sale would represent the final cleanup item of the those assets with are not in production. It actually was a legacy plant attach facility to a canning operation in Georgia that was actually a triple net lease of ours. So, its one that we didn't operate. It was leased from us by the tenant but they shut down operation and we found a buyer to sell those, so that's the last what I'm excited in terms of the last of the hanging Chad now of that portfolio. So we are looking forward to that close and having that behind us.

Yes and this particular managed site was actually I think it was geared up to do this. This was kind of the endpoint of that agreement over time it was kind of a lose JV type of structure where there was an agreement for a buyout at the end of the agreement. So this was planned to ultimately phase over into their manufacturing operations in terms of running it. So it was something that we kind of saw and expected.

[Marc Smernoff, executive]

You'll see in our cash flow, we received $2 million in connection with the exit of that JV.

[Joshua Dennerlein, analyst]

okay, great. And then I guess just are there any maybe production advantaged facilities that you're keeping an eye on that are older that maybe the attach manufacturing plant like would potentially close in the next few years. So anything we should be aware of?

[Fred Boehler, executive]

Yes, we have no expectation of any closures associated with those sites. Those manufacturing plants continues to hum and they invest in those manufacturing plants, which are obviously just as old as ours, if not older. So they are just huge investments in those plants, so you don't see too many of those big operations get abandoned and all of our production advantaged sites are attached to our high credit-worthy types of customers. So we don't expect anything to happen there.

[Marc Smernoff, executive]

And then sorry, I think you asked a question earlier on business days. So Q2 has one more business day than Q1 did, but it has the same number of business days as the prior quarter -- the prior year [indiscernible].

[Operator]

Our next question comes from the line of Bill Crow with Raymond James.

[William Crow, analyst]

Just a couple of questions from me. Could you remind us what happens to your fixed commitment lease percentage when you factor in the new acquisitions that you've made particular Cloverleaf, which I believe doesn't have any fixed commitment leases.

[Fred Boehler, executive]

That is correct. I mean, obviously it will decrease because they don't have any, but that speaks to the opportunity that we'll have as we go forward because as I mentioned in the prepared comments their top 10 customers overlap our customer set and that represents 56%, most of those contracts, most of those customers we already have agreements on and we'll be working over the course of this year to move them back on to fixed commitment. So we fully expect that to progress through the year. I will say that their assets just like ours and just like most of the industry are as I say running hot so they are all full warehouses that are supporting those production attach facilities mostly in the protein industry.

[William Crow, analyst]

And that was kind of the direction I wanted to go to next. We've talked I think in this call a couple of quarters ago about whether you were seeing any positive impact from some of the trade issues with China and I don't think you had, but that was -- seems to be kind of in the protein space more than anything else. I'm just wondering whether you could gauge what impact that's having on Cloverleaf's facilities at this point.

[Fred Boehler, executive]

Yes. Not much, a lot of it has been domestic based and not a problem. We do think -- I mean we'll see what happens given the issues that they're having -- the African swine fever and the [indiscernible] reduction that they are seeing in China right now. That's a main commodity for that marketplace and we could see a pickup. I think Tyson just reported recently and talked about their forecast for picked up production, which just needs to increase throughput for us.

[William Crow, analyst]

Okay. And then finally for those of us who don't study currency markets every day, any change since the first quarter and the headwinds that you're facing?

[Marc Smernoff, executive]

On a year-over-year basis, the biggest currency that impacted because it's our largest international operation is Australia, which was roughly down about little over 9% in the first quarter. If we look at where current rates are relative to where they were a year ago, we probably expect some continued headline pressure from currency into second quarter, but when you look at the back end of the year, we think that rate environment is not too dissimilar than the current rate environment. So

[Fred Boehler, executive]

Flatten out…

[Marc Smernoff, executive]

Yes, so this should flatten out in the back half.

[Operator]

Our next question comes from the line of Nate Crossett with Berenberg.

[Nathan Crossett, analyst]

Just on the M&A pipeline, maybe you can give us a little color on what markets in the US you would like to maybe have a little bit more exposure to and then on international I know you have a lot going on in Australia, but was curious to hear your comments on other markets, specifically Europe.

[Fred Boehler, executive]

Sure. What I would say about the countries that we're in, so US, Australia, New Zealand primarily what I would say is in terms of the market coverage we have, it's pretty expansive today, but again, there is more demand in those existing markets. So what I would say is, we're looking at acquisitions, we're not necessarily looking to a specific market or a specific geography, we're looking at the quality of the operations in whatever market that they happen to be in. So, again we're not kind of discriminating if you will between product type, the type of operation it is, we're just looking for the quality of earnings that makes sense because the market demands are there. So it doesn't really matter if they overlap with us or not. In terms of looking at other geographies, I would say that we are paying close attention to those other geographies. We believe that there are opportunities in areas such as Europe, Now Europe is a little bit flatter in terms of upside potential. It's pretty built out but there could be opportunities there and as well as supporting some other opportunities into more emerging markets, kind of surrounding Europe, if you will. So we'll continue to look at that space. We're looking at space pretty much everywhere, but I would say that our primary focus right now in our pipeline is quite heavily filled with opportunities within our existing countries.

[Nathan Crossett, analyst]

Okay, that's helpful. And then one on labor costs. I just wanted to get your take and I know you had a $1 million benefit last year that made it a tougher comp, but are you seeing any notable changes in labor costs the last few months because we've seen from other REITs that have a logistics component that labor costs have gone up more than they have expected because it's been more difficult to find and retain workers. I'm just curious.

[Fred Boehler, executive]

Yes, I would say that we have not seen additional pressure. Our wage hikes and increases were right in line with what we expected them to be. We think there's other ways to gain employee engagement and reduce turnover than just throwing money. We do give people, we do pay per performance through incentive systems. So we think that helps in terms of our comparison versus market pay and we just, we have a much more engaging environment trying to drive participation, involvement and that type of thing. So there's other things that we're doing to try to create that stickiness as well as again we continue to focus and look for opportunities where we need to automate and I think you've heard in our last 3 major builds there is considerable automation in those major markets where we're kind of struggling with hiring people, if you will, and there's a lot more competition for those resources. So Chicago's automated, Atlanta both major pieces that we're expanding here in the market are also automated. And remember the labor cost increase that we talked about is really just in one specific niche, it's not with labor rate, it is with workers' comp and so that usually fluctuates on a quarter-to-quarter basis. We still feel comfortable with our overall workers' comp expenditure over the course of the year. It's just you can't predict when things are going to happen right when incidents occur and the degree of severity associated with those incidents. So our safety program is I'd say industry leading and we'll continue to stay focused on that and I fully expect that for the full year we'll come in where we thought we would.

[Operator]

Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to management for closing remarks.

[Fred Boehler, executive]

Great, thanks for joining us tonight. I just want to reiterate that I think that this first quarter was an exciting quarter for us, again, positive trends. This is our sixth quarter in a row of positive improvement from an NOI and from a revenue standpoint, so that's exciting. Really excited about the acquisitions. We've been talking about it over the last several quarters and we said that the pipeline is rich and heavy and we're working a number of things and a couple of those obviously just came to fruition and we're very pleased to be affiliated with Cloverleaf and Zero Mountain and Lanier and we're excited to integrate those operations into the family and as I mentioned, Jay is going to continue to work and there will be other opportunities that will expose themselves. So we reiterate and feel bullish about the business overall and re-emphasize that our annual guidance is intact. So with that, I'd like to thank you again and we'll see you next quarter.

[Operator]

This concludes today's conference, you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.